Archive for September 12th, 2008

Small step forward on off-shore drilling …

September 12, 2008

Excerpted from WSJ: “Outer Continental Shuffle”, September 12, 2008

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Background

In  recent letter to Congress on this specific  issue, one large oil company claimed that it had actively explored over 95 percent of their existing federal oil and natural gas leases.

Most the explored leases did not contain economically viable oil and natural gas resources. 

Based on known geological characteristics, the company anticipates a higher success rate and commercial viability from the off-shore acreage that is currently “off limits”. 

 

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Article

The Senatorial Gang of 10 compromise … plan would allow drilling offshore of four states — Georgia, Virginia and the Carolinas — and in the eastern Gulf of Mexico.

It would also allow modern seismic surveillance (which has been banned for 26 years)

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Today 85% of the Outer Continental Shelf is off limits for drilling. The Gang of 10 would only reduce that to 75%,

It also allows drilling only outside of 50 miles and only if the states allow it. That arbitrary 50-mile buffer zone is more than three times farther than necessary to be out of sight from shore.

It also walls off many of the most promising and least costly drilling sites, such as the Gulf of Mexico’s Destin Dome, which is some 25 miles offshore of Florida.

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The gang proposal does nothing to open up more of Alaska, and nothing to remove the ban on exploring oil shale in states like Colorado and Utah.

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The gang would also impose about $86 billion in new taxes, in large part on oil and gas companies through higher royalty fees

Naturally, the Members propose to take that $86 billion . . . and ladle it out in subsidies for “clean coal,” electric cars, nuclear energy research, biofuels, cellulosic ethanol and solar and wind power.

The plan would provide …Detroit $7.5 billion to “retool” to make electric or alternative-fuel cars; $7.5 billion for research on battery-operated cars; and another $5 billion for a $7,500 tax credit for Americans who purchase these “green” cars.

Full article:
http://online.wsj.com/article_print/SB122117598127425809.html

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Note: A scientist friend of mine points out that lithium — the core of rechargeable batteries — is  a capacity constrained element.  There’s not enough of it in the world to support the aggressive hybrid plans being bandied about.  And, disposal of spent lithium-based batteries presents a significant an environmental  issue.  Nothing’s easy …

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Oil Economics: Windfall profits (for the gov’t)

September 12, 2008

Excerpted from WSJ: “Drilling for Dollars”, September 12, 2008

Congress … stands to collect a windfall if they drop their ban on offshore oil-and-gas development.

In fact, liberating publicly owned resources could net the Treasury as much as $2.6 trillion in lease payments, royalties and corporate taxes, according to one estimate currently knocking around Capitol Hill. That’s almost a full year of spending even for this spendthrift Congress.

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Already, with the ban in place, offshore development is one of the federal government’s greatest sources of nontax revenue, amounting to $7 billion and change in 2007. Energy companies bid competitively to acquire leases upfront, then pay rents. The feds are also entitled to a royalty on the market value of oil and gas when sold. Corporate income taxes on producer profits add to the bank.

The total government take from leases in the Gulf of Mexico ranges from 37% to 51%, depending on the location of the lease. The take is somewhat higher is Alaska.

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Opening up a small portion of the coastal plain of the Arctic National Wildlife Refuge would generate over $500  billion in government and state revenue.  (see article)

The $2.6 trillion estimate, is a back-of-the-envelope calculation from exploiting the 86 billion barrels of oil and 420 trillion cubic feet of natural gas that the Department of the Interior determines are undiscovered but “recoverable” on the Outer Continental Shelf.

We don’t know what’s actually out there because analysis with modern equipment has been forbidden by Congress in many areas for 26 years. 

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Since fossil fuels are expected to provide nearly the same share of total energy supply in 2030 as they do today — even with major growth in alternative energy — Washington might as well make a few bucks.

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Full article:
http://online.wsj.com/article/SB122117603688025815.html?mod=opinion_main_review_and_outlooks

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Numbers: Raise your hand if you want to redistribute income …

September 12, 2008

Excerpted from Ramussen Reports:  “Most Voters Say Encouraging Economic Growth is Key, but Big Government is Not the Solution”, September 09, 2008

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Summary: Sixty-two percent (62%) of voters say encouraging economic growth in America is more important than closing the gap between the rich and poor, and the best way to do that is for the government to move out of the way.

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86% of Republicans say encouraging growth is more important while just 41% of Democrats who agree.

60% of unaffiliated voters also believe promoting growth is the top priority.

54% of Democrats say bridging the gap between the upper and lower classes should be the more important goal

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74% of adults who make over $100,000 a year  say encouraging growth is more important.

51% of voters who make less than $20,000 a year say bridging the gap between rich and poor is more important.

Note: The 74% doesn’t surprise me.  The even split of low-earners does.  I would have expected that number to be much higher.

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51% believe the federal government has too much control over the economy.

54% think the best thing the government can do is step out of the way by reducing regulation and taxes

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Fewer than one-fourth of all voters believe the price of gas will go down no matter who wins the White House … 24% for McCain, 22% for Obama

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Full report:
http://www.rasmussenreports.com/public_content/politics/issues2/most_voters_say_encouraging_economic_growth_is_key_but_big_government_is_not_the_solution

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Doh!: Top eight campaign gaffes

September 12, 2008

Excerpted from Politico.com, “Doh!: Top eight gaffes of the campaign”, by Jim VandeHei and Harry Siegel, September 8, 2008

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Here is Politico’s list of the top eight gaffes that are virtually certain to haunt John McCain and Barack Obama until Election Day:

1. “Bitter”

At an April 6 fundraiser in San Francisco, “You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them…And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.”

Not coincidentally, the small towns in places like Western Pennsylvania and West Virginia are where Obama found the least support in his primary bid.

2. Countless houses

McCain wasn’t able to tell Politico in an interview last month …  “I think—I’ll have my staff get to you, I can’t tell you about that. It’s condominiums where—I’ll have them get to you.”

The slip dovetailed perfectly with a just-launched Democratic bid to counter McCain’s ads painting Obama as a lightweight celebrity with an offensive of their own

The Obama campaign had an attack ad depicting the Republican as wealthy and out of touch with the concerns of ordinary Americans.

3. “Shout out to my pastor”

Obama praised Rev. Jeremiah Wright — of ““God damn America.” —  fame last July while addressing a conference of black clergy members:

“And then I’ve got to give a special shout out to my pastor. The guy who puts up with me, counsels me, listens to my wife complain about me. He’s a friend and a great leader not just in Chicago but all across the country, so please everybody give an extraordinary welcome to my pastor Dr. Jeremiah Wright, Jr., Trinity United Church of Christ.”

The comments seems tailor-made for an attack ad, where they can be juxtaposed with some of Wright’s more inflammatory remarks.

4. Don’t know much about economy

In 2005, McCain told the Wall Street Journal, “I’m going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated.”

As damaging as print quotes can be, it’s video of similar comments that may prove most damaging with voters.

5. “Likable enough”

Obama’s crack at his then-rival during the Jan. 5 primary debate may come back to haunt him.

Clinton was asked a question about voters preferring Obama to her on a personal level, and as she replied, “I’ll try to go on. He’s very likable, I agree with that. I don’t think I’m that bad—“ he interrupted to crack, “You’re likable enough, Hillary.”

Hillatry supporters cringed.

6. “100 years”

McCain’s remark at a January 3 town hall that American troops might stay in Iraq for 100 years had been intended to evoke America’s continued peacetime military presence in countries like Germany and South Korea, but the sound bite endures:

Obama quickly added the line “John McCain wants us to keep troops there for 100 years” into his stump speech, and MoveOn.org aired one of the first significant third-party buys of the cycle, “

7. The “Ones”

“We are the ones we’ve been waiting for. We are the change that we seek. We are the hope of those boys who have little; who’ve been told that they cannot have what they dream; that they cannot be what they imagine.”

Republicans will spend the next two months painting Obama as an empty celebrity with a messianic complex. Expect this Super Tuesday Obama moment to resurface as part of that effort.

8. Computer Illiterate

Politico asked McCain: “Mac or PC?”

“Neither,” McCain replied. “I am a pc illiterate that has to rely on my wife for all of the assistance that I can get.”

Younger, internet-savvy voters were aghast.

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Honorable mention: The wives

Michelle Obama — Pride
“For the first time in my adult life I am proud of my country because it feels like hope is finally making a comeback.”

Cindy McCain—The only way to travel
“In Arizona the only way to get around the state is by small private plane.”

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Full article (with pictures & videos):
http://dyn.politico.com/printstory.cfm?uuid=3CAF8BF0-18FE-70B2-A8381956A653CBD0

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How Taxes Work . . .

September 12, 2008

A classic that can’t be told too often.

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This story of ten men going having dinner represents how our tax system in the U.S. works…

Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men — the poorest — would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve (in tax language a tax cut).

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers? How could they divvy up the $20 windfall so that everyone would get his “fair share?”

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, Then the fifth man and the sixth man would end up being PAID to eat their meal.

So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same percentage, and he proceeded to suggest the amounts that each should pay.

Under the owner’s plan, the fifth man paid nothing, the sixth pitched in $2, the seventh paid $6, the eighth paid $10, the ninth paid $14, leaving the tenth man with a bill of $48 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man who pointed to the tenth. “But he got $11”

“Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too . . . It’s unfair that he got eleven times more than me!”.

“That’s true!” shouted the seventh man, “why should he get $11 back when I got only $2? The rich get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and berated him for being greedy. The next night he didn’t show up for dinner, so the nine sat down and ate without him.

But when it came time to pay the bill, they discovered, a little late what was very important. They were $48 short of paying the bill!

Imagine that!

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Thanks to Colin Cushing, MSB MBA alum for reprising this story. 

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Econ – Social & Market Norms

September 12, 2008

Excerpted from Predictably Irrational, Dan Ariely, HarperCollins Books, 2008

“Social norms include the friendly requests that people make to one another … and reciprocity is neither immediate nor required … just because you help your neighbor move his couch doesn’t mean he has to run right over and help you move your’s.  The social actions themselves provide pleasure for both the giver and the receiver.”

“Market norms are all about [valuing] benefits and making prompt payments.  When you play in the domain of market norms, you get what you pay for … there’s nothing warm and fuzzy about it.”

“Money is very often the most expensive way to motivate people.”  As soon as money is introduced to a transaction … any existing social contract is violated,  market norms take over,  and you get what you pay for, 

Example: AARP

AARP asked some lawyers if they would offer simple legal services to needy retirees at low prices — something like $30 an hour.  Most lawyers said no. 

Then, AARP asked lawyers if they would offer the same services free of charge to needy retirees.  Overwhelmingly, the lawyers said yes.  A market norm was transformed into a social norm — very successfully.

Example: Late Day Care Pickups

A day care center started fining parents who arrived late to pick up their children.  Counter-intuitively, the number of late pickups increased. 

Why?  Because a social norm — the embarrassment of showing up late to pick up your children — was replaced by a market norm — the amount of the fine.  So, with the social stigma removed, parents could simply decide whether it was worth it to them to pay the fine and show up late. 

Eventually the day care center stop collecting fines, and started publishing the names of late parents.

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Bottom line: Don’t underestimate the power of social norms, or overestimate the power of market norms and monetary compensation.

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