Danny Newton

Charlie Munger: 'We've Screwed Up'

Why are the economists being singleef out for bad accounting? How about teachers that insist on social promotion? Isn't that dishonest accounting too? A system with no accounting is our transportation system. Only Toll roads are crafted so that income from the toll meets or exceeds the costs. Still, there are many toll roads that never inflation adjusted the tolls and eventually over their service life became wards of the gas tax as well as the toll tax.

Solar 2009: Investment Opportunities in Solar Stocks- Part I

The middle states in America have a problem with both solar and wind in that the winter is poor for solar because of cloud cover and the summer is poor for wind because of low speeds. Most of the time, wind or solar makes sense when low power is required and there is huge construction costs to get to the location where the power is required.
Making every state provide the same fraction of renewable energy with solar or wind power will work a hardship on people living in Ohio, Kentucky, Tennessee and Alabama for sure.

Proposed New Derivatives Regulations: Flight to Simplicity

The Comptroller General in my state is getting nervous about the use of interest rate swaps, fixed for variable, and is calling for comments on pending rules that will probably limit the use, expecially by part time money managers at the county level. The counties have been betting that the interest rates will go up and have been paying premiums to assure that their interst rates stay fixed. These premiums seem to have doubled from 2007 to 2008.

Deal for World's Largest Offshore Wind Farm Finalized

A fool and his money are soon parted. A foolish government and other people's money are parted even quicker. The Brits must use less electricity than their American cousins by a factor of two or so. The initial phase seems to be enough power for about half a million people. I think they are planning on one person per house.

Are Low Interest Rates Here to Stay?

It is going to take a lot to get me to trade my vehicle getting 20 mpg which I own for a new vehicle that might get 32 mpg and a monthly car payment plus all of the other costs that come with a very new car.
In my state the average per capita vehicle miles traveled is close to 12000, but I suspect when the new figures come out, that will have dropped. Even if gas goes back to $4 per gallon, The average person would take a hit of $900/year by keeping the old car. I think that would be less than buying a new one. Also carpooling, combining trips and just thinking ahead would be a lot cheaper than getting a new car. If you want a new car, just buy it because you want it.

U.S. Government's Next Intervention? The Municipal Bond Market

I think you are underestimating the governments flair for the dramatic. The tax increases will be "all for the children." The threat to cut essential services first will always protect the under performing and useless fractions of the government like building convention centers, maintaining stadiums, buying more land for the next factory or making sure no one has a yard sale without a permit. Panic usually spreads like wildfire as soon as the first library is shut down or park is closed. Local governments have their own legacy costs problems and it can be stabilized only if the system grows. In Tennessee the number of retired teachers is three times the number of working teachers. The answer in that case is useless pre-k programs that also fitted nicey into a coincidental demographic drop in student populations. No one should show concern for the government worker, they know how to survive in good times and the bad, and I say that as a former government worker.

Cost-Benefit Analysis Is Tricky When Applied to Government Regulation

The current rules on benefit cost analysis in the government were put in place by the Clinton Administration. It is called OMB Circular 94. It was suppose to be used by government agencies to craft policy. The tipping point between action and non action was when the benefits exceeded the cost by 125%. It is a wonderfully crafted document that assumes that there will be no funny stuff with normal and usual meanings of the English Language. Everything goes downhill from there.

Supposedly, some of the reason for trying to get this process codified was that different agencies were using different assumptions about the value of human life. Transportation decisions, decades ago, used the value of human life, accidents with injury, accidents without injury and death, cost of operation of the car to try and decide which transportation project to built. As time went along the value of human life increased at six times the CPI Index. In 1967 it was only about $10,000. I know of no state highway department that uses the old system anymore even though free soft ware is available to take into consideration noise and asthma and other pollution health effects. It has been years since I checked it, but I am pretty sure the value of human life is over $3.5 million now.

The inclusion of intangibles in these equations, especially environmental assumptions and the inclusion of health aspects drove the benefit side of the ratio in such a way that no project could be considered to be a loser. This is the classic problem of running an analysis based on external benefits rather than internal benefits.

The proof that the equation never served the public well is simple: Did it ever get cheaper to drive, especially insure your car? When inflation is considered, car prices are flat or even declining but insurance costs and fiancing cost are going up above the inflation rate. If they were really making good decisions, those costs would go down or at least stagnate. Death per vehicle mile driven has improved but this is mostly becase of car crash mandates, not the selection of route A over route B. Another problem that came up about the same time was the use of transportation projects to goose sales and property tax income.

Economic Development motivations for building transportation systems are usually wrong in the long run. The incremental benefit divided by the incremental cost of an additional mile of Interstate is quite low today because it adds very little to productivity unless there is a congestion problem relieved. When the first few thousand miles were added to the system the benefits were probably 30% more than the costs.

When Senators and Congressmen wanted a project that could not pass this benefit to cost ratio, they simply earmarked the project, thus bypassing all of the administrative protections that the Clinton and Bush Administration accepted for decades.

One interesting thing about OMB Circular 94 was that it did not allow benefits or alleged benefits from being boosted by econmetric multipliers. The fact that the money turned over and was respent was not a factor because the money was also taken from the economy where it could not be spent on other things.

In transportation, there seems to be no system of looking at costs with respect to an income versus outgo basis. In other words, some roads collect more than they need in gas taxes and other roads collect less than they need from the vehicle miles traveled on. One toll road, the one in northern Indiana is being operated at a very high profit level to provided excess funds so tahe state can use the moeny on poorly performing, from a financial standpoint, basis. What is frightning is that NOBODY CARES. If they go broke, Just increase the taxes and keep on doing what you are doing.

The disipline to determine what toll is required to perpetuate any road resides in the open market and you can pay engineering firms to advise you, the same discipline for normal roads, does not exist within state highway departments in any organized fashion that I can detect. This is like operating a chain of restaraunts and not knowing the poor performers from the good performers. Nothing can be managed without first measuring.

The Failures of Effective Demand

If there is a broken social contract it is the one between generations. We continue to rob future generations by imagining that they will agree to paying for stuff that they increasingly are unable to consume or was consumed before they were born.

Cap-and-Trade: Wasting a Perfectly Good Crisis

I don't see what the difference between Cap and Trade than just paying the Mafia protection money. The protection money simply becomes a cost of doing business. The country with the least effective Mafia will do slightly better than those with a more effective Mafia. Even the Mafia has enough sense not to freeze the protection money rake off because of the average inflation being about 4.18 percent per year for the last 30 years.

Whenever I buy something, I always factor in the probability of success. There is zero assurance that Cap and Trade will fix any problem that I have and even if there was a measurable difference, the alleged benefit would flow to other people around the globe who are not paying for it. If you are going to get an alleged benefit for nothing, very little calculation is required to decide to take the benefit.

Even if there was global warming, there is no proof that there would be any negative effect on me. If I needed to keep my current climate for the next century or so, I could just move 200 miles north. The people 200 miles south of me seem not to be terribly wilted. No one has seen any sea levels rising except at locations where the ground is sinking due to the compression of sedements.

Somone should call the Bunko Squad.

The Inherent Risk of Government 'Investments'

Correction: Sorry, I should have said that a high speed TRAIN is nothing more than a airplane without wings.

The Inherent Risk of Government 'Investments'

There are also dangers in the government making infrastructure investments. In particular, people are on fire for having some kind of train system to save the planet in spite of the government data that shows that airplanes are superior on the basis of BTU's per passenger mile with respect to energy use. High speed passenger rail competes and competes poorly with airplanes simply because a high speed plane is nothing more than an airplane without wings on a guideway. Those wings also means that the airplane only needs 10 thousand feet of runway at both ends of the trip. Aircraft easily separate themselves from all other transportation interaction. Furthermore, they travel through thinner air and at lower resistance than the most aerodynamically shaped train ever made. Trains will always be more expensive than aircraft for long distance trips simply because of the capital costs.

For reasons I don't understand, public policy is no longer based on the idea of efficiency or economic performance. If it feels good, build it. If it costs too much, get some other activity to pay for it.

Elephant in the Stress Test Room: Commercial Real Estate Loans

Does anyone know the time frame for the stress test ? Is the stress test modeling five years , ten years out??
I think a major holder of empty and unused commercial property is county and city governments that have built speculative buildings to attract the next factory. The state of Tennessee has over 84 square miles of land and there are at least 1200 properties that have existing buildings that are advertised. Most of that is going to be paid for by tax money. One County in Tennessee just bought options for a 1630 acre mega park at a cost of over a million dollars a year. The options are about 6% of the asking price. This massive stock of land and buildings is in competition with privately held properties and is depressing both leases values and purchase prices.

Forget Biofuels, Future Energy Architecture Will Have Solar at Its Core

Oil seems to be anywhere you drill or look for it as long as you have the ability to go very very deep. It is possible that oil might be farmed by simply injecting the raw materials like carbon dioxide, water and iron into the earth at depths where the temperature and pressure are adequate to carry out the processes. The idea that it takes thousands or millions of years has been shown to be false by laboratory simulation of circumstances.

The Amazon Tax on e-Commerce: Coming Soon to a State Near You

States "need" the money to chase after federal matching money for stuff they would not buy if the purchase involved 100% of their own money. This, of course, will neutralize the effect of a tax cut at the federal level by lowering disposable income. The loss of disposable income is harmless if the service provided by the government with the new money offers some kind of public benefit that offsets the wealth transfer to the government. That benefit could simply be increased productivity. So far, I can remember only two examples in my life time of this happening. One would be rural electrification and the other would be the construction of the Interstate. Nothing that the federal government currently proposes has a chance of doing one-tenth as much good.

Sempra Wants 300MW Plus of Solar in Arizona Desert

If a megawatt requires 8 acres and the US capacity in 2003 was 152,353,625 megawatts, we only need a circle of radius 778 miles. The only problem would be that collector in the desert would mean a new grid system that would get the power to Maine and all of the other states without substantial losses. It would probably take some cryogenic cooling scheme to make that work. I am not sure about the plan after the sun goes down however. What city or state will forego the property taxes to build his? Wouldn't all of these collectors be considered some kind of environmental menace capable of changing the local climate?