Showing posts with label Regulations. Show all posts
Showing posts with label Regulations. Show all posts
Monday, February 4, 2013
Friday, March 9, 2012
Government-subsidized green light bulb carries costly price tag - The Washington Post
Government-subsidized green light bulb carries costly price tag - The Washington Post
The U.S. government last year announced a $10 million award, dubbed the “L Prize,” for any manufacturer that could create a “green” but affordable light bulb.
Energy Secretary Steven Chu said the prize would spur industry to offer the costly bulbs, known as LEDs, at prices “affordable for American families.” There was also a “Buy America” component. Portions of the bulb would have to be made in the United States.
Now the winning bulb is on the market.
The price is $50.
Retailers said the bulb, made by Philips, is likely to be too pricey to have broad appeal. Similar LED bulbs are less than half the cost.
“I don’t want to say it’s exorbitant, but if a customer is only looking at the price, they could come to that conclusion,” said Brad Paulsen, merchant for the light-bulb category at Home Depot, the largest U.S. seller of light bulbs. “This is a Cadillac product, and that’s why you have a premium on it.”
How the expensive bulb won a $10 million government prize meant to foster energy-efficient affordability is one of the curiosities that arise as the country undergoes a massive, mandated turnover from traditional incandescent lamps to more energy-
efficient ones.
Energy legislation signed by President George W. Bush in 2007 introduced a ban on inefficient incandescent light bulbs, covering traditional 100-watt bulbs this year. Sales of traditional 75-watt incandescents will be prohibited next year, and 60-watt incandescents will go after that.
When replacing a bulb, consumers must now go out and buy energy-efficient incandescent, compact fluorescent and LED (light-emitting diode) bulbs, in a compulsory transition that has prompted some conservatives to characterize the law as an unfair burden on consumers and an “issue of freedom,” as Rep. Michele Bachmann (R-Minn.) put it.
The L Prize was meant to ease this transition by enticing manufacturers to create affordable bulbs to replace the most common type, the traditional 60-watt.
A Philips spokesman declined to talk in detail about the bulb or its price because the product has yet to be formally launched. It is expected to hit stores within weeks and is available online. But the spokesman said the L Prize bulb costs more because, as the contest required, it is even more energy-efficient, running on 10 watts instead of 12.5 watts. It is also brighter, renders colors better and lasts longer.
Still, the contest set price goals. According to the L Prize guidelines, manufacturers were “strongly encouraged to offer products at prices that prove cost-effective and attractive to buyers, and therefore more successful in the market.” The target retail price, including rebates from utilities, was to be $22 in the first year, $15 in the second year and $8 in the third year.
Energy Department officials defended the award, saying that they expect the cost of the L Prize bulbs to drop over time. “The L Prize competition played a critical role in driving manufacturing and engineering innovations in the U.S. lighting industry and helping to make the next generation of energy-saving LED lighting options more affordable for consumers,” said department spokeswoman Niketa Kumar.
Officials added that they are working with utilities to provide rebates for consumers. That could lower the price of the L Prize bulbs. But existing rebates, which max out around $10, are too small to take a big slice out of the $50 price tag. By comparison, the typical 60-watt bulb that it would replace, an old-fashioned energy hog, can cost as little as $1.
Some utilities are not offering anything yet. Pepco offers Maryland customers $10 incentive per bulb. In Virginia, Dominion Power has proposed to give consumers a discount of $1.41 per bulb.
“Are there many consumers who will say a $50 bulb is affordable? I don’t think so,” said one retailer familiar with the new bulbs, who like others. Many retailers said they were reluctant to speak on the record for fear of endangering their relationship with Philips, a major supplier.
Two other manufacturers, General Electric and Lighting Science Group, announced last year that they were developing entrants to the competition. But before they could submit, the prize was awarded and the competition closed. The contest also required that at least some of the manufacturing be done in the United States, where costs can be higher. The Philips bulb will be assembled in Wisconsin, and the chips will be made at a Philips plant in San Jose, the company said.
In many ways, however, the
L Prize may have been irrelevant. According to retailers, consumers are embracing LEDs, which were the focus of the prize, and CFLs, or compact fluorescent lights, faster than many in the industry expected. The new bulbs can cut energy costs by more than 75 percent.
CFLs already outsell incandescents in terms of dollars, Paulsen said. And he predicted that the percentage of LED bulbs sold would rise from 5 percent to 35 percent over the next three years. “The adoption wave has already begun,” Paulsen said.
In part, that’s because manufacturers are offering LED bulbs for far less than the L Prize bulb.
For example, at Home Depot, one can find LED bulbs to replace the 60-watt incandescent for much less than $50. Lighting Science Group, under the EcoSmart label, offers another for $23.97. It is assembled in Mexico. And another Philips LED bulb on sale costs $24.97. It was made in China.
“This is a very interesting time in light bulbs, believe it or not,” Paulsen said.
The U.S. government last year announced a $10 million award, dubbed the “L Prize,” for any manufacturer that could create a “green” but affordable light bulb.
Energy Secretary Steven Chu said the prize would spur industry to offer the costly bulbs, known as LEDs, at prices “affordable for American families.” There was also a “Buy America” component. Portions of the bulb would have to be made in the United States.
Now the winning bulb is on the market.
The price is $50.
Retailers said the bulb, made by Philips, is likely to be too pricey to have broad appeal. Similar LED bulbs are less than half the cost.
“I don’t want to say it’s exorbitant, but if a customer is only looking at the price, they could come to that conclusion,” said Brad Paulsen, merchant for the light-bulb category at Home Depot, the largest U.S. seller of light bulbs. “This is a Cadillac product, and that’s why you have a premium on it.”
How the expensive bulb won a $10 million government prize meant to foster energy-efficient affordability is one of the curiosities that arise as the country undergoes a massive, mandated turnover from traditional incandescent lamps to more energy-
efficient ones.
Energy legislation signed by President George W. Bush in 2007 introduced a ban on inefficient incandescent light bulbs, covering traditional 100-watt bulbs this year. Sales of traditional 75-watt incandescents will be prohibited next year, and 60-watt incandescents will go after that.
When replacing a bulb, consumers must now go out and buy energy-efficient incandescent, compact fluorescent and LED (light-emitting diode) bulbs, in a compulsory transition that has prompted some conservatives to characterize the law as an unfair burden on consumers and an “issue of freedom,” as Rep. Michele Bachmann (R-Minn.) put it.
The L Prize was meant to ease this transition by enticing manufacturers to create affordable bulbs to replace the most common type, the traditional 60-watt.
A Philips spokesman declined to talk in detail about the bulb or its price because the product has yet to be formally launched. It is expected to hit stores within weeks and is available online. But the spokesman said the L Prize bulb costs more because, as the contest required, it is even more energy-efficient, running on 10 watts instead of 12.5 watts. It is also brighter, renders colors better and lasts longer.
Still, the contest set price goals. According to the L Prize guidelines, manufacturers were “strongly encouraged to offer products at prices that prove cost-effective and attractive to buyers, and therefore more successful in the market.” The target retail price, including rebates from utilities, was to be $22 in the first year, $15 in the second year and $8 in the third year.
Energy Department officials defended the award, saying that they expect the cost of the L Prize bulbs to drop over time. “The L Prize competition played a critical role in driving manufacturing and engineering innovations in the U.S. lighting industry and helping to make the next generation of energy-saving LED lighting options more affordable for consumers,” said department spokeswoman Niketa Kumar.
Officials added that they are working with utilities to provide rebates for consumers. That could lower the price of the L Prize bulbs. But existing rebates, which max out around $10, are too small to take a big slice out of the $50 price tag. By comparison, the typical 60-watt bulb that it would replace, an old-fashioned energy hog, can cost as little as $1.
Some utilities are not offering anything yet. Pepco offers Maryland customers $10 incentive per bulb. In Virginia, Dominion Power has proposed to give consumers a discount of $1.41 per bulb.
“Are there many consumers who will say a $50 bulb is affordable? I don’t think so,” said one retailer familiar with the new bulbs, who like others. Many retailers said they were reluctant to speak on the record for fear of endangering their relationship with Philips, a major supplier.
Two other manufacturers, General Electric and Lighting Science Group, announced last year that they were developing entrants to the competition. But before they could submit, the prize was awarded and the competition closed. The contest also required that at least some of the manufacturing be done in the United States, where costs can be higher. The Philips bulb will be assembled in Wisconsin, and the chips will be made at a Philips plant in San Jose, the company said.
In many ways, however, the
L Prize may have been irrelevant. According to retailers, consumers are embracing LEDs, which were the focus of the prize, and CFLs, or compact fluorescent lights, faster than many in the industry expected. The new bulbs can cut energy costs by more than 75 percent.
CFLs already outsell incandescents in terms of dollars, Paulsen said. And he predicted that the percentage of LED bulbs sold would rise from 5 percent to 35 percent over the next three years. “The adoption wave has already begun,” Paulsen said.
In part, that’s because manufacturers are offering LED bulbs for far less than the L Prize bulb.
For example, at Home Depot, one can find LED bulbs to replace the 60-watt incandescent for much less than $50. Lighting Science Group, under the EcoSmart label, offers another for $23.97. It is assembled in Mexico. And another Philips LED bulb on sale costs $24.97. It was made in China.
“This is a very interesting time in light bulbs, believe it or not,” Paulsen said.
Saturday, July 16, 2011
Police in Ga. shut down girls' lemonade stand
EXCERPTS:
"Jul 15, 11:17 AM EDT
MIDWAY, Ga. (AP) -- Police in Georgia have shut down a lemonade stand run by three girls trying to save up for a trip to a water park, saying they didn't have a business license or the required permits.
Midway Police Chief Kelly Morningstar says police also didn't know how the lemonade was made, who made it or what was in it.
The girls had been operating for one day when Morningstar and another officer cruised by.
The girls needed a business license, peddler's permit and food permit to operate, even on residential property. The permits cost $50 a day or $180 per year.
One girl, 14-year-old Casity Dixon, says the three had to listen to police and shut down.
The girls are now doing chores and yard work to make money.
"Jul 15, 11:17 AM EDT
MIDWAY, Ga. (AP) -- Police in Georgia have shut down a lemonade stand run by three girls trying to save up for a trip to a water park, saying they didn't have a business license or the required permits.
Midway Police Chief Kelly Morningstar says police also didn't know how the lemonade was made, who made it or what was in it.
The girls had been operating for one day when Morningstar and another officer cruised by.
The girls needed a business license, peddler's permit and food permit to operate, even on residential property. The permits cost $50 a day or $180 per year.
One girl, 14-year-old Casity Dixon, says the three had to listen to police and shut down.
The girls are now doing chores and yard work to make money.
Monday, March 7, 2011
Protecting passengers: Drop in flight delays, rise in canceled flights | NJ.com
EXCERPTS:
"By all accounts, the Federal Aviation Administration’s "tarmac rule" has dramatically reduced the number of passengers who are stuck inside an aircraft on the ground for three hours or more.
Violations of the rule, which went into effect last April, can cost airlines $27,500 per passenger, or $2.75 million for a planeload of 100 people going nowhere fast. In fact, there were just three cases nationwide of three-hour tarmac delays in December — compared with 34 the previous December, according to the federal Department of Transportation, the FAA’s parent agency.
But critics say an unintended consequence of the rule is becoming apparent and spoiling travel plans for a far greater number of would-be fliers.
A Star-Ledger analysis of federal DOT figures reveals airlines are simply canceling more flights, presumably to avoid idling on the tarmac and exposing themselves to the whopping fines. In fact, the cancellation rate at the nation’s major airports surged 24 percent during the eight months after the rule went into effect.
There is no breakdown by airport, and there was a noticeable spike in cancellations during the wicked December weather. But over the course of the eight-month period, 7,095 more flights were ditched.
Put another way: Nearly 900 more flights a month are being scrubbed.
"They’ve exchanged inconvenience for a relatively few number of people for an inconvenience for a tremendous number of people," said David Stempler, president of the Air Travelers Association, a passengers advocacy group.
"By all accounts, the Federal Aviation Administration’s "tarmac rule" has dramatically reduced the number of passengers who are stuck inside an aircraft on the ground for three hours or more.
Violations of the rule, which went into effect last April, can cost airlines $27,500 per passenger, or $2.75 million for a planeload of 100 people going nowhere fast. In fact, there were just three cases nationwide of three-hour tarmac delays in December — compared with 34 the previous December, according to the federal Department of Transportation, the FAA’s parent agency.
But critics say an unintended consequence of the rule is becoming apparent and spoiling travel plans for a far greater number of would-be fliers.
A Star-Ledger analysis of federal DOT figures reveals airlines are simply canceling more flights, presumably to avoid idling on the tarmac and exposing themselves to the whopping fines. In fact, the cancellation rate at the nation’s major airports surged 24 percent during the eight months after the rule went into effect.
There is no breakdown by airport, and there was a noticeable spike in cancellations during the wicked December weather. But over the course of the eight-month period, 7,095 more flights were ditched.
Put another way: Nearly 900 more flights a month are being scrubbed.
"They’ve exchanged inconvenience for a relatively few number of people for an inconvenience for a tremendous number of people," said David Stempler, president of the Air Travelers Association, a passengers advocacy group.
Wednesday, January 5, 2011
Consumer Protection and the Return of the Loan Shark - WSJ.com
EXCERPTS:
"Regulators cannot wish away the need of low-income consumers for credit: If your car's transmission blows, you need $2,000 for repairs to get to work, whether or not you have it saved in the bank (and most low-income Americans don't). If you can't get a credit card, you're going to have to get that money from a payday lender, pawn shop or loan shark.
In a competitive market, regulation of consumer credit has three predictable types of unintended consequences. First, regulation of some terms of the credit contract will result in the repricing of other terms. Thus restrictions on the ability to raise interest rates in response to a change in a borrower's risk profile lead card issuers to raise interest rates on all cardholders, good and bad risks alike.
But even if card issuers reprice some terms, they may still be unable to price risk efficiently under the new rules. This gives rise to a second type of unintended consequence: product substitution. Card issuers can't price risk, so they issue fewer cards—pushing would-be customers to payday lenders and other nontraditional credit products.
Third, if issuers can't price risk effectively, they will ration lending. In order to make a loan, a lender must be able to price its risk efficiently or to reduce risk exposure by rationing credit. One way to do the latter is to lend less to existing borrowers, which is part of the reason why more than $1 trillion in credit-card lines have been slashed since the onset of the credit crunch.
Banks can also drop riskier borrowers completely. In his letter to shareholders last spring, Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15% of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes." Meet the new payday loan customers.
"Regulators cannot wish away the need of low-income consumers for credit: If your car's transmission blows, you need $2,000 for repairs to get to work, whether or not you have it saved in the bank (and most low-income Americans don't). If you can't get a credit card, you're going to have to get that money from a payday lender, pawn shop or loan shark.
In a competitive market, regulation of consumer credit has three predictable types of unintended consequences. First, regulation of some terms of the credit contract will result in the repricing of other terms. Thus restrictions on the ability to raise interest rates in response to a change in a borrower's risk profile lead card issuers to raise interest rates on all cardholders, good and bad risks alike.
But even if card issuers reprice some terms, they may still be unable to price risk efficiently under the new rules. This gives rise to a second type of unintended consequence: product substitution. Card issuers can't price risk, so they issue fewer cards—pushing would-be customers to payday lenders and other nontraditional credit products.
Third, if issuers can't price risk effectively, they will ration lending. In order to make a loan, a lender must be able to price its risk efficiently or to reduce risk exposure by rationing credit. One way to do the latter is to lend less to existing borrowers, which is part of the reason why more than $1 trillion in credit-card lines have been slashed since the onset of the credit crunch.
Banks can also drop riskier borrowers completely. In his letter to shareholders last spring, Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15% of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes." Meet the new payday loan customers.
Saturday, November 27, 2010
Should the government "protect" American exporters?
When we think of "protecting" someone from something in the abstract, we're likely to visualize an innocent party being threatened with some harm. Our natural inclination is to think such protection is probably a good thing, but this creates a problem. It means that any policy which is framed as providing "protection" for someone will seem like a good thing, if we don't think carefully about exactly what that policy does. The label "protection" serves to make the policy sound laudable and to make careful thought about the actual nature of the policy seem unnecessary. Whenever a policy is marketed as providing "protection" for someone, this is a signal that we should think carefully about what the policy will actually do - we should look for an alternative way of framing it which makes clear exactly what the policy will do.
George Mason University Don Boudreaux is a master of this. Consider his recent comment on a senator's statement about "protecting" American exporters.
EXCERPTS from Boudreaux's letter:
Dear Sen. Brown:
In today’s Washington Post you declare that “Demanding that trade agreements work for American exporters isn’t protectionism; it’s common sense.”
In other words, whenever other governments dole out favors to foreign corporations at the expense of foreign consumers, you want Uncle Sam to dole out favors to American corporations at the expense of American consumers.
This isn’t common sense, sir. It’s garbage-heap economics that serves as a convenient excuse for politicians to pick the pockets of hundreds of millions of Americans for the benefit of politically influential businesses.
George Mason University Don Boudreaux is a master of this. Consider his recent comment on a senator's statement about "protecting" American exporters.
EXCERPTS from Boudreaux's letter:
Dear Sen. Brown:
In today’s Washington Post you declare that “Demanding that trade agreements work for American exporters isn’t protectionism; it’s common sense.”
In other words, whenever other governments dole out favors to foreign corporations at the expense of foreign consumers, you want Uncle Sam to dole out favors to American corporations at the expense of American consumers.
This isn’t common sense, sir. It’s garbage-heap economics that serves as a convenient excuse for politicians to pick the pockets of hundreds of millions of Americans for the benefit of politically influential businesses.
Thursday, October 7, 2010
McDonald's, 29 other firms get health care coverage waivers - USATODAY.com
EXCERPTS:
"Nearly a million workers won't get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.
Thirty companies and organizations, including McDonald's (MCD) and Jack in the Box (JACK), won't be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.
The Department of Health and Human Services, which provided a list of exemptions, said it granted waivers in late September so workers with such plans wouldn't lose coverage from employers who might choose instead to drop health insurance altogether.
Without waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014.
"The big political issue here is the president promised no one would lose the coverage they've got," says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. "Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they've got."
COMMENT:
Note that the health reform law that almost caused these workers to lose their health insurance was not repealed. These 30 companies have been granted a waiver, but other employers are still required to comply. Someone who works for an employer in a similar situation, but who isn't able to persuade the government to grant them an waiver, has a problem.
"Nearly a million workers won't get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.
Thirty companies and organizations, including McDonald's (MCD) and Jack in the Box (JACK), won't be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.
The Department of Health and Human Services, which provided a list of exemptions, said it granted waivers in late September so workers with such plans wouldn't lose coverage from employers who might choose instead to drop health insurance altogether.
Without waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013 and unlimited in 2014.
"The big political issue here is the president promised no one would lose the coverage they've got," says Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates. "Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they've got."
COMMENT:
Note that the health reform law that almost caused these workers to lose their health insurance was not repealed. These 30 companies have been granted a waiver, but other employers are still required to comply. Someone who works for an employer in a similar situation, but who isn't able to persuade the government to grant them an waiver, has a problem.
Wednesday, October 6, 2010
Congress Can't Repeal Economics by John Stossel on Creators.com - A Syndicate Of Talent
EXCERPTS:
"It's raining! I don't like it! Why hasn't Congress passed the Good Weather Act and the Everybody Happy Act?
Sound dumb?
Why is it any dumber than a law called the Patient Protection and Affordable Care Act, which promised to cover more for less money?
When Obamacare was debated, we free-market advocates insisted that no matter what the president promised, the laws of economics cannot be repealed. Our opponents in effect answered, "Yes, we can."
Well, Obamacare has barely started taking effect, and the evidence is already rolling in. I hate to say we told them so, but ... we told them so. The laws of economics have struck back.
Health insurers Wellpoint, Cigna, Aetna, Humana and CoventryOne will stop writing policies for all children. Why? Because Obamacare requires that they insure already sick children for the same price as well children.
That sounds compassionate, but — in case Obamacare fanatics haven't noticed — sick children need more medical care. Insurance is about risk, and already sick children are 100 percent certain to be sick when their coverage begins. So if the government mandates that insurance companies cover sick children at the lower well-children price, insurers will quit the market rather than sandbag their shareholders. This is not callousness — it's fiduciary responsibility. Insurance companies are not charities. So, thanks to the compassionate Congress and president, parents of sick children will be saved from expensive insurance — by being unable to obtain any insurance! That's how government compassion works.
In 2014, the same rule will kick in for adults. You now know what to expect.
"It's raining! I don't like it! Why hasn't Congress passed the Good Weather Act and the Everybody Happy Act?
Sound dumb?
Why is it any dumber than a law called the Patient Protection and Affordable Care Act, which promised to cover more for less money?
When Obamacare was debated, we free-market advocates insisted that no matter what the president promised, the laws of economics cannot be repealed. Our opponents in effect answered, "Yes, we can."
Well, Obamacare has barely started taking effect, and the evidence is already rolling in. I hate to say we told them so, but ... we told them so. The laws of economics have struck back.
Health insurers Wellpoint, Cigna, Aetna, Humana and CoventryOne will stop writing policies for all children. Why? Because Obamacare requires that they insure already sick children for the same price as well children.
That sounds compassionate, but — in case Obamacare fanatics haven't noticed — sick children need more medical care. Insurance is about risk, and already sick children are 100 percent certain to be sick when their coverage begins. So if the government mandates that insurance companies cover sick children at the lower well-children price, insurers will quit the market rather than sandbag their shareholders. This is not callousness — it's fiduciary responsibility. Insurance companies are not charities. So, thanks to the compassionate Congress and president, parents of sick children will be saved from expensive insurance — by being unable to obtain any insurance! That's how government compassion works.
In 2014, the same rule will kick in for adults. You now know what to expect.
Thursday, September 30, 2010
Under new federal guidelines all New York City street signs will have to be made lower-case - NYPOST.com
EXCERPTS:
Posted: 12:53 AM, September 30, 2010
Federal copy editors are demanding the city change its 250,900 street signs from the all-caps style used for more than a century to ones that capitalize only the first letters.
Changing BROADWAY to Broadway will save lives, the Federal Highway Administration contends in its updated Manual on Uniform Traffic Control Devices, citing improved readability.
At $110 per sign, it will also cost the state $27.6 million, city officials said.
Studies have shown that it is harder to read all-caps signs, and those extra milliseconds spent staring away from the road have been shown to increase the likelihood of accidents, particularly among older drivers, federal documents say.
The new regulations also require a change in font from the standard highway typeface to Clearview, which was specially developed for this purpose.
As a result, even numbered street signs will have to be replaced.
"Safety is this department's top priority," Transportation Secretary Ray LaHood said last year, in support of the new guidelines. "These new and updated standards will help make our nation's roads and bridges safer for drivers, construction workers and pedestrians alike."
The Highway Administration acknowledged that New York and other states "opposed the change, and suggested that the use of all upper-case letters remain an option," noting that "while the mixed-case words might be easier to read, the amount of improvement in legibility did not justify the cost."
COMMENT:
There are two questions here. The most obvious question is whether the benefits of making the changes justify the cost of making those changes. The less obvious, but ultimately more important question, is who should make the decision about whether the benefits justify the cost? Should the decision be made by the local government, who will bear the cost of changing the signs? Or should it be made by the Federal Highway Administration, who can impose this requirement without having to bear any of its costs? How much incentive does a federal agency have to take into account the costs that their regulations will impose on others?
Posted: 12:53 AM, September 30, 2010
Federal copy editors are demanding the city change its 250,900 street signs from the all-caps style used for more than a century to ones that capitalize only the first letters.
Changing BROADWAY to Broadway will save lives, the Federal Highway Administration contends in its updated Manual on Uniform Traffic Control Devices, citing improved readability.
At $110 per sign, it will also cost the state $27.6 million, city officials said.
Studies have shown that it is harder to read all-caps signs, and those extra milliseconds spent staring away from the road have been shown to increase the likelihood of accidents, particularly among older drivers, federal documents say.
The new regulations also require a change in font from the standard highway typeface to Clearview, which was specially developed for this purpose.
As a result, even numbered street signs will have to be replaced.
"Safety is this department's top priority," Transportation Secretary Ray LaHood said last year, in support of the new guidelines. "These new and updated standards will help make our nation's roads and bridges safer for drivers, construction workers and pedestrians alike."
The Highway Administration acknowledged that New York and other states "opposed the change, and suggested that the use of all upper-case letters remain an option," noting that "while the mixed-case words might be easier to read, the amount of improvement in legibility did not justify the cost."
COMMENT:
There are two questions here. The most obvious question is whether the benefits of making the changes justify the cost of making those changes. The less obvious, but ultimately more important question, is who should make the decision about whether the benefits justify the cost? Should the decision be made by the local government, who will bear the cost of changing the signs? Or should it be made by the Federal Highway Administration, who can impose this requirement without having to bear any of its costs? How much incentive does a federal agency have to take into account the costs that their regulations will impose on others?
Sunday, September 26, 2010
Czech president tells UN to stay out of economics | Reuters
EXCERPTS:
"UNITED NATIONS, Sept 25 (Reuters) - Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments.
The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy."
"On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said....
Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis.
"The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said.
Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments.
That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.
"UNITED NATIONS, Sept 25 (Reuters) - Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments.
The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy."
"On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said....
Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis.
"The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said.
Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments.
That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.
Saturday, September 25, 2010
California Business Exodus: If You Tax Something...
EXCERPT:
" The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California."
QUESTIONS:
1. We've emphasized that prices are signals - they communicate information about the value of resources and coordinate the actions of producers and consumers. In terms of supply and demand, what does the high price for a truck rental in Los Angeles relative to Texas tell you?
2. California is known for high tax rates and intense regulation of businesses in comparison to Texas. Do you think there is a connection between the high tax rates and intense regulation, and the high price for renting a truck in Los Angeles? Explain.
" The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California."
QUESTIONS:
1. We've emphasized that prices are signals - they communicate information about the value of resources and coordinate the actions of producers and consumers. In terms of supply and demand, what does the high price for a truck rental in Los Angeles relative to Texas tell you?
2. California is known for high tax rates and intense regulation of businesses in comparison to Texas. Do you think there is a connection between the high tax rates and intense regulation, and the high price for renting a truck in Los Angeles? Explain.
Wednesday, September 22, 2010
Confessions of an Exploited Teen - Thomas Sowell
Thomas Sowell talks about his experiences as a teenage worker and the effects of having a minimum wage law.
Tuesday, September 14, 2010
Monks Told They Can't Sell Caskets Retail - Stossel | FOXBusiness.com
Stossel | FOXBusiness.com: "- Sent using Google Toolbar"
Thursday, August 26, 2010
Crafting Coffins for Sale, Monks Go Up Against Louisiana's 'Casket Cartel' - WSJ.com
EXCERPTS:
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
Monday, August 23, 2010
Credit Cards Are Exception to Lower Consumer Rates - WSJ.com
EXCERPTS:
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
Saturday, July 31, 2010
Evicting Bianca Jagger - WSJ.com
EXCERPTS:
"Jetsetter and social activist Bianca Jagger has lost her legal bid to keep her knock-down-price rental at 530 Park Avenue.
A New York state judge last week ordered Mick's ex to pay $708,600 in back rent and other fines to her landlords. Ms. Jagger spent nearly 20 years in the two bedroom apartment—rent-stabilized at $4,600 a month. But then she complained about poor upkeep. The landlords in turn noted that Ms. Jagger, in the U.S. on a tourist visa, shouldn't pay the lower rent since New York isn't her "primary residence," one of the criteria under rent control laws.
A state appeals court sided with them in 2008 and last week another court upheld the decision and said she could be evicted. As part of the fine, the judge ruled that Ms. Jagger owes $246,468 for the "fair market use and occupancy" over the years she was in dispute with the landlords. They said the apartment would have gone on the open market for $8,800 a month.
The case sums up the insanity of regulating prices in one of the world's most competitive and dynamic real estate markets. Rent control, a "temporary" World War II-era measure that survives into this century, creates housing shortages, drives up prices for non-rent control real estate and contributes to middle class flight. As Ms. Jagger perhaps found out with her moldy apartment, artificially keeping down rents gives landlords the rational financial incentive to skimp on upkeep.
Worse than that, rent control disproportionately subsidizes the affluent. A Harvard University study in the late 1980s found that rent-controlled apartments were in some of the cities best neighborhoods, that 94% of its tenants were white and roughly three-quarters were families without children....
"Jetsetter and social activist Bianca Jagger has lost her legal bid to keep her knock-down-price rental at 530 Park Avenue.
A New York state judge last week ordered Mick's ex to pay $708,600 in back rent and other fines to her landlords. Ms. Jagger spent nearly 20 years in the two bedroom apartment—rent-stabilized at $4,600 a month. But then she complained about poor upkeep. The landlords in turn noted that Ms. Jagger, in the U.S. on a tourist visa, shouldn't pay the lower rent since New York isn't her "primary residence," one of the criteria under rent control laws.
A state appeals court sided with them in 2008 and last week another court upheld the decision and said she could be evicted. As part of the fine, the judge ruled that Ms. Jagger owes $246,468 for the "fair market use and occupancy" over the years she was in dispute with the landlords. They said the apartment would have gone on the open market for $8,800 a month.
The case sums up the insanity of regulating prices in one of the world's most competitive and dynamic real estate markets. Rent control, a "temporary" World War II-era measure that survives into this century, creates housing shortages, drives up prices for non-rent control real estate and contributes to middle class flight. As Ms. Jagger perhaps found out with her moldy apartment, artificially keeping down rents gives landlords the rational financial incentive to skimp on upkeep.
Worse than that, rent control disproportionately subsidizes the affluent. A Harvard University study in the late 1980s found that rent-controlled apartments were in some of the cities best neighborhoods, that 94% of its tenants were white and roughly three-quarters were families without children....
Friday, July 2, 2010
Walmart CEO Pay: More in an Hour Than Workers Get All Year?
EXCERPTS:
"ABC News
Walmart CEO Pay: More in an Hour Than Workers Get All Year?
Walmart Executive-Worker Pay Gap Stirkes Chord in Chicago and Beyond
By ALICE GOMSTYN
ABC NEWS Business Unit
July 2, 2010 —
By Ed Smith's math, the CEO of Walmart earns more in an hour than his employees will earn in a year.
Smith, an alderman in Chicago, presented posters at a city council meeting showing that Walmart CEO Michael Duke's $35 million salary, when converted to an hourly wage, worked out to $16,826.92. By comparison, at a Walmart store planned for the Windy City's Pullman neighborhood, new employees to be paid $8.75 an hour would gross $13,650 a year.
Smith's numbers could be a bit off. Equilar, an executive compensation research firm, calculates that Duke earned just south of $20 million in 2009 and $28 million in 2008, not counting millions of dollars in potential performance awards. But the alderman argued that there's still a "sad" contrast between Duke's compensation and the wages of his employees.
"How can you go to bed at night and sleep knowing you make this kind of money and the people working for you can hardly buy a package of beans and rice?" he asked in an interview with ABCNews.com.
Walmart, meanwhile, said that its wages across the country are competitive in local markets and that on average, hourly employee pay -- which includes more experienced workers but not managers -- ranges from $10 to more than $12.
The retail giant made no apologies for Duke's salary.
"I don't think Mike Duke needs, as the CEO of a Fortune 1 company, needs me to defend his compensation package," said Walmart director of community affairs Steven Restivo, referring to Walmart's status as the largest company on the planet.
The debate over Walmart wages has been a thorny local issue in Chicago, where city aldermen on Wednesday reluctantly approved plans for a new Walmart store. It also speaks to continued concerns nationwide over the pay gap between top executives and their rank-and-file employees.
A study last fall by the Institute for Policy Studies, a liberal Washington D.C. research group, found that CEOs in the country's S&P 500 companies make, on average, 319 times more than the average American worker.
IPS associate fellow Sam Pizzigati said that in the 1970s, that ratio was 30 to 1.
"We've seen, over the past three decades, a tenfold-plus increase in the gap between top executives and average American workers," Pizzigati said. "That Chicago alderman is putting his finger on a very real problem in American economic life."
Why the Pay Gap Has Grown
Pizzigati said the reasons for the yawning gap are two-fold. Declining top-bracket tax rates over the last half-century, he said, took away a strong disincentive for company boards to keep a lid on CEO pay.
The top marginal tax rate, he said, dropped from 91 percent in the 1960s to 28 percent in 1980s. It stands at 35 percent today.
"If you look at historical record, executive pay really started exploding in early 1980s," he said. "That's when the top rate started precipitously falling."
On the worker side, Pizzigati said, wages have been hurt by the declining power of U.S. organized labor. When it represented more than one-third of the American workforce, unions could influence wages -- and force them higher -- throughout the labor market. With just seven percent of Americans represented by unions today, Pizzigati said, that's no longer the case.
Paul Hodgson, a senior research associate at the executive compensation watchdog group The Corporate Library, attributed the gap to another factor: the use of stock awards in CEO pay. Notwithstanding the recent financial crisis, stocks have seen tremendous gains since the 1980s and that, he said, has been reflected in CEO compensation.
As a result, he said, "CEO pay has been growing exponentially while everyone else's wages have been growing arithmetically."
Companies that shell out blockbuster salaries and benefits maintain that high compensation is necessary to attract the best talent to top positions.
In Chicago, in recent years the compensation issue has centered largely on so-called big box stores like Walmart. In 2006, the city's mayor vetoed a resolution by the city council in 2006 to raise minimum hourly pay by giant retailers in the city to $10 plus $3 worth of benefits.
Chicago Labor Leaders Wanted Higher Pay at Walmart
This week's approval of the new Walmart store came despite demands by labor organizers that Walmart, a non-union company, should pay at least $11 an hour to new employees. Walmart countered that the $8.75 it plans to pay -- which is 50 cents above Chicago's minimum wage -- is more than the starting hourly wages of unionized grocery store workers in the area.
An organizer for Local 881 United Food and Commercial Workers declined to comment on wages for union members, citing ongoing contract negotiations, but said that, overall, members receive better health insurance and retirement benefits than Walmart employees. (In its defense, Walmart said its health insurance plans offer "a wide range of options" and trumpeted its 401k and profit sharing plans.)
Smith said he ultimately decided to join his fellow aldermen in unanimously voting to allow the Pullman store because of the jobs the store is expected to create and its addition to the city's tax base.
He, too, would have liked to see the retailer pay at least $11 an hour to new employees, but added that he's glad Walmart's $8.75 starting pay is above minimum wage.
"As Kenny Rogers says, 'You gotta know when to hold them and know when to fold 'em,'" Smith said. "So that's what we did."
Copyright © 2010 ABC News Internet Ventures
"ABC News
Walmart CEO Pay: More in an Hour Than Workers Get All Year?
Walmart Executive-Worker Pay Gap Stirkes Chord in Chicago and Beyond
By ALICE GOMSTYN
ABC NEWS Business Unit
July 2, 2010 —
By Ed Smith's math, the CEO of Walmart earns more in an hour than his employees will earn in a year.
Smith, an alderman in Chicago, presented posters at a city council meeting showing that Walmart CEO Michael Duke's $35 million salary, when converted to an hourly wage, worked out to $16,826.92. By comparison, at a Walmart store planned for the Windy City's Pullman neighborhood, new employees to be paid $8.75 an hour would gross $13,650 a year.
Smith's numbers could be a bit off. Equilar, an executive compensation research firm, calculates that Duke earned just south of $20 million in 2009 and $28 million in 2008, not counting millions of dollars in potential performance awards. But the alderman argued that there's still a "sad" contrast between Duke's compensation and the wages of his employees.
"How can you go to bed at night and sleep knowing you make this kind of money and the people working for you can hardly buy a package of beans and rice?" he asked in an interview with ABCNews.com.
Walmart, meanwhile, said that its wages across the country are competitive in local markets and that on average, hourly employee pay -- which includes more experienced workers but not managers -- ranges from $10 to more than $12.
The retail giant made no apologies for Duke's salary.
"I don't think Mike Duke needs, as the CEO of a Fortune 1 company, needs me to defend his compensation package," said Walmart director of community affairs Steven Restivo, referring to Walmart's status as the largest company on the planet.
The debate over Walmart wages has been a thorny local issue in Chicago, where city aldermen on Wednesday reluctantly approved plans for a new Walmart store. It also speaks to continued concerns nationwide over the pay gap between top executives and their rank-and-file employees.
A study last fall by the Institute for Policy Studies, a liberal Washington D.C. research group, found that CEOs in the country's S&P 500 companies make, on average, 319 times more than the average American worker.
IPS associate fellow Sam Pizzigati said that in the 1970s, that ratio was 30 to 1.
"We've seen, over the past three decades, a tenfold-plus increase in the gap between top executives and average American workers," Pizzigati said. "That Chicago alderman is putting his finger on a very real problem in American economic life."
Why the Pay Gap Has Grown
Pizzigati said the reasons for the yawning gap are two-fold. Declining top-bracket tax rates over the last half-century, he said, took away a strong disincentive for company boards to keep a lid on CEO pay.
The top marginal tax rate, he said, dropped from 91 percent in the 1960s to 28 percent in 1980s. It stands at 35 percent today.
"If you look at historical record, executive pay really started exploding in early 1980s," he said. "That's when the top rate started precipitously falling."
On the worker side, Pizzigati said, wages have been hurt by the declining power of U.S. organized labor. When it represented more than one-third of the American workforce, unions could influence wages -- and force them higher -- throughout the labor market. With just seven percent of Americans represented by unions today, Pizzigati said, that's no longer the case.
Paul Hodgson, a senior research associate at the executive compensation watchdog group The Corporate Library, attributed the gap to another factor: the use of stock awards in CEO pay. Notwithstanding the recent financial crisis, stocks have seen tremendous gains since the 1980s and that, he said, has been reflected in CEO compensation.
As a result, he said, "CEO pay has been growing exponentially while everyone else's wages have been growing arithmetically."
Companies that shell out blockbuster salaries and benefits maintain that high compensation is necessary to attract the best talent to top positions.
In Chicago, in recent years the compensation issue has centered largely on so-called big box stores like Walmart. In 2006, the city's mayor vetoed a resolution by the city council in 2006 to raise minimum hourly pay by giant retailers in the city to $10 plus $3 worth of benefits.
Chicago Labor Leaders Wanted Higher Pay at Walmart
This week's approval of the new Walmart store came despite demands by labor organizers that Walmart, a non-union company, should pay at least $11 an hour to new employees. Walmart countered that the $8.75 it plans to pay -- which is 50 cents above Chicago's minimum wage -- is more than the starting hourly wages of unionized grocery store workers in the area.
An organizer for Local 881 United Food and Commercial Workers declined to comment on wages for union members, citing ongoing contract negotiations, but said that, overall, members receive better health insurance and retirement benefits than Walmart employees. (In its defense, Walmart said its health insurance plans offer "a wide range of options" and trumpeted its 401k and profit sharing plans.)
Smith said he ultimately decided to join his fellow aldermen in unanimously voting to allow the Pullman store because of the jobs the store is expected to create and its addition to the city's tax base.
He, too, would have liked to see the retailer pay at least $11 an hour to new employees, but added that he's glad Walmart's $8.75 starting pay is above minimum wage.
"As Kenny Rogers says, 'You gotta know when to hold them and know when to fold 'em,'" Smith said. "So that's what we did."
Copyright © 2010 ABC News Internet Ventures
Wednesday, June 30, 2010
Oil Companies, Drill Operators Clash Over Idled Rigs - WSJ.com
EXCERPTS:
"Oil companies and drilling-rig operators are entering uncharted waters as they fight over who should pay for rigs idled by the recent U.S. offshore-drilling moratorium, and one case has already landed in court.
While offshore drilling could legally resume after a federal district court judge overturned the moratorium Tuesday, few if any oil companies are likely to go back to work until higher courts rule on appeals, officials at several companies said. Meanwhile, the unused rigs are costing them as much as $600,000 a day.
At least three oil companies are demanding early exits from long-term leases on five rigs in the Gulf of Mexico, alleging the ban on offshore drilling voided their contracts.
The drillers disagree, claiming the rigs could move to international projects or work in shallower waters, where the federal moratorium didn't apply.
***
But government interference is typically written into contracts only for operations in more uncertain political territory such as Venezuela and Nigeria, according to analysts and others familiar with oil-industry contracts.
They said it was unlikely most Gulf rig contracts anticipated an event like the six-month deep-water drilling moratorium instituted by President Barack Obama on May 27. That was five weeks after Transocean Inc.'s Deepwater Horizon rig caught fire and sank in the Gulf of Mexico, triggering the worst offshore oil spill in U.S. history.
"No one ever expected political risk in the Gulf of Mexico, but that's exactly what they've got now," said Michael Lynch, a consultant who has negotiated rig contracts for offshore drillers. He said he couldn't recall another rig-contract dispute involving U.S. political risk going to court, nor could several other longtime industry analysts.
Judge Martin L.C. Feldman of U.S. District Court in New Orleans overturned the drilling moratorium Tuesday, saying that plaintiffs, a group of oilfield-services companies, "established a likelihood of successfully showing that the Administration acted arbitrarily and capriciously" in issuing the moratorium.
***
Norwegian oil company Statoil ASA, which has signaled its plan to exit two rig contracts, owes Transocean nearly $600 million through October 2013 for one rig. Transocean has denied Statoil's right to an early termination, though the companies said they were still negotiating.
About 30 rigs could end up in similar disputes, and who pays will hinge on how the contracts define force majeure, a catchall term for uncontrollable events that halt work. Anadarko's contract with Noble, for example, defines force majeure as including "rules or regulations" that make "continuance of operations impossible," though Noble contends the rig has tasks it can perform other than drilling deep-water wells.
"We don't believe this is a true force majeure situation," said a Noble spokesman.
Neither the oil companies nor the drillers have much incentive to back down. Oil companies hope to avoid being stuck paying for rigs they don't need. Rig operators have come to rely on premium-rate deep-water contracts to boost earnings.
This situation illustrates an extremely important aspect of the real world: it is a very complicated place filled with uncertainty. A stable legal system provides fixed rules concerning how private contracts will be interpreted and enforced. Having such a framework makes it possible for private individuals and businesses to write contracts which specify what each party is obligated to do if various unexpected circumstances do in fact occur. Through these contracts risk is transferred to those parties who are most willing and able to bear it.
It also illustrates that when government acts outside of the legal system, it reduces the effectiveness of the legal system and of private contracts at dealing with risk. The end result is that economic life becomes more uncertain than if the rule of law was fully respected by the government. More uncertainty means less investment, less capital, less output, and lower living standards than would otherwise occur.
"Oil companies and drilling-rig operators are entering uncharted waters as they fight over who should pay for rigs idled by the recent U.S. offshore-drilling moratorium, and one case has already landed in court.
While offshore drilling could legally resume after a federal district court judge overturned the moratorium Tuesday, few if any oil companies are likely to go back to work until higher courts rule on appeals, officials at several companies said. Meanwhile, the unused rigs are costing them as much as $600,000 a day.
At least three oil companies are demanding early exits from long-term leases on five rigs in the Gulf of Mexico, alleging the ban on offshore drilling voided their contracts.
The drillers disagree, claiming the rigs could move to international projects or work in shallower waters, where the federal moratorium didn't apply.
***
But government interference is typically written into contracts only for operations in more uncertain political territory such as Venezuela and Nigeria, according to analysts and others familiar with oil-industry contracts.
They said it was unlikely most Gulf rig contracts anticipated an event like the six-month deep-water drilling moratorium instituted by President Barack Obama on May 27. That was five weeks after Transocean Inc.'s Deepwater Horizon rig caught fire and sank in the Gulf of Mexico, triggering the worst offshore oil spill in U.S. history.
"No one ever expected political risk in the Gulf of Mexico, but that's exactly what they've got now," said Michael Lynch, a consultant who has negotiated rig contracts for offshore drillers. He said he couldn't recall another rig-contract dispute involving U.S. political risk going to court, nor could several other longtime industry analysts.
Judge Martin L.C. Feldman of U.S. District Court in New Orleans overturned the drilling moratorium Tuesday, saying that plaintiffs, a group of oilfield-services companies, "established a likelihood of successfully showing that the Administration acted arbitrarily and capriciously" in issuing the moratorium.
***
Norwegian oil company Statoil ASA, which has signaled its plan to exit two rig contracts, owes Transocean nearly $600 million through October 2013 for one rig. Transocean has denied Statoil's right to an early termination, though the companies said they were still negotiating.
About 30 rigs could end up in similar disputes, and who pays will hinge on how the contracts define force majeure, a catchall term for uncontrollable events that halt work. Anadarko's contract with Noble, for example, defines force majeure as including "rules or regulations" that make "continuance of operations impossible," though Noble contends the rig has tasks it can perform other than drilling deep-water wells.
"We don't believe this is a true force majeure situation," said a Noble spokesman.
Neither the oil companies nor the drillers have much incentive to back down. Oil companies hope to avoid being stuck paying for rigs they don't need. Rig operators have come to rely on premium-rate deep-water contracts to boost earnings.
COMMENTS:
This situation illustrates an extremely important aspect of the real world: it is a very complicated place filled with uncertainty. A stable legal system provides fixed rules concerning how private contracts will be interpreted and enforced. Having such a framework makes it possible for private individuals and businesses to write contracts which specify what each party is obligated to do if various unexpected circumstances do in fact occur. Through these contracts risk is transferred to those parties who are most willing and able to bear it.
It also illustrates that when government acts outside of the legal system, it reduces the effectiveness of the legal system and of private contracts at dealing with risk. The end result is that economic life becomes more uncertain than if the rule of law was fully respected by the government. More uncertainty means less investment, less capital, less output, and lower living standards than would otherwise occur.
Saturday, June 26, 2010
State, Federal Rules Rush to Protect Consumers in Advance of New Agency - WSJ.com
EXCERPTS:
"Even before Congress unveils a consumer-protection agency, new state and federal laws are ushering in the most sweeping changes in consumer finance since the 1960s.
On July 1, Arizona will force changes on the state's 595 payday-loan stores—outfits that make high-interest loans against future paychecks—that could effectively put them out of business. Wisconsin banned small loans backed by car titles that led many people to lose their vehicles. Arkansas, Maine and New York joined other states in putting curbs on tax preparers who offer costly loans against expected tax refunds.
The federal government, meanwhile, is for the first time requiring that lenders verify a borrower's income and assets before issuing a home loan. It has also slapped broad new rules on credit-card issuers, limiting their ability to boost interest rates and charge certain fees.
"It's a pace of regulatory output we've never seen before in the consumer area," says Richard Hackett, who teaches consumer-finance law at Boston University's Morin Center for Banking and Financial Law.
The new Consumer Financial Protection Bureau, while housed inside the Federal Reserve, would be fully independent of the central bank, with a leader appointed by the president and confirmed by the Senate.... It will write and enforce rules on the structuring and marketing of loans as well as other financial products sold by banks, credit unions, credit-card issuers and even neighborhood check-cashing outfits.
***
Rep. Jeb Hensarling (R., Texas), a member of the House-Senate conference committee negotiating the final bill, called the new regulator a "consumer credit rationing agency" that would "take choices away from consumers and choke desperately needed credit out of our economy."
Senate Banking Committee Chairman Christopher Dodd (D., Conn.), a leading proponent, said the agency would "watch out for the average citizen in our country when they are abused by a financial market place that takes advantage of them on home mortgages and credit cards."
1. Who do you think is right, Rep. Hensarling, who says this new regulation will take choices away from consumers and ration credit, or Sen. Dodd, who says it will "watch out for the average citizen?" Explain your reasoning.
"Even before Congress unveils a consumer-protection agency, new state and federal laws are ushering in the most sweeping changes in consumer finance since the 1960s.
On July 1, Arizona will force changes on the state's 595 payday-loan stores—outfits that make high-interest loans against future paychecks—that could effectively put them out of business. Wisconsin banned small loans backed by car titles that led many people to lose their vehicles. Arkansas, Maine and New York joined other states in putting curbs on tax preparers who offer costly loans against expected tax refunds.
The federal government, meanwhile, is for the first time requiring that lenders verify a borrower's income and assets before issuing a home loan. It has also slapped broad new rules on credit-card issuers, limiting their ability to boost interest rates and charge certain fees.
"It's a pace of regulatory output we've never seen before in the consumer area," says Richard Hackett, who teaches consumer-finance law at Boston University's Morin Center for Banking and Financial Law.
The new Consumer Financial Protection Bureau, while housed inside the Federal Reserve, would be fully independent of the central bank, with a leader appointed by the president and confirmed by the Senate.... It will write and enforce rules on the structuring and marketing of loans as well as other financial products sold by banks, credit unions, credit-card issuers and even neighborhood check-cashing outfits.
***
Rep. Jeb Hensarling (R., Texas), a member of the House-Senate conference committee negotiating the final bill, called the new regulator a "consumer credit rationing agency" that would "take choices away from consumers and choke desperately needed credit out of our economy."
Senate Banking Committee Chairman Christopher Dodd (D., Conn.), a leading proponent, said the agency would "watch out for the average citizen in our country when they are abused by a financial market place that takes advantage of them on home mortgages and credit cards."
QUESTIONS:
1. Who do you think is right, Rep. Hensarling, who says this new regulation will take choices away from consumers and ration credit, or Sen. Dodd, who says it will "watch out for the average citizen?" Explain your reasoning.
Wednesday, June 23, 2010
Let markets regulate offshore oil industry
EXCERPTS:
"Congress should consider policy changes, such as lifting the current $75 million limited liability ceiling. Offshore operators should expect to be responsible for the full costs of any environmental damage related to their activities.
There is one hitch: smaller offshore companies could accept full liability but then take shelter under bankruptcy laws in the event of a disaster. This means some additional steps must be taken.
In addition to removing any limits on liability, Congress should require that any offshore operator provide an insurance policy guaranteeing full liability coverage.
Full liability insurance not only protects taxpayers from bearing the cost of cleaning up environmental disasters, it also adds another layer of protection against future disasters. You can bet that private insurers like Lloyds of London would inspect very carefully the safety practices of those it insures.
Furthermore, by relying on private markets, taxpayers are saved the expense of monitoring offshore operations. Full liability without the option of invoking bankruptcy laws assures that offshore operators will have no incentives to cut corners.
A great advantage of this proposal is that it leaves the decision of how best to avoid disasters to the most knowledgeable agents involved: the oil operators and their insurers. These are relatively simple changes to make, and in principle the requirements involved are no different from those any homebuyer would expect of her builder.
"Congress should consider policy changes, such as lifting the current $75 million limited liability ceiling. Offshore operators should expect to be responsible for the full costs of any environmental damage related to their activities.
There is one hitch: smaller offshore companies could accept full liability but then take shelter under bankruptcy laws in the event of a disaster. This means some additional steps must be taken.
In addition to removing any limits on liability, Congress should require that any offshore operator provide an insurance policy guaranteeing full liability coverage.
Full liability insurance not only protects taxpayers from bearing the cost of cleaning up environmental disasters, it also adds another layer of protection against future disasters. You can bet that private insurers like Lloyds of London would inspect very carefully the safety practices of those it insures.
Furthermore, by relying on private markets, taxpayers are saved the expense of monitoring offshore operations. Full liability without the option of invoking bankruptcy laws assures that offshore operators will have no incentives to cut corners.
A great advantage of this proposal is that it leaves the decision of how best to avoid disasters to the most knowledgeable agents involved: the oil operators and their insurers. These are relatively simple changes to make, and in principle the requirements involved are no different from those any homebuyer would expect of her builder.
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