EXCERPTS:
"WASHINGTON—The Obama administration on Tuesday backed a proposal to spend up to $6 billion more on subsidies for electric vehicles, amid renewed interest on Capitol Hill in measures to cut petroleum consumption in response to the Gulf of Mexico oil spill.
The proposals include more spending for research and development of car-battery technology, aid to utilities and homeowners to build recharging outlets, and consumer tax credits to offset the higher costs of battery-electric vehicles.
A bill drafted by Sens. Byron Dorgan (D., N.D.), Lamar Alexander (R., Tenn.) and Jeff Alan Merkley (D., Ore.) calls for the additional spending, and includes a provision that would establish up to 15 "development" communities to receive funds for infrastructure and other programs for plug-ins.
"The rest of the world is moving up quickly on this technology," David Sandalow, the Energy Department's assistant secretary for policy and international affairs, told a Senate hearing Tuesday. "The question before us is whether the United States will lead in this technology."
The proposal has drawn criticism from auto makers, which worry that it focuses on electric vehicles at the expense of other alternative technologies, and from Republicans who cite the need to cut government spending.
QUESTIONS:
Is the important question, "whether the United States will lead in this technology?" Shouldn't we also ask
1. Does the government know for sure that this is the best alternative technology?
2. How will subsidizing this alternative affect the incentive to develop other alternatives that might turn out to be better?
3. If this is the best alternative technology, should we always seek to be the leader? Should we, perhaps, think in terms of not just the benefits of leading but also the costs, and if the costs of leading exceed the benefits, choose to let someone else lead?
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.
Tuesday, June 29, 2010
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.
Why less government spending would mean less economic trouble - CSMonitor.com
EXCERPTS:
"History teaches that temporary surges in government spending give people money that, for the most part, they save or use to reduce debt, rather than setting in motion an upward spiral of income, expenditure, real output, and employment, as envisioned by John Maynard Keynes, the British economist whose theory spurred massive government interventions in the economy from the 1930s onward.
History also teaches that government “emergency” spending tends to fatten the coffers of the politically connected. Thus, much of the so-called stimulus spending has served only to increase the pay and benefits of government employees, transferring income from the private sector to the government sector, and reward groups, such as the United Auto Workers and low-income home buyers, for their support of the Obama administration.
One aspect of the current crisis that has come as anything but a surprise to students of history is that the politicians (in the words of President Obama’s chief of staff, Rahm Emanuel) have not allowed this crisis “to go to waste.” The past two years have witnessed one power-grab or institutional takeover after another, including AIG, Fannie Mae, Freddie Mac, General Motors, and Chrysler.
***
"Since the early 20th century, periods of national emergency – real and imagined – have triggered sharp increases in government power, scope, and cost.
The first five episodes were World War I, the Great Depression, World War II, the upheavals associated with the civil-rights revolution and the Vietnam War, and the post-9/11 events associated with the war on terror and US engagements in Afghanistan and Iraq.
We are now in another such critical period, springing from the housing bust, financial debacle, and recession. In their embrace of Keynesianism, many economists have concluded that even though the New Deal’s hodgepodge of policies never brought about full recovery, World War II did, as the economy expanded to produce munitions and enlarge the armed forces. Huge, deficit-financed government spending, they argue, finally wiped out the lingering mass unemployment.
The truth, however, is really quite simple. In 1940, after eight years of New Deal pump priming, the unemployment rate remained about 10 percent even if, unlike the Bureau of Labor Statistics, we count people enrolled in federal emergency work-relief programs as employed. The gigantic buildup of the armed forces, primarily by conscription, then pulled the equivalent of 22 percent of the prewar labor force into the military. Voilà, unemployment disappeared, as it was bound to do regardless of any wartime Keynesian fiscal policies.
"History teaches that temporary surges in government spending give people money that, for the most part, they save or use to reduce debt, rather than setting in motion an upward spiral of income, expenditure, real output, and employment, as envisioned by John Maynard Keynes, the British economist whose theory spurred massive government interventions in the economy from the 1930s onward.
History also teaches that government “emergency” spending tends to fatten the coffers of the politically connected. Thus, much of the so-called stimulus spending has served only to increase the pay and benefits of government employees, transferring income from the private sector to the government sector, and reward groups, such as the United Auto Workers and low-income home buyers, for their support of the Obama administration.
One aspect of the current crisis that has come as anything but a surprise to students of history is that the politicians (in the words of President Obama’s chief of staff, Rahm Emanuel) have not allowed this crisis “to go to waste.” The past two years have witnessed one power-grab or institutional takeover after another, including AIG, Fannie Mae, Freddie Mac, General Motors, and Chrysler.
***
"Since the early 20th century, periods of national emergency – real and imagined – have triggered sharp increases in government power, scope, and cost.
The first five episodes were World War I, the Great Depression, World War II, the upheavals associated with the civil-rights revolution and the Vietnam War, and the post-9/11 events associated with the war on terror and US engagements in Afghanistan and Iraq.
We are now in another such critical period, springing from the housing bust, financial debacle, and recession. In their embrace of Keynesianism, many economists have concluded that even though the New Deal’s hodgepodge of policies never brought about full recovery, World War II did, as the economy expanded to produce munitions and enlarge the armed forces. Huge, deficit-financed government spending, they argue, finally wiped out the lingering mass unemployment.
The truth, however, is really quite simple. In 1940, after eight years of New Deal pump priming, the unemployment rate remained about 10 percent even if, unlike the Bureau of Labor Statistics, we count people enrolled in federal emergency work-relief programs as employed. The gigantic buildup of the armed forces, primarily by conscription, then pulled the equivalent of 22 percent of the prewar labor force into the military. Voilà, unemployment disappeared, as it was bound to do regardless of any wartime Keynesian fiscal policies.
Friday, June 25, 2010
Baby For Sale -- Real Cheap | NBC Bay Area
EXCERPTS:
"Everyone knows you can find just about anything you need for a low price at Walmart -- including baby stuff. But an actual baby? That's not usually part of the deal.
Unless you're desperate for cash and not in the best frame of mind.
That's the case in Salinas, California, where police say a couple tried to sell their 6-month-old baby for $25 outside the doors of a Walmart store. Now they're facing child endangerment charges.
Patrick Fousek, 38, and Samantha Tomasini, 20, were arrested Wednesday, hours after Fousek allegedly approached two women outside Walmart and asked if they'd like to purchase his child -- at the bargain price of $25. The women initially thought Fousek was joking, but when he became persistent, they got suspicious and reported it to police, Salinas police spokesman Officer Lalo Villegas said.
"They did an outstanding job and gave our officers good information." Villegas said. "I don't know if they're mothers but they definitely had that instinct to help."
Fousek and Tomasini were arrested at 1 a.m. Wednesday at their home. Officers said the couple appeared high on methamphetamines....
"Everyone knows you can find just about anything you need for a low price at Walmart -- including baby stuff. But an actual baby? That's not usually part of the deal.
Unless you're desperate for cash and not in the best frame of mind.
That's the case in Salinas, California, where police say a couple tried to sell their 6-month-old baby for $25 outside the doors of a Walmart store. Now they're facing child endangerment charges.
Patrick Fousek, 38, and Samantha Tomasini, 20, were arrested Wednesday, hours after Fousek allegedly approached two women outside Walmart and asked if they'd like to purchase his child -- at the bargain price of $25. The women initially thought Fousek was joking, but when he became persistent, they got suspicious and reported it to police, Salinas police spokesman Officer Lalo Villegas said.
"They did an outstanding job and gave our officers good information." Villegas said. "I don't know if they're mothers but they definitely had that instinct to help."
Fousek and Tomasini were arrested at 1 a.m. Wednesday at their home. Officers said the couple appeared high on methamphetamines....
Bill to Extend Unemployment Benefits Dies, Doctor Payments Not Cut - WSJ.com
EXCERPTS:
"WASHINGTON—Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.The collapse of the wide-ranging legislation means that a total of 1.3 million unemployed Americans will have lost their assistance by the end of this week. It will also leave a number of states with large budget holes they had expected to fill with federal cash to help with Medicaid costs.
***
"One element that will survive in a different form: a proposal to suspend a 21% cut in Medicare payments to doctors that's set to take effect this month. That was stripped from the bill last week in a cost-cutting step and sent to the House as a stand-alone measure. The House, voting 417 to 1, approved the six-month suspension of the cuts late Thursday.
COMMENT:
This means the government is cutting benefits to long-term unemployed workers but not cutting Medicare payments to doctors.
QUESTIONS:
1. How are long-term unemployed workers likely to feel about their benefits being cut but payments to doctors not being cut?
2. What would be the consequences of continuing to provide benefits to unemployed workers, not matter how long they remain unemployed?
3. What consequences would result if the government cut Medicare payments to doctors based on the idea that "if long-term unemployed workers are going to have to suffer it's only fair that doctors suffer a little too?"
"WASHINGTON—Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.The collapse of the wide-ranging legislation means that a total of 1.3 million unemployed Americans will have lost their assistance by the end of this week. It will also leave a number of states with large budget holes they had expected to fill with federal cash to help with Medicaid costs.
***
"One element that will survive in a different form: a proposal to suspend a 21% cut in Medicare payments to doctors that's set to take effect this month. That was stripped from the bill last week in a cost-cutting step and sent to the House as a stand-alone measure. The House, voting 417 to 1, approved the six-month suspension of the cuts late Thursday.
COMMENT:
This means the government is cutting benefits to long-term unemployed workers but not cutting Medicare payments to doctors.
QUESTIONS:
1. How are long-term unemployed workers likely to feel about their benefits being cut but payments to doctors not being cut?
2. What would be the consequences of continuing to provide benefits to unemployed workers, not matter how long they remain unemployed?
3. What consequences would result if the government cut Medicare payments to doctors based on the idea that "if long-term unemployed workers are going to have to suffer it's only fair that doctors suffer a little too?"
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