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Fun Energy Facts November 30, 2006

Posted by federalist in Energy.
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Fascinating how much variance there is in the power we can derive from various raw materials.  Last week I noted that we must burn 1000 tons of coal to supply the energy needs of an average American for a year, and that the same amount of power could be generated in a fusion reactor fueled only by the deuterium in half a gallon of water and the lithium in a watch battery.  Looking a little further we see that’s roughly the same amount of power we get burning 4000 barrels (168k gallons) of crude oil.  Fission reactors, which can work on various isotopes, but currently which are mostly designed to run on uranium, can generate the same amount of power with just 1 pound of uranium-235.  But since natural uranium is only 0.7% U-235 we would need 700 pounds (320kg) of raw uranium to produce that power.

(If we ever managed to construct an antimatter reactor, we could get the same power by reacting just 10mg of matter with 10mg of antimatter.)

The variance in productivity given a unit of energy is also interesting.  According to this page the average human over time consumes/emits the same amount of energy as a 100W light bulb left on all the time.  Consider that the latter has the ability to illuminate just a single room, while the former can both reproduce itself and create/control many orders of magnitude more energy.  (Or consider that current CPUs can compute as many as 10 GigaFLOPS with the same power!)

Making Real Estate More Liquid November 29, 2006

Posted by federalist in Finance, Real Estate.
2 comments

Real estate typically combines two distinct and risky financial assets.  One is the underlying property, whose value can fluctuate widely in response to interest rates and localized demand.  The other is the cashflow of the property, which consists of income from rents and costs from taxes, insurance, maintenance, etc.

Compounding the risks of these real estate components is that fact that neither is very liquid: Securing rental income for a property requires finding and maintaining renters.  Properties themselves can typically only be liquidated in “units” that start in 6 figures, and the transaction costs associated with buying or selling property can run upwards of 10%.  (Dot-com entrepreneurs take note: We’re still waiting for the internet to work its magic on this market!)

Finally, there is no way to buy insurance against property or rental declines.  In contrast to equity and fixed income, you can’t really sell short, buy puts, or otherwise hedge a long exposure to a particular real estate investment.  (You can, however, hedge the risks of appreciation using long-term leases.)

Granted, it is possible to buy diversified real estate exposure in a liquid fashion, through REITs (Real Estate Investment Trusts) and other real-estate-intensive companies.  But most people will still end up locked into a single, often highly-leveraged piece of real estate: their home.

If you are a property owner and you want to hedge against a decline in your property value, your options are neither extensive nor palatable:

  1. Sell, and become a renter instead.
  2. Sell, and move to a different region where you believe there is less risk of a decline in values.

Individual real estate is clearly a market ripe for innovations in liquidity.  Due to the size of the market, any entrepreneur who introduces practical liquidity mechanisms stands to make an enormous fortune.

Likely innovations would:

  • Separate the cashflow component of real estate from the underlying property component.
  • Subdivide the property component into more tradable parcels.
  • Allow owners to hedge against declines in both cashflow and property value.

Today a venture called Rexx Index was announced that’s making steps in this last area, albeit only for commercial real estate.

Human Organ Regulation November 26, 2006

Posted by federalist in Government Regulation, Healthcare, Human Markets.
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The moral perils associated with a human organ market hardly justify the total prohibition by the United States on any pecuniary consideration for organ exchange.  Rather than reiterate the economic arguments, I would reference Richard Epstein’s great “Kidney Beancounters” essay published in the WSJ in May.

The lack of a human organ market has certainly both curtailed the supply of transplantable organs and also hindered the optimal allocation of those organs that are available.  And lest there be any doubt on this first count, David Harrington and Edward Sayre in an essay today note, “We have found clear empirical evidence that even modest compensation can dramatically affect donation decisions.”

Medical schools routinely pay for the cremation or burial (often with elaborate memorial ceremonies) of the people whose bodies were donated to them for medical research and student training. In contrast, it is against federal law to offer any compensation for transplant organ procurement, including paying for organ donors’ funeral expenses. This creates a bizarre asymmetry in the treatments of organ and whole body donations.

Avoid Future Disappointment – Using Quantum Physics November 24, 2006

Posted by federalist in Uncategorized.
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Do you ever wonder if you made a bad choice?  Gordon Mohr, commenting at MR, suggests a clever way to live free from all regret:

Embrace the many-worlds interpretation of quantum physics. When facing a decision which has the prospect of creating future regret, choose based on the outcome of a ‘random’ quantum event. Then, if ever facing regret in the future, console yourself that an alternate-reality version of yourself has experienced the other path.

Works for me:  I’m bookmarking randomnumbers.info for all my difficult decisions going forward!

ITER Moving Ahead with Fusion Research November 22, 2006

Posted by federalist in Energy.
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Exciting news for fusion fans: Yesterday saw formal state commitments to the ITER project.

Factoid: Today’s American per capita energy consumption for an entire year could be serviced by a fusion reactor fueled only by the deuterium in half a gallon of water and the lithium in a watch battery.  Or by over 1000 tons of coal burned in a conventional power plant.  [See Ikeda link at end.]

The ITER plans presently anticipate that commercialized fusion technology is 40 years away.  Their project begins with building a $5BB research reactor in France, and should lead to a prototype fusion reactor after 30 years and another $5BB (current dollars).  Unfortunately, this is a multinational government collaboration, so it will be interesting to see how this actually plays out….

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QOTD November 20, 2006

Posted by federalist in Government.
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Reflecting on the recent election, I conclude that people can be divided into three groups:Members of the first group (consisting of left-liberals and some conservatives) imagine that society is a consciously created machine requiring an operator and a bevy of busy technicians to keep it working properly.

Members of the second group (libertarians and some conservatives) understand that society is a complex and undesigned organism that, when rules of private property are well-enough entrenched, works quite well according to its own logic — a working that is typically disrupted for the worse by government meddling.

The third group is made up of politicians and their hangers-on: They see society as a she-goat to be milked for their own power and glory.

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Government Interference and Unintended Consequences in Higher Education November 19, 2006

Posted by federalist in Economic Policy, Education, Government Spending.
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Larry Arnn, President of Hillsdale College, came out with an excellent essay detailing the havoc wrought by the federal government’s foray into the market for higher education.  Worth reading in full, but highlights are excerpted here:

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Personal-Finance Salesmen Pedal the Retirement Myth November 15, 2006

Posted by federalist in Finance, Government Regulation, Retirement.
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I suppose we can’t blame Robert Pozen for trying to drum up more business for his MFS Investment Management company, but his proposal for government-mandated retirement accounts is over the top. Rather than reforming our current social security programs, which require contributions by both employers and employees, he actually advocates creating a second more-complicated requirement for employers and employees to sock away even more money, this time in personal “retirement” accounts hamstrung by numerous government rules and regulations.

“Retirement,” as peddled by both entitlement politicians and personal-finance salesmen like Mr. Pozen, is a completely obsolete concept. It is based on the premise that an average American will reach a point in life at which he is unable to work for income. This may have been true generations ago, but today we enjoy a service economy in which even the severely disabled can find productive employment.

Furthermore, individual income requirements should actually decline over a lifetime. Even the most unskilled blue-collar worker in America has the opportunity and capacity over a 40-year career to own a home and send his children through college. With no debts and no future obligations, any unskilled senior who is willing to work can certainly support and insure himself without a “retirement” fund. Granted, there is always an individual risk of severe or long-term disability along the way, but we have both government social security and private insurance programs that address those risks and casualties.

As Americans live longer and healthier lives, they will continue to be capable of productive activity well into their old age. 21st-century retirement should not be thought of as the time when a citizen is no longer capable of working. Rather, it should be the milestone at which an individual is free from major future obligations, and therefore free to pursue interesting employment with minimal concern for income.

Real Benefits of a Minimum Wage November 14, 2006

Posted by federalist in Economic Policy, Government Regulation.
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I didn’t think there could be any market benefits to a minimum wage, but one Tom Bundorf (letter to the WSJ today) suggests a compelling silver lining to this cloud:

1. Fewer low-skill employee opportunities influencing younger unskilled workers to stay in school to get skilled enough to get a good job.

2. Higher productivity. More use of machinery to do the hand labor. Imagine inserting $2 in a slot to get your McDonald’s quarter-pounder. There will be a couple of skilled workers to run the machines.

3. More underground, off-the-books labor at the market price. No taxes, no bookkeeping. A truly free economy.

The Vicious Welfare Cycle November 13, 2006

Posted by federalist in Economic Policy, Social Politics.
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Interesting debate going on about demographics, comparing EU to US.  In passing the Economist offers a poignant summary of the vicious cycle of state welfare

Generous welfare states tend to reduce the number of hours worked:  high taxes mean that workers take more of their pay as untaxed leisure; unemployment tends to stretch out, thanks to generous benefits and reemployment schemes; sick leave and disability insurance reduce the cost of absenteeism; high pensions encourage healthy seniors to retire; and welfare benefits and family leave policies encourage women to spend more time with their children. 

Governments have largely nationalised the traditional functions of the family, but in doing so they have not eliminated the need for future generations to care for the current ones in their dotage.  Unfortunately, the assumption of family duties by the state allows people to free ride on the fertility of others—which they seem to be trying to do in massive numbers.  As we’ve mentioned before, a society where everyone tries to free ride on everyone else is headed for disaster.  Europe’s safety nets, or at least the pension systems, may contain the seeds of their own destruction.

There is another question to be asked, of course:  even if Europe can survive the costs of its own large welfare state, could it survive America’s adopting the same model?  There is an argument to be made that Europe’s risk averse culture free rides on innovations developed for America’s less regulated markets—particularly in pharmaceuticals and medical equipment.  If this is true, Europeans enamoured of their generous safety nets should not be urging the same on the US.  The greatest good for the greatest number would be best served by keeping quiet and letting those foolish Americans take the bullet for the rest of the world.

Learn the Phonetic Alphabet November 12, 2006

Posted by federalist in Language.
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There are two types of people in America: Those who know the phonetic alphabet, and those who don’t.  And I’m sick of ending up on the phone with those who don’t.

How often do you have to spell out a name, address, or some other non-phonetic word or code?  Regretably, the standard alphabet is pronounced with a series of single-consonant sounds that are nearly indistinguishable.  “eh-ee, bee, see, dee, ee,” — it’s a cruel joke that we use these sounds to discriminate letters.

This has always been a problem with our low-fidelity wired telecom infrastructure.  The proliferation of even lower-fidelity cell phones and VOIP connections only exacerbates it.  So after trying to spell with the standard pronunciation, we resort to more distinguishing words to identify letters: “N as in Nancy, M as in Mary.”  Better than nothing, but do we really need to spend at least five syllables to identify a single letter?  Sometimes this ad hoc phonetic spelling charade gets even worse when people:

  • Can’t think of a word: “That’s N as in … um … Notorious?”
  • Use an ambiguous word: “E as in Err … no, not Air, Err — like Error.”
  • Try to switch it up: “A as in Apple, N as in Nancy, A as in … um … Adam.”

Wouldn’t it be great if we could just agree ahead of time on a concise but coherent way of saying letters?  Turns out we already have: Early radio operators dealt with this problem by establishing a standard phonetic alphabet.  And people who know the standard phonetic alphabet can efficiently communicate spellings with no more than 3 syllables per letter over very poor communications links.  (Why six of the letters were given three syllable names, instead of more concise two syllable names, I don’t know.  It would be an interesting exercise to come up with a two-syllable-only phonetic alphabet that’s as error-resistant as the standard one.)

When everyone knows the phonetic alphabet, it doesn’t require any preamble.  If someone says, “Alpha-India-Romeo” people understand that’s spelling out “A-I-R.”

Phonetic alphabet should be mandatory for all call-center workers, or for anyone who conducts business over the phone.  And nobody should graduate kindergarten without being able to recite the alphabet — phonetically.

Can We Count On the Market? November 9, 2006

Posted by federalist in Social Politics.
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How many business-class fliers want to be cooped up in an aluminum can with cigar-smoking passengers for a long-haul flight?  According to at least one German, maybe enough to make it profitable.

I am still bewildered by the converse question: Aren’t there enough people willing to pay a little extra to avoid tobacco smoke to make it profitable for businesses to cater to them?  I don’t put up with restaurants that contaminate my meal with smoke wafting over from a bar or smoking area.  Sick of walking into hotel rooms that reak of tobacco, or having smoke seeping through the ventilation system from other rooms, I was thrilled when Marriot decided it would ban smoking in all its hotels in North America.  Why didn’t this happen sooner?  Finally, I am ready to pay a handsome premium to the first cruise line to offer a smoke-free cruise ship.

More Real Estate Agent Conflicts of Interest November 9, 2006

Posted by federalist in Real Estate, Special Interests.
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One of the biggest problems with the American real-estate sales cartel (which is enforced primarily by the National Association of Realtors) is the contradictory incentives for “Buyer Agents.”  In principle a Buyer’s Agent is retained to ensure that a real estate Buyer has his interests fully represented in finding and buying property.  I.e., a Buyer’s Agent is supposed to be a licensed professional who is duty-bound to ensure that the Buyer (who may be familiar with neither the area nor the local market) is fully informed of inventory that might meet his criteria.  The Agent is then supposed to apply his expertise to ensure that the Buyer can purchase his desired property as expeditiously and cheaply as possible.

In reality Buyer’s Agents are typically nothing more than glorified chauffeurs, whose only interest is getting a Buyer into a property as quickly as possible.  Why?  Because they get paid for closing a transaction.  And, in fact, the more you spend the more they get paid.  Granted, their commission is traditionally paid by the Seller.  But this is an odd and counterproductive tradition.

In this age of broadband internet and consumer navigation systems there is really no need for a traditional Buyer’s Agent.  The problem is that the Realtor cartel is keeping incentives for Buyers to use them: If you buy a house without an agent, you don’t get a rebate.  If you buy it with an agent, the Seller pays double the commission — and the Buyer’s Agent gets half of it!  As a Buyer, why wouldn’t you use an Agent, when the cost to you is essentially nothing?

The answer is that Buyer’s Agents have incentives that are somewhat at odds with the interests of Buyers.  Both parties want to see the Buyer buy a property.  But the Buyer wants to find the best possible property at the best possible price.  The Agent — whose entire compensation comes as a percentage of a closed deal — wants the Buyer to end up in the most expensive possible property as quickly as possible.

At times the incentives may be even more opposed, as The Wall Street Journal highlights in today’s article, “Do Real-Estate Agents Have a Secret Agenda?

Real-estate agents increasingly have lucrative incentives to push one home over another.  Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer’s agent 2% to 3% of the home’s price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.

The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can’t make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents’ influence can be particularly strong with newcomers to an area who don’t know which builders are considered most reliable and which neighborhoods most appealing.

The obvious solutions to the myriad problems surrounding Buyer’s Agents:

  • Buyers should pay a lawyer or licensed real-estate professional directly (by the hour, or by the job) for helping them to negotiate or close a deal.  That is the only way to ensure that the Buyer’s interests are represented.

  • Buyers should require that any additional compensation accrued by their Agent in the course of a transaction be given to the Buyer.  I.e., there is no reason for the Agent to enjoy an undisclosed kickback in the course of his employment for a Buyer.

  • If Buyers need the “search” services provided by the traditional Chauffeur Agent, they should agree to compensate the Chauffeur for his services but should require that any excess commission the Chauffeur earns from steering the Buyer to a deal should be returned to the Buyer.

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The Three State Solution for Iraq November 7, 2006

Posted by federalist in Diplomacy.
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Can we turn Iraq into a democracy?  Byron Winn, in a letter today to the WSJ, debunks the erroneous assumption of our current strategy:

Rather than either “stay the course” in pursuit of a unitary state or abandon Iraq entirely, the U.S. needs to help the three nations of Iraq to attain statehood. In short, we need to undo the post-World War I folly that was the state of Iraq from the beginning.

Iraq’s split into Kurdish, Sunni and Shiite nation-states may be historically inevitable — and actively pushing this course rather than fighting it may be the best way for the U.S. to regain the initiative in the region. This policy has two further advantages: First, it is consistent with our historical and ideological commitment to self-determination; second, this outcome would be just — an independent Kurdistan with a U.S. security guarantee rewards the Kurds for their cooperation and reminds the Turks there are consequences attending non-cooperation with U.S. policy. A Sunni nation-state, without oil and caught between two enemies, is the appropriate prize for decades of Ba’athist dictatorship and oppression of Shiites and Kurds. (We should, of course, arm the Sunnis.) And a Shiite state in the south adds nothing to the region that isn’t present already: Iran is already an Islamic dictatorship with oil, hosting terrorists and sponsoring terror on a global basis.

Even if the Arab Shiites annexed themselves to Iran (and they won’t, because they are Arabs and the Iranians aren’t), that won’t significantly change the dynamics in the region or globally. In any event, the new Sunni and Shiite states will be too busy fighting each other to make much trouble for anyone else. (We should take care that neither side gains the upper hand for long.)

Instead of fruitlessly opposing the forces of history, why not use them to our advantage?

The Coal Liquification Initiative November 4, 2006

Posted by federalist in Energy.
2 comments

Dave Neeleman claims a very appealing energy intiative: Coal liquification.  At a time when ethanol initiatives have driven up the price of corn so much that it threatens our domestic food supply, technologies and infrastructure to exploit our continent’s massive coal reserves seem like an increasingly obvious solution to foreign energy supply problems.

Mr. Neeleman in recent months started drafting a bill that would authorize the government to provide economic underpinning for private efforts to build coal-to-transportation fuel plants. The legislation, introduced in late September by Reps. John Shimkus and Rick Boucher, would enable the Energy Dept. to guarantee viable prices — paying the plant owner if crude oil fell below $40 a barrel and collecting a fee if crude rose above a certain, to-be-negotiated price. The bill calls for support for six plants, each producing 80,000 barrels a day, each costing about $5 billion. “I envisioned 70 of these plants,” Mr. Neeleman volunteers, ebulliently revealing his ambition. …

The whole idea is a no-brainer to him: Even if government pays out money, the cost would be small compared to the economic benefit of lower oil prices. “Each one would create 3,000 jobs to build it, and 1,500 jobs to run,” he predicts. The plants, built near mine-mouths, would be unlikely to incur Nimby objections. “It would turn Montana into Dubai,” he says.

Get Checks Out of the Checkout Line November 2, 2006

Posted by federalist in Uncategorized.
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Why, in this day and age, are there still people writing checks in stores?  For groceries?  This should be absolutely forbidden.

If Dante were writing Inferno today I am certain that he would reserve a special place in Hell for people who:

  • Drive in the left lanes when they aren’t passing.
  • Use cell phones loudly in public.
  • Hold up checkout lines writing checks.

We are all familiar with these first two complaints; the world will never lack for those who are inconsiderate and/or oblivious.  But the last of these three — the check-writers — compound their carelessness with stupidity.  For with every checking account is associated a check (“Debit”) card.  And when you use that check card instead of writing a check, the store actually pays you (typically a 1% rebate from your bank) for the convenience you are sharing with its bookkeepers and other customers.

There is no reason for people to carry a checkbook into a store, and — after their cart has been rung up — sit there filling out a date, an amount, spelling out the amount, and as if the Pay To and Date weren’t enough, writing in a little memo to remember that “Acme” is in fact a grocery store, and they were in fact purchasing groceries.  And then after laboriously signing their full name, and adding a bunch of personally identifying information required by the store to process checks, flipping over to their checkbook register and copying all of that information over again.  All this while three people in the adjacent line with more merchandise have completed their transaction by swiping a card, punching in a number, and moving along — secure in the knowledge that their transaction is fully accounted for and available online (often within just hours), and that should they lose their card it is a lot easier to replace than the entire account that would have to be cancelled if their checkbook were lost.