The past several days have witnessed the flare up in the State of Wisconsin over how the State is to deal with teachers, who are employed by the State, to teach children in government schools whose attendance is compulsory. America has witnessed the spectacle of Wisconsin Democratic Party elected officials fleeing the state in order to avoid a vote over a reduction in benefits that are paid to teachers, while some 30,000 - 60,000 teacher unions supporters have besieged the capitol in Madison. Meanwhile, Tea Party groups counter attacked yesterday, staging their own rallies to support Wisconsin Governor Scott Walker. This is a pivotal moment in American political life, that will reverberate on whether more resources will continue to be sucked into the political economy, or whether America will start back down the long road to freedom.
Why Labor Unions, and what they're after
A good question to start off this discussion is this: what are labor unions after? It's a simple question, but if we're going to have anything resembling a rational analysis of what's going on in Wisconsin (or about labor unions at all), we're going to have to go back to first things first. The answer is simple: labor unions organize, presumably to help their members achieve a better life, whether that can be achieved through better working conditions, better pay, better non-wage benefits, more vacation time, shorter working hours, or by some other means.
So, a big question for labor unions is, how do you go about achieving your goals? A second, but more subtle question I will ask, but not address here is this: Would competitive labor markets secure what unions would otherwise be after?
In an economy that is organized around markets, and to a large degree the United States economy is still organized around markets, people are for the most part paid at their marginal level of productivity. If you can make 10 widgets per hour and get paid $10 per hour, but then figure out a way to make 15 widgets per hour with all other things being held constant or with nothing changing, then you will eventually start getting paid for your higher level of productivity.
This idea or principle makes life difficult for would be labor unions. If your goal is to improve compensation for the workers in your labor union, then either you have to figure out a way to make them more productive, or else you're going to have to figure out ways to force would be employers to start compensating workers more.
Yes, labor unions do offer training and educational courses for apprentices in some of the construction trades, but for the most part labor unions choose to do the latter. In the parlance of economics, labor unions engage in what is known as rent seeking.
So what things do labor unions do to try to compel employers to reward them more than they would otherwise? There are a number of different things that labor unions do, and they do them for different reasons. First, one must recognize that competition in labor markets is an anathema to labor unions. Therefore, the logical thing for labor unions to do would be to act in such ways that stomp out the competition and yes, the Wizard knows - corporations and business do the same thing, but if you think about the matter carefully, sometimes the interests of business and labor unions meld together!
So, how would a labor union go about shutting out the competition via the political process?
1) Go to elected officials and get them to pass closed shop legislation, or alternately union shop legislation, which would outlaw non-union competition labor in the labor market. The Wikipedia entry notes that Closed Shops are outlawed in the United States after the Taft-Hartley Act of 1947 was passed, which in turn amended the Roosevelt Era National Labor Relations Act. More about this later.
2) Shut down anything resembling free trade with other countries, as trade invites competition, but it also frees up resources for people to pursue gains to be had via comparative advantages. That's why labor unions went berserk when their man, Bill Clinton, managed to push through the NAFTA free trade agreement back at the beginning of 1994.
3) Try to attempt to interfere with the free movement of capital, since business can invest their money in places where there is non-union labor competition or labor union unfriendly legislation in place, such as right to work states, or investing in other countries. Unions have largely not been able to prevent the movement of capital.
4) Employ the political process and the law to create barriers to entry into the job field in order to reduce the number of people who can legally enter and practice in the job field. Doctors and lawyers come to mind, and doctors voted to unionize in America back in 1999. Licensing of workers is widespread in union dominated job fields, including employing the use of teaching certificates to be employed as a teacher, and licensing in the construction trades.
5) Labor unions will often support such ideas as minimum wage laws. Why? Because gentle readers, minimum wage laws are a floor on the price of labor, ergo some people who might be willing to work in labor markets for lower than the minimum wage will be banned from doing so, which diminishes competitive pressures in labor markets.
But this isn't the end of economic analysis of labor unions. As we have seen, unions try to justify their existence by increasing compensation for their members, but in order to do that, it implies that unions will form in organizations and markets that will be around for a while. People who want to form labor unions will not bother to waste their time organizing for spot markets, say for example, fire works stands (which pop up for the Fourth of July and for New Years, but are dormant for the rest of the year). Instead, labor unions will target situations where they can sit down and dig their claws into. Examples include the automobile industry, which has been a huge economic force now for the past 100 years, the oil and gas industry (or more carefully, the oil refining industry), employment at shipping ports (which could be around for centuries), and yes - governments.
In other words, what labor unions want is a marketplace where there will be an inelastic demand curve for the labor that the labor union provides. That in turn means that unions can really only thrive in an environment where the factors of economic productivity are stuck in place, or stuck in country. Anything that promotes mobility of economic productivity is a death sentence to unions, whether those factors are people or investment capital. It's impossible to capture economic rents when productive factors are mobile and can run away from you.
Governments are particularly attractive for labor unions simply because they have a monopoly on force, and once formed they stay stuck in place and never go away - unless they are overthrown! Talk about setting up an inelastic demand curve for union labor! The London Tube system has been around for over 100 years, and yes, the labor union that Tube workers belong to has been very successful at extracting rents. The City of Houston was founded in 1836, and received its home rule charter in 1905, and doesn't look to be dissolved any time soon.
More pertinent to what's happening in Wisconsin (and in Ohio, and it may well come to Texas within the next month or two), attendance at government schools is compulsory and is enshrined in law for 12-13 years of a child's life in many places around the world. In Texas, Chapter 25,094 of the state education code makes failure to attend school a Class C misdemeanor offense, punishable by up to a $500 fine. The legal compulsory universal attendance of school literally sets up a politically created market, composed of a never ending river of kids that will go through the system, that literally will never end as long as kids are compelled to attend school by state fiat. It should be absolutely of no surprise to anyone that eventually school district employees around the country eventually unionized. They knew they were going to be there today, and that their jobs were guaranteed to be around tomorrow, so why not sit around and unionize and start extracting some economic rents via the political process?
More to the point, compulsory schooling and its drawing of education into the political economy, has turned schools into jobs programs. This past week, the Wizard attended a forum in the Texas Capitol, where I picked up a booklet about Texas government schools. The booklet stated that 665,000 Texans were employed by the Kindergarten - grade 12 school system, with 4.8 million kids enrolled, with a little over 50 percent of those employees being actual teachers. Maximum student to teacher ratios are in fact enshrined in section 25.111 of the Texas education code at 20-1, making for a rigid regime, and guaranteeing that vast taxpayer resources are to be dedicated towards schools (albeit, to be fair to Texas government school teachers, they are not members of unions). In fact K-12 government schools in Texas (and America) employ some 6-7 percent of all Americans in the labor force, and as we are witnessing in Wisconsin, when you have that many people employed by the state, they (and their spouses and families) become powerful voting blocs to be reckoned with.
And that leads the Wizard to his next topic, which is....
A short history of labor unions in America, the law, and assaults on freedom of contract
Labor unions were not around at the time of America's Founding, though there were earlier versions of what could be classified as labor groups. Many countries in the Middle Ages had trade guilds, which could be seen as a form of unionism (as well as cartelism).
But the modern version of what we've come to know as unionism really got its start a little over 100 years ago, and particular when the legal assaults on the freedom of contract were waged and prosecuted over a period of some 60 years. University of Chicago law Professor Richard Epstein artfully describes how this assault occurred in his book, How the Progressives Rewrote the Constitution. The opening skirmish in labor unionism and labor law was in the famous case of Lochner vs. State of New York, which invalidated state laws to regulate working hours.
But the Progressives didn't stop their attacks on freedom of contract, and they usually employed moralistic tones when pushing through their legislation that started placing curbs in freedom to contract, such as in the prized political achievement of outlawing child labor. Now, most Americans living today would be horrified at the prospect of children working, but it's quite easy for us to forget amidst our lavish wealth that children were (and in some areas of the world still are) sent to pick the fruit and work the fields since time immemorial.
Moreover, and this is extremely important, Professor Epstein notes in his book that child labor in America was already on the decline while the Progressive era was unfolding! In other words, the legislation prohibiting child labor was largely unneeded for the simple fact that parents of the era were starting to recognize that the jobs of the future were going to require that kids learn their readin', writin', and 'rithmatic, and that it would be a better thing if they started investing time and effort educating their children, rather than send them off to work a job.
But what was important is that America was stuck with the precedent of using legislation to assail the freedom of contract, and once you start traveling down that road, each legal step along with way is justified by the previous step, and each step enshrines state action.
But freedom to contract was not only assailed through child labor laws. Over time, labor unions were granted more rights enshrined in law, culminating in the 1935 National Labor Relations Act (aka the Wagner Act). It was this act that established that workers and unions could engage in collective bargaining with private employers, but even the New York Times notes that Franklin Roosevelt did not go so far as to allow within the law for unions to engage in collective bargaining with governments, calling the idea "unthinkable and intolerable." But it wasn't until 1959 that states first started allowing for government employees to engage in collective bargaining with elected officials, and ironically the first state to do so was.... the State of Wisconsin. But the practice soon spread, and now we have numerous states that are hemorrhaging in red ink from underfunded pension woes, a problem that lurked out there until it was - like so much - finally brought out into the open by this ongoing recession.
So why was there so much political and legal support for collective bargaining? One big insight can be gleaned from reading a passage in Professor Epstien's book, where Epstein quotes former Supreme Court justice Felix Frankfurter, who wrote in 1920 in the Yale Law Review:
"Collective Bargaining" is the starting point of the solution and not the solution itself. This principle must, of course, receive ungrudging acceptance. It is nothing but belated recognition of economic facts - that the era of romantic individualism is no more. These are not days of Hans Sachs, the village cobbler and artist, man and meistersinger. We are confronted with mass production and mass producers; the individual, in his industrial relations, but a cog in the great collectivity. The collectivity, must be represented and must be allowed to choose its representatives. And it is through the collectivity, through enlisting its will and its wisdom, that the necessary increase in production alone will come. Needless energy is wasted, precious time is lost, precious feelings are diverted and disturbed by the necessity of fighting for the acceptance of the principle of collective bargaining instead of working out the means and methods of its application.
In other words, according this world view expressed by Frankfurter mirrors the world view of the "Progressives" of 100 years ago. Much like how John Maynard Keynes created an economic theory that emphasized an economy that was composed of nothing but aggregates, America (and indeed the world) was, according to the Progressives, filled with nothing more than empires of massive corporate employers, employing faceless masses of people, all doing soulless and meaningless work. The only way forward in this new, 20th century, mass industrial world was to allow the troops to organize themselves into a mob empowered by Democracy, and, if it came down to it, hold the big evil employer at ransom if that's what it came down to it. Yes, unions are thuggish. After all, this was politics, and in this new world there was no room for the individual. Such ideas - and that included the freedom to contract - were held by Progressives to be antiquated and belonged to the horse and buggy world of 1776 and 1789. Congress in modern day America was now held to have the power to do anything needed to alleviate any alleged miseries and alleged social problems, all in the name of the public welfare, and government solutions to problems ultimately involve socializing costs and enacting some form of collectivism. That's what the Progressives dumped on America, and that's what they're still fighting for.
But what about now and what about the future?
The Tea Party movement erupted in late 2008 - early 2009, in part because big corporations like General Motors and Chrysler, along with their labor union employees, were being bailed out instead of being allowed to fail when the American economy went south, and for when there wasn't a desire to buy their products. The perception amongst millions of Americans (and that perception was in fact the reality) was that Congress, and President's Bush and Obama, were bailing out favored and privileged groups, while sticking the taxpayers with the bill. What we are seeing now in Wisconsin, and which will probably spread to other states, is round two of what happened two years ago: that another group of workers, this time employees of the government who are in the political economy, who are ostensibly paid to educate kids, are also fighting to hold onto privileges that they've been granted via the political process, and that they somehow believe that they should be immune to the economic forces that have wiped some 8 million jobs away from the American private sector economy.
One issue that freedom minded Americans, and that includes Tea Party members, are going to have to confront is the issue of government involvement in education. I've discovered over the past two years that there are plenty of people (including Republicans and Tea Party members) who believe in the status-quo, and that includes State government mandates that the state is to compel kids to attend school by force of law. At a deep and fundamental level, such an idea is incompatible with true liberty and freedom.
It may well be that for the meantime with regards to State governments, liberty fighters will have to content themselves with merely holding back against the powerful wave of constituencies, including Medicaid recipients and the medical profession, as well as fierce political demands to keep things as they are for the government school empire. I'm not sure how many Americans are ready to deal with home schooling their children, or putting them in private schools, which would be the ideal solution for dealing with the problem of government schools and government school labor unions. My suspicion is that many business leaders also politically support government schools, on the precept that they would be afraid of what kind of labor force they would get should the government school system be abandoned.
Having said that, America has in general managed to mute much of what labor unionism did in the private sector. Companies can move their investments away from labor union disruptions and reach, and the marketplace can always act to discipline participants. Union membership is at an all time low, and is not expected to come back. Most Americans seem to understand and accept the idea that they are not entitled to their jobs, and that's important. That idea now has to be enacted and extended to government.
Wizard
Last Friday at an event, a reader reminded me that I had not posted since October 4th, and it was high time the Wizard got off his rear and wrote something. So, the Wizard decided to turn his gaze 170 miles west towards the City of Austin, and started contemplating the madness, chaos, hell storms, and deep in the night swindles and trickery that will ensue once the 82nd session of the Texas Legislature is mustered and is called to order come January 2011.
By now, gentle readers will know issues the Texas Legislature will have on its agenda: How will Republicans govern with a huge majority of 99-51 in the Texas House? Redistricting the district boundary lines for both state and federal elected officials will consume much time. Ever since the State of Arizona passed its legislation on border issues, there has been much clamor on the political right to address the Texas-Mexico border. There will be a renewed push for photo identification for voters, but the perhaps the biggest issue that is really making everyone nervous is what the Texas Legislature will do about a possible $20+ billion shortfall in the state budget.
A brief digression. Texas, like nearly all other states but unlike the runaway federal government, has a state constitutional requirement that its budgets are balanced. States do not have printing presses at hand, unlike Congress which has the U.S. Treasury and Federal Reserve at its disposal. In one of the early American Republic's first economic crises, the panic of 1837, many American states went into default. The fallout from that economic recession was nearly all U.S. states adopted fairly strict budgetary rules against any kind of official long term borrowing. On paper, the books have to balance.
So how did the State of Texas find itself in such a fiscal mess that it is in now? Perhaps the best source for overall budget issues is to visit the Texas Budget Source website. There, one can find trends in State government, as well as what the State spends on general line item appropriations. The website also has links to the budgets of cities, counties, school districts, and other special purpose districts. What a website!
A general overview of the state budget quickly shows that the "mommy" issues of state funding of schools and health care predominate the state budget. The two year, 2010-2011 state budget was set during the 2009 Legislature at $182 billion. $75.5 billion of this was state funding of education, with $53 billion going to local government school districts and the other $22 billion going to universities and higher education. Another $60 billion went to "health and human services", meaning mostly government funded medical care. Of that figure, nearly $34 billion came from the federal government in the form of federal taxpayer monies that were redirected by Congress to the state. So, of the $182 billion state budget, government schools and HHS funding (primarily of health care) amounted to $135 billion or nearly 75 percent of the state budget. Moreover, 37 percent of the state budget, some $68 billion, came from Congress.
Other item of interest is that the Texas budget source website clearly shows that it is government funding of health care and schools that are the drivers of the budget. The HHS budget has grown from $30 billion in 2000-2001 to nearly $60 billion over the past 10 years, while state funding of education has grown from $45 billion to $75 billion over the same time period. The state population has grown from some 20.8 million in 2000 to some 25 million in 2010. An online inflation calculator shows that inflation from 2000-2010 was 28 percent. Putting a combination of population growth and inflation pressures reveals that overall state funding of schools has somewhat outstripped population growth and inflation, but state funding of health and human services has way outstripped population growth and inflation.
Combine all this spending growth, along with their massive political constituencies, and put it together with a slow economy, and presto! the state gets a big budget deficit.
A big story that made the headlines over the past week was that in order to close the $20 billion gap in state financing, some lawmakers were considering the idea of having the state drop out of the federal Medicaid program. The New York Times story noted that early indications were that dropping out of the program would have a tremendous financial ripple effect.
Consider this: Progressives manage to pass a U.S. constitutional amendment in 1913 imposing an income tax on Americans. Then over the next 100 years, a vast array of programs get enacted by Congress, whereby Washington distributes hundreds of billions of taxpayer dollars to the state governments, whose own residents were the ones who paid those dollars in the first place. So, the game is often set up whereby state governments roll over and do what Washington says, if only to capture those dollars for their stated purpose. In the process, the states effectively became nothing more than appendages of the federal government.
As a Tea Party person, one question to be asked is this: Is Medicaid constitutional? I hate to pester people with this, but no doubt the progressives would reply that, yes it is! Why? They'd probably hang their hats on the usual suspects - the ever expanding Commerce Clause and Congress's taxing powers. Not to mention that as long as the New York Times thinks that me being forced to pay for somebody else's nursing home care is a good idea, and because it's a good idea in their opinion, then gosh darnit, it's constitutional!
Medicaid, as the Wikipedia entry notes, was enacted in 1965, as part of the massive wave of Great Society programs. Whereas Medicare was envisioned as yet another social insurance Ponzi scheme add on to the Social Security Ponzi scheme, Medicaid was a straight shot welfare program for the poor. Medicaid is jointly funded by Washington and the states, and on paper the states administer the programs. Participation in Medicaid by the states is voluntary, but once again, if a state government decides not to participate in Medicaid, then effectively that state government is surrendering the income tax monies of their residents to Washington, and neither the citizens of the state nor the state government itself will recapture back those dollars when the state government refuses to participate in Medicaid. Those federal general revenue income tax dollars will almost certainly go to another state or they will be reallocated to another program. In other words, the effect of Medicaid is that a big federal government program leads to big state government, and setting this arrangement up the way the Progressives did was done on purpose. After all, when you've gamed the system this way, why would any state bother to not throw in the towel and start participating in Medicaid?
One big item that was only glossed over in the Times article was what recently transpired in American health care - the passage of Obama Care. The (misnamed) Patient Protection and Affordable Health Care Act of 2009 legislated many things, as any 2,700 page long piece of legislation would, and one big thing that Obama Care legislated was an expansion of 20 million Americans who would eligible for Medicaid, $1,300,000,000,000 per year federal budget deficits be damned and state governments be damned. In other words, one of the things that Congress did was dump a massive unfunded mandate on the states and told them that it was their problem to deal with it. Since Texas has eight percent of the country's population, it is quite likely that the state will be compelled under Obama Care to add another 1-2 million residents to Medicaid under Obama Care, and when you're facing a $20 billion budget deficit already, then hard choices have to be made.
When seen in this light, the floating of the idea by Texas legislators of dropping out of Medicaid entirely deserves a new look. It's not as though Medicaid (or Social Security or Medicare for that matter) is some great achievement. Reason magazine has further reading here, here, and especially this article where some studies show that getting your health care taken care of by Medicaid often results in worse outcomes!
So what would happen if the state of Texas were to drop out of Medicaid? Of course the federal government would then keep several tens of billions of dollars of Texas residents income tax dollars, but the state would be free of federal mandates. The state would then have liberated its citizens to look for private solutions (at the cost of ransoming up its citizens' federal income tax dollars), or the state could figure out some new solution to deal with the issues that Medicaid purports to address. The state would regain much greater control over its own fiscal destiny, not being driven by a major mandate from a overbearing Washington that refuses to get its own fiscal house in order before dumping more mandates on Americans in some fit of Cloward - Pivenism.
Wizard
This past week, the Wizard spotted what seemed to be a little noticed or commented on article in the Houston Chronicle, which addressed the issue that the Houston City Council is debating a proposed rate increase by Center Point Energy. The article states that the Houston City Council is expected to vote on a rate increase for electricity usage charged by the utility.
The Wizard finds it strange that a local government would have the authority to vote on whether a private business should increase or decrease the price it charges for it's product, but government meddling in the electrical utility industry has been rife ever since electricity itself was discovered and harnessed over 120 years ago. Perhaps the most egregious interference in the industry was the long standing granting of monopolies to certain utility providers, something that started early in the 20th century. The industry was largely stuck in this natural monopoly mode until the late 1990's, when reform proposals opening up the provision of electrical power finally were enacted, allowing buyers to choose from many sellers of electrical power.
The rationale for rejecting the idea that the provision of electrical power was a natural monopoly came from the fact that certain large scale businesses found that they were able to generate their own power via cogeneration. The delivery grid, however, often still remains in the hands of one entity, in this case Center Point. One sticking point that came up during the attempts at deregulation or re- regulation was the issue of stranded costs and whether a utility was to be compensated for them. In Texas, utilities that had substantial stranded costs did in fact win authorization to charge for compensation for stranded costs.
But I digress. What was interesting in this story was what that an attorney that was hired by Council to review the rate adjustment:
said rates could go down by as much as $182.8 million. He said CenterPoint is seeking too high an investment return, and other city experts say the utility should consider taking an "austerity adjustment" to share the burden of tough economic times.
Then there's this gem towards the bottom of the article:
The biggest chunk of the utility's increase the city takes issue with is $52 million meant to cover pension-related expenses and liabilities. CenterPoint is trying to inappropriately recover investment losses on the backs of ratepayers, Hall said.
So, on one hand Houstonians have a City government that has raised water rates that it will charge residents by 35 percent over the next four years, and now has a group of politically connected engineers who have put a charter amendment on the November 2010 ballot, which would impose a new drainage levy. But on the other hand, the City is arguing that Center Point Energy must not be allowed to raise the rates it charges for electricity and should take an austerity adjustment due to tough economic times.
Translation, do as we say, not as we do, because the City needs the money while Center Point Energy must do without. This is just another reason why Houstonians should read my blog entry and vote against Proposition 1.
Wizard
Sigh. Another year, another Labor Day weekend - or is it?
Many Americans are no doubt going to celebrate Labor Day by doing what they usually do - have cookouts, perhaps enjoy a parade or some celebration with family and friends, or sit around the house like we used to as kids and watch the Jerry Lewis muscular dystrophy telethon. Meanwhile the labor movement and the media will run the same old stories about how the labor movement was responsible for winning the 40 hour work week, health insurance benefits, campaigning for safer workplaces, and other legislative achievements from days gone by, when the labor movement was in its glory, doing much to bottle up the energy of the economic marketplace. One wonders whether or not the marketplace might have brought this about on its own without the labor movement.
But this year's celebrations of the Labor Day weekend holiday seem to be fraught with the irony that on the day we are supposed to be celebrating the contributions of the labor movement to the pluralism of American life, that unemployment by any measure remains high by historical standards. And in the background, the November 2010 elections loom.
Though many will no doubt be touched by the irony of many being unemployed on Labor Day, those aren't the real issues that America faces today. One problem that many Americans have with the labor movement is that the movement has become synonymous with escalating government employee pay and pension liabilities. Labor unions have become practically irrelevant in many sectors of the American labor market.
More to the point, singing all those self congratulatory praises for victories won long ago aren't the issues that American workers face today. The biggest threat to American workers today is that Americans are increasingly faced with the prospect that they are only allowed to keep less and less of the pay that they work for, and the threat of an all encompassing federal leviathan that threatens to turn everyday Americans into tax mules working for someone else.
Even worse, the U.S. Departments of Labor and the Treasury are going to be holding hearings on September 14th - 15thon the subject of lifetime income options for retirement plans. In other words, in non-bureaucratic speak, this is going to be a hearing on the prospect of nationalizing the 401-k and IRA plans of American workers. Gentle readers should be reminded that the Patient Protection and Affordable Care Act (aka Obama Care) has a provision in it which - as a matter of interpretation - would allow the Feds to have real time access to your personal finances, ostensibly to check on financial responsibility at point of medical service and that Americans are carrying and keeping up with their required levels of health insurance. Of course Congress would never use the administrative apparatus from this to go after the retirement savings of Americans. Or would they?
So the Wizard is going to lay down the gauntlet to the labor movement of America. I don't want to hear about what unions did for me yesterday. The Wizard wants to know (as would many members of the Tea Party movement) is what the labor movement is going to do for me today, and what that means is answering the question of what are labor unions going to do that will allow me to keep my pay and keep the life savings I have worked for? America is coming to a point where answering those questions have become unavoidable.
Wizard
Over the past two years, the Wizard has attended countless events, luncheons, and public gatherings, not to mention read endless stories whereby various experts have pontificated on the causes of the current recession that America, and parts of the rest of the world finds itself in. Typically, the person giving the speech tells a long winded, complicated story about how a set of complex events set the stage for America's economic problems.
Paul Krugman recently wrote in his blog at the New York Times that
The 2007-9 recession was driven by the collapse of a huge housing bubble, and the resulting financial fallout. The Fed couldn’t cut rates sharply, because they weren’t all that high to begin with; there couldn’t be a housing boom, because housing was already overbuilt.
Krugman goes on to show a graph to illustrate his points, namely claiming that conservative economic policies didn't have anything to do with anything. Ezra Klein, a columnist at the Washington Post, whose column Mr. Krugman cites, goes on to talk about Kenneth Rogoff's articles, also cites that America suffered through a financial crisis, and that would also seem to have justified Congress's vast economic interference which it engaged in for the past two years. Mr. Rogoff himself said in November 2009 that the recession was turbocharged by a financial crisis.
The Wizard however, disagrees. A disclaimer before going any further - the Wizard has worked in the oil and gas industry for the past 22+ years. Having said that, the Wizard also knows quite a bit about economic and world history. The Wizard believes that the root of the current economic recession was a classic supply side shock caused by a rise in fossil fuel prices over the past decade, and that this shock effectively exposed and exacerbated any pernicious underlying economic problems which acts by the federal government had previously encouraged.
The Wizard musters economic history to illustrate my points. Over the past 40 years, every time in which there has been a major rise in the price of crude oil, for whatever reason, an economic recession has occurred soon thereafter.
1) A recession occurred in 1973 after the 1973 Arab Israeli war, when the Arabs famously embargoed crude oil to the West. The price of a barrel of oil went from $3 per barrel to $10-$11 overnight. America went through stagflation for most of the 1970's.
2) There was a second recession in 1980-1982 after the Iranian Islamic revolution, when crude oil went from $10 to $40 per barrel before coming back down.
3) There was a third recession in 1991-1992, which occurred after Saddam Hussein invaded Kuwait. World oil markets went into a flutter for a while before settling down again, and America went into a recession.
4) There was a run up in oil prices over the entire decade from 2000-2010, where the price of a barrel of crude oil went up from $20 per barrel to $75 per barrel, spiking up to $147 per barrel in 2008 before falling back down. America went into a recession in 2008 and still remains mired in a historically high levels of unemployment.
Once again gentle readers - economic recessions following rises in crude oil prices have not happened one time, they have happened every time over the past 40 years! That's what happens when you have an energy intensive society, but bear in mind that having an energy intensive society isn't a bad thing. There is a strong positive correlation between energy use, income levels, and economic development.
And the Wizard is not alone in his sentiments. City Journal magazine carries an article in its summer 2010 issue also stating out that there was a run up in energy prices, and argues that the problems with the defaults in housing markets, with Fannie Mae, Freddie Mac ( read these opposing justifications for Freddie Mac and Fannie Mae's existence), the derivatives, and so on all came after the run up in energy prices.
It's important to understand that, the breathless, up to the minute, face pressed up against the glass rantings over at the Oil Drum not withstanding, that world oil markets exhibit both inelastic supply curves and inelastic demand curves. So why can the Wizard confidently argue that the supply curves and demand curves are both inelastic? Well, when you have anywhere from 600 - 900 million vehicles now in use in the world, those vehicle owners are automatically going to use a lot of gas. And from the standpoint of producing crude oil, if you are going to fork out a lot of capital to produce a field of crude oil, you'd better have your ducks lined up when trying to make a decision as to how much capital to commit, and the oil and gas industry spends untold billions every year bringing oil and gas to markets, and refining its products. Once you've committed spending billions of dollars to find, develop, and produce from a field of crude, you'd better be confident that there will be a market for that product, and that creates an inelastic supply environment. Rising prices are also a signal that the marginal cost of lifting new crude oil supplies out of the ground has gone up.
So what to do? If the narrative that the root cause of America's recession was due to a rise in crude oil prices, then America is in for a long period of retrenchment in order to adjust to this new world, but does NOT mean that we should go into a flip out over "peak oil". One of the fears behind the peak oil hysteria is that there is no scalable substitute for crude oil in terms of its use as a transportation fuel, but this is nonsense. The Houston Chronicle has carried a number of articles that Honda makes a natural gas version of its GX, which retails at $18,000 for its gasoline version, but some $26,000 for its natural gas version which comes along with a home refueling station that costs $4,000. As the price of crude oil continues to rise, then if the relative price of natural gas as a fuel justifies a switch, the motorists may well switch to using natural gas as a fuel, and with the discovery of new shale gas extraction techniques, the world probably has generations of natural gas fuel available for the foreseeable future.
As the price of liquid transportation fuels rises, it will prove to be a natural curb to use of cars and trucks, while at the same time issuing a signal to producers of energy to come up with new ways of producing transportation fuels. The Wizard suspects that fuel from cellulose ethanol should become viable at somewhere between $7 - $10 per gallon of gasoline, and then it would be a matter of deciding how much arable land to devote to its production. In the meantime, we have shale oil, tar sands, and other forms of energy that could be produced.
But what about now? As the City Journal article notes, one of the problems that America committed both in the 1930's and the 1970's was that Washington committed a long series of well meaning, but misguided errors that got in the way of recovery. For America to get back on track, the country will have to incorporate higher costs for crude oil and transportation fuels in its future, and Americans will do that. Americans will react in different ways, based on their income levels and personal preferences, and we should note that the Obama Administration has already mandated higher fuel economy in motor vehicles that are produced in the future. Rising prices will mean that crude oil consumption will gravitate towards its highest and best uses, and away from more marginal ones such as driving for vacations or use of petroleum for plastics (we could revert to using glass containers for example). Some will swallow the costs and keep driving, others may decide to buy smaller homes and also keep driving. Some will pare back driving and move closer to work. Some may walk or ride a bike. One thing that few people will do, at least willingly, is take local public transportation.
At the same time, the narrative of higher fuel costs would also have helped explain the failure of the General Motors and Chrysler, as people cut back for the time being on buying cars. That would be seen as part of the creative destruction that occurs in a market economy, making it more efficient, but intervention and favoritism by Washington has interfered with that process.
But over the long run, higher energy costs aren't the most important issue we face. What is really at issue is that having so many interest groups making so many demands on the political system, sucking huge resources into the political system, and running massive federal deficits all do - especially when the country is not fighting for its survival - is that they send false signals on what there really is demand for. How many times, for example, will Nancy Pelosi call the House of Representatives back into session to bail out the local government schools to keep employees on the local government school system payrolls? Does America really need yet another stimulus? More to the point, it doesn't help that Americans will find themselves being hit with higher energy costs, while at the same time having an overactive federal government that is spending itself into oblivion because it is doing so much.
Americans also understand that interference from Washington, such as bailing out AIG, or nationalizing the automobile companies, creates a situation where the government is choosing favorites instead of being a neutral referee and letting things unfold and fall where they may. The real issue is that Washington needs to calm down and quit trying to commit to doing so many things, because running around trying to do so many things creates uncertainty as to government and its purpose. And creating uncertainty isn't good for America or its future.
Wizard
Addendum: A fellow named Philip Stadler writes
I used to wonder how bad things really would have been if AIG had been allowed to fail, to go into bankruptcy and have its carcass picked at by financial companies that were doing things the right way and were solvent enough to pick up those discounted assets. I used to wonder about the repercussions if General Motors would have simply filed for bankruptcy, instead of borrowing $60 billion and then filing for bankruptcy anyway. I don’t wonder about those things anymore. You see, the magic of a successful big government power grab is that now we will never know those answers. The government can never be proven wrong. It is quite possible that letting nature take its course would have cost us an additional three, seven, even ten years of recession... We will simply never know.
"Giving money and power to government is like giving whiskey and car keys to teenage boys." P. J. O'Rourke.
One of the issues that will be coming before City of Houston voters in the upcoming November 2010 elections will be the interest group backed Renew Houston charter amendment. The Wizard has held off commenting on the amendment for some time. The amendment has passed muster with City of Houston secretary Anna Russell's office in that she has given blessing that amendment backers have - on their face - produced the 21,000+ valid signatures necessary to place the amendment on the ballot. Much of the Wizard's tardiness in writing on the subject had to do with the fact that I had stopped writing for a while, but there were other aspects of the charter amendment that I wanted to study up on before posting something substantial about the topic.
The charter amendment can be read here. The Wizard will address each subject in due order.
Does Houston have an overall drainage and street maintenance problem?
That is entirely a subjective question and one the Wizard will not answer here. Yes, the Wizard has noted that there are streets in Houston that do need repair. Interestingly, some of these streets happen to be where Metro wants to built light rail lines. The Renew Houston backers state that the City's infrastructure is old and out of date, but effectively what Renew Houston's backers are really saying is that the City and all the interest groups down at the City Hall haven't bothered to keep up with infrastructure for decades. Now whose fault is that? Are they saying that Annise Parker has spent her entire career in City politics without having addressed this issue before? Why has Houston spent an inordinate amount of time and money building sports temples, redoing all the streets in downtown Houston, building new courthouses, and with Metro wanting to build rail lines? In other words, the Renew Houston camp is effectively telling the populace that Houston has been misplacing its priorities.
Setting that aside, Houston and Harris County already have rules on the books for dealing with drainage. CM Stephen Costello, whom the Wizard has heard speak three times now, has stated that the Renew Houston initiative was not meant to deal with the flood plain problem. He also insists that the City does not have enough money to deal with enforcing rules that require the creation of detention ponds and basins, a claim that the Wizard finds laughable. How much money does it cost to hire someone to drive around the City to simply inspect and report whether developers have installed the required detention, as well as maintaining ditches or storm sewers, and for the City's legal department to take some action? The Wizard suspects that this is probably not all that much, indeed the usual case is that developers are to pay for permits and inspections out of their own pockets. Yet miraculously, the City seems to find plenty of resources to harass the populace for all kinds of other petty issues, but somehow we're being told a story that the City cannot find resources for enforcing detention?
The Wizard shares the view of Ed Browne, who has stated that Houstonians need to tell the City to quit giving variances to detention requirements or simply letting detention slide by on development after the fact, before interest groups simply throw their hands up in the air and cry that they need more money for drainage. It would also help if the Harris County Toll Road Authority, as well as TX-DOT were to fully abide by City of Houston floodplain regulations.
CM Costello has pointed out that the City has three primary resources for funding streets - the Capital Improvement Plan (CIP), the SNAP (Super Neighborhood Action Plan), and via neighborhood petition. The City gets money from the ad valorem property tax, state and federal sources, as well as money from Metro. The Wizard recently stated that Metro owes the City $130 million, but some sleuthing from Tom Bazan recently has hinted that Metro actually owes the City some $390 million.
Addendum: The Wizard has received word that a newspaper here in Houston will be running a story about the City of Houston's unbilled commitments to Metro sometime this week.
The Politics of Renew Houston
The Renew Houston charter amendment was put into play after the November 2009 City of Houston elections. The issue of the state of Houston's infrastructure was not discussed at all by any of the 4 major candidates during the 2009 Mayor's race, nor was it much of an issue in any of the Council races. Obviously, CM Stephen Costello, who is a hydrologist by trade and whose firm has about two percent of its business with the City, has been the primary face of the amendment by carrying water for the engineering constituency. Those gentle readers who are Republicans and see the world through the lens of Republicans = good, Democrats = bad, need to remember this come November 2011.
Mayor Parker has given her endorsement to the amendment, but the Wizard has heard CM Costello state that there are to be no exemptions to the drainage levy, not for non-profits, charities, churches, school districts, or any other organization. The underlined article notes that
[Mayor] Parker also said she opposes exempting any property owners from the drainage fee.
"I don't believe anybody should be exempted. Drainage affects everybody," she said. "If there's an exemption for one category, automatically, someone else is going to have to pick it up. ... I'm going to lay it all out for council and then we'll walk through it."
In other words, it is highly likely that there are interest groups already lobbying for exemptions from the Renew Houston levy, and yes Houston has seen its City Council give price discriminatory preferences to certain interest groups with regards to water related issues, and it is highly unlikely that the adoption of the charter amendment will result in any let up of lobbying efforts by various interest groups for relief from the levy.
CM Costello has stated on stump speeches that it is the intention of amendment backers that there is to be a website that will detail all of the projects that are to be implemented with amendment monies. The intention is to divide the City into roughly 50 zones, with projects to be ranked for priority in each and every zone. At an Houston Property Rights Association luncheon on June 3rd, 2010, on member of HPRA asked CM Costello who would be the ones determining what projects get done, and Costello stated that it would be Public Works and Engineering that would be making the call. Another asked whether Costello could name 10 possible projects that would do the most to alleviate drainage in the City, and Costello said he couldn't answer that question. So far, no website has been produced for this $8+ billion project, and even if one were, there is no doubt that political pressures will come into play with regards to deciding which projects were to be implemented.
The charter amendment also throws in a provision to assess a direct payment for infrastructure from real estate developers on all new development that occurs within the City, over and above the initial $125 million revenue floor that is to be generated by the drainage fee. In practice some developers already do this (the Buckhead developers of Ashby Highrise threw in $500,000 in infrastructure improvements as part of their development), but the charter amendment institutionalizes this. The Wizard shares Tory's view that the assessment on new development will slowly have knock on effects over time, but isn't so certain about whether the City can arbitrarily whack new development with outrageous impact fees. Provisions in Chapter 395 of the Texas Local Government Code and due process could temper that.
The Renew Houston charter amendment will go through the process of adoption that every charter amendment does - at the ballot box. City of Houston voters, or at least those who feel motivated enough to bother to show up on election day in November, will vote via the democratic process whether to increase fees (or taxes - more about that later) on each other. The Renew Houston amendment does have a sunset provision in section C, that if the amendment is adopted that the charter amendment can be only terminated after 20 years have passed, after public hearings have been held, and only at the vote of two-thirds of City Council members. Next year the City Council is set to expand to 17 members, ergo it will take 12 members to vote to sunset the amendment.
Defenders of Renew Houston's arrangements for voting the levy into existence while only allowing possible undoing of the levy through Council action once every 20 years may try to defend their actions by pointing to the Proposition 2 revenue cap charter amendment, but Prop 2 stated that Council could exceed revenue growth through inflation and population growth - the Council merely had to go to voters. But given that the City has fought this battle in the courts and that Bruce Hotze, who is the plaintiff in the case, has told the Wizard that the City doesn't bother to abide by Proposition 1 (which limits property tax increases) anyway, so any comparison between Renew Houston and the earlier revenue limiting propositions really doesn't apply.
What this really means as a matter of practical politics is that future City Councils will be granted the authority to consider once every twenty years whether to vote to give up this funding, something that at the current time will be amounting to roughly one sixth of current City of Houston property tax collections. Folks, no one person or group is ever going to be able to muster enough political muscle or pressure to get two thirds of future City Councils to vote to repeal this amendment, unless the levy is set so high that political pressure becomes insurmountable. If Renew Houston backers want voters to impose a new levy on their fellow citizens via the ballot box, then they should have incorporated a sunset provision that would have allowed for voters to sunset the charter amendment, and not leave that decision in the hands of City Council.
Otherwise, for all practical purposes, voters are being told to vote a levy on themselves on all land in the City of Houston, one that will go on in perpetuity, for a mega-project whose scope is not defined. And mega-projects have a habit of spiraling out of control.
The finances and legalities of Renew Houston
Houstonians need to understand that Renew Houston has a specific revenue floor provision in the amendment, which at first is meant to raise at least $125 million from drainage fees alone in it first year of implementation. Amendment backers have been telling the public that the rate of the new drainage fee levy will be $5 per month on a 2,500 square foot house that sits on a 5,000 square foot lot (about $520 per acre per year for residential property), while commercial properties are to be levied at $90 per month. However, the charter amendment language does not have any language in it setting rates for any class of property, whether improved or not, nor are there provisions that set the levy for any fixed length of time. Again - the language stipulates a revenue floor that is to be generated by the drainage levy. This is in fact a wide open levy. There is nothing stopping Council from making this levy $10 per month on households, $20 or $30 per month, other than political pressure, nor is there anything stopping council from practicing price discriminatory behavior on this scheme.
Strictly speaking, the Renew Houston levy can be looked upon as either a property tax or a fee. The key here is that the levy falls on the amount of square footage of property, as well as the amount of permeable area on the land parcel. It is not an ad valorem tax because the levy is not dependent upon the value of property, nor any improvements on property. The initiative has a provision that Proposition 1 ad valorem tax increases do not apply to the initiative. At the first public meeting that was held on Renew Houston in the Heights back in May 2010, the Wizard asked CM Costello directly whether the charter amendment conflicted with Proposition 1 or 2? Costello pointed his finger at me and told me that it did not, and no, Renew Houston was not a tax!
Harris County Tax Assessor candidate Don Sumners has provided a table that indicates that the levy is the equivalent of a 13 percent tax increase, were the levy to be done as a property tax increase. The numbers can be quibbled with slightly, but the general analysis is still valid. In other words, were the Renew Houston levy to be done by equivalent increase in property taxes, the property tax rate in the City of Houston would immediately rise from 63.875 cents per $100 of taxable property to roughly 72 cents per $100, with possibly higher rates to follow.
On July 8th 2010, the Houston Chronicle ran a story on Renew Houston that mentioned that engineer Allen Watson, who is a board member of the Metropolitan Transit Authority, was active in promoting Renew Houston. Given this is the case, it is reasonable to infer that if a board member of Metro was actively involved in trying to get this amendment passed that Mr. Watson in fact speaks for the agency as a whole.
And why would Metro be interested in seeing this pass? Because the agency is supposed to be handing over 25 percent of its sales tax revenues to its member Cities, but if the interest groups promoting Renew Houston were to succeed in getting the petition passed, then the City will be in a much stronger position to waive its portion (73 percent) of the sales tax that gets allocated to the City, effectively allowing the City to rebate that back to Metro - not that the City has been collecting all its monies anyway. Doing that would put Metro in a much better position to be able to float billions of dollars in bonds to build light rail lines. In theory, none of this is supposed to be happening, but money is fungible. As a practical matter citizens have no real control - or ability to enforce - whether politicians or governments collect monies for one stated reason, but in fact allocate them for other purposes, and there's no reason to expect otherwise that the City will in fact use all monies brought in by the new levy from Renew Houston in the manner that amendment backers are advertising. Reaffirmed State law confirms the fact that the City of Houston can in fact transfer monies collected by this new drainage levy to the City's general fund, so any talk about monies collected by the levy going into a "lock box" is bunk. Politicians always make such claims, and they transfer monies at every level of government.
Opposition to Renew Houston
There will be a campaign launched to oppose Renew Houston. The opposition will be bi-partisan, as the Wizard has been privy to communication within both the Democratic Party and amongst Republicans opposing the measure. The levy is regressive, open ended, and its means of implementation was designed to attempt to avoid political accountability by dumping the question of the levy increase directly onto the voters, rather than have politicians have to face the political consequences of arguing for and imposing a tax increase directly. Once implemented, the levy will politically be very hard to repeal or sunset.
But as one friend of the Wizard stated to me recently, the backers of Renew Houston have been tone deaf, politically, on pushing this through on Houston residents in a slow economy. The Wizard could be tempted in voting for Renew Houston, if in exchange the Houston City Council were to come up with a viable reform plan for curbing the real problem the City faces - that of pension liabilities to former and current employees. Absent that, the Wizard has decided to oppose the amendment and tell the backers of Renew Houston, no thank you, I'm voting NO to Proposition 1.
Wizard
Addendum: Last week the Wizard promised to start publishing on a regular Sunday schedule. I did in fact work on this entry over the weekend, but time and length of this post caused me to miss my self imposed deadline. The Wizard will be back on schedule next weekend!
Addendum #2 (September 28,2010): This is the ballot language for Proposition 1, at least according to the Harris Votes website. Note that there is no mention of the new levy, nor of the fact that voters will not be allowed to vote to repeal the measure in 20 years:
City of Houston, PROPOSITION NO. 1
CHARTER AMENDMENT PROPOSITION
Relating to the Creation of a Dedicated Funding Source to Enhance, Improve and Renew Drainage Systems and Streets.
Shall the City Charter of the City of Houston be amended to provide for the enhancement, improvement and ongoing renewal of Houston's drainage and streets by creating a Dedicated Pay-As-You-Go Fund for Drainage and Streets?
FOR
AGAINST
Addendum #3 (October 26, 2010): The Houston Chronicle has reported that the City of Houston's general revenues (from taxes and fees) have increased from $1.4 billion in 2004 to $2.1 billion in 2010, while the overall budget (which includes the enterprise funds such as the airports) has gone up from $2.6 billion in 2004 to $4.05 billion in 2010. So why does the City need another major revenue stream when it's revenues have gone up by 50 percent (non-inflation adjusted) over the past six years?
About two weeks ago, Houston Chronicle columnist Rick Casey carried the story of the resolution of a scandal over at HISD, concerning the work performance of Kashmere High School principal Mable Caleb. Chronicle reporter Ericka Mellon wrote on how the HISD probe had widened to reaching Key Middle School. Employees have been implicated in an investigation that found evidence of cheating on state tests, profiting off student fundraisers and nepotism.
The Wizard generally doesn't get interested in what goes on in government schools, mostly because even though I pay taxes to HISD, the fact of the matter is that HISD is a government school district that has 200,000 students, some 20,000 employees, and a mob of interest groups. There really isn't too much I can do to have any influence on what goes on there. Government schools are a mess that are now effectively beyond redemption, with no end of apologists to speak up for them. Spending on government schooling has skyrocketed over the decades, but SAT test scores have effectively been either flat or declining over the past 40 years.
But none of this is what really caught the Wizard's attention. What caught my eye was that Rick Casey reported that HISD Superintendent Terry Grier got a phone call two days before Christmas from Congresswoman Sheila Jackson Lee, as well as State Representative Harold Dutton, and HISD trustee Carol Mimns Galloway. As Mr. Casey's story made it clear, the phone call that Ms. Jackson Lee gave Mr. Grier was not exactly about wishing Mr. Grier a Merry Christmas and a Happy New Year.
The responses to Mr. Casey's story were telling. Reader "mimi3" wrote,
The arrogance and gall of SJL to think that she can interfere in HISD affairs and tell the superintendent how to do his job is just disgusting. Obviously, she has been doing this for quite a while. It will be interesting to watch the fur fly if Grier continues to stand up to her!
This reader has a very interesting point to bring up, namely what was Sheila Jackson Lee doing yelling at the head of a local school district, presumably telling him to call off the dogs on an internal investigation into possible malfeasance within a district school? After all, HISD does stand for the Houston Independent School District.
Well, that begs to start asking what influence does Congress have over our schools? On paper, not much. 90 percent of government school funding comes from local taxpayers, and state governments. It is state governments, through their education codes, that compel kids to attend school, and set out the overall government school agenda. However, this 10 percent level of federal funding is up from the 6 percent that it was back in 2000, before President Bush came along and decided he needed to show voters that he cared about their kids through compassionate conservativism.
Where Congress does have influence is through money. Thanks to lots of payroll and income taxes, along with all that borrowing power, Congress has passed a slew of mandates and enacted plenty of programs since the 1960's. The 2009 federal budget, which had $1.5 trillion in red ink, included a $96 billion infusion from the ARRA, a $53 billion injection of federal funds into local school systems in the form of the State Fiscal Stabilization Fund, which included $5 billion for Mr. Obama's new federal program Race to the Top. Other long standing federal directives include the Individuals with Disabilities Education Act (IDEA), which will dish out $12 billion in 2010, but has gotten criticism as yet another unfunded federal mandate amongst other issues.
So, the federal government's role in education has mostly been one of being a money dispenser, not as the primary rule maker. However, even that relatively small role is more than enough for a member of Congress to take an interest in a local school district if he or she chooses. After all, he who has the gold gets to make the rules, ergo Mrs. Jackson Lee might well have threatened Mr. Grier with cutting off federal dollars for HISD under the Stabilization Fund, from Elementary and Secondary Education Act funds, or from IDEA. But ultimately, who knows what was said, other than those who participated in the phone call? All we know is that Mrs. Jackson Lee did make the call. And why did she do it? Because she could, that's why.
The point being made here is that liberals, or others who justify federal intervention into schooling if for no other reasons than that it attracts votes, cannot expect the world to work as planned after they enact such programs. If you advocate federal intervention into government schooling, then don't be surprised when a member of Congress decides to take an interest in what otherwise is a local problem that has nothing to do with federal acts that purport to remedy some alleged social deficiency. This episode shows the dark underbelly of federal funding of local government schools, and it is something that few people care to behold. The only way we can truly rid of members of Congress not having any leverage over schools at all is to legalize freedom and pare back a massive federal government. Otherwise, it's only a matter of time before another member of Congress, or a federal judge for that matter, tries to browbeat hapless local officials or citizens into doing their bidding.
Wizard
About two weeks days ago, the Wizard wrote about the death of an aunt of mine on my mother's side. This is the story of observations I made on the trip I made to Chicago and back.
The trip to Chicago
My father and I left Houston in his rather spacious automobile circa 1-2pm in the afternoon. We went over to my brother's residence where my father left him some instructions and house keys before we hit the open road. We ran into traffic congestion no fewer than five times within the first 35 miles before finally hitting some open road along I-45. We avoided the I-610 loop construction, but it was raining pretty hard that day and there were a number of accidents which were eliciting lots of rubber necking from drivers.
I had wanted to get out of Houston using U.S. 59, but I got into an argument with my father, who wanted to use I-10 to avoid the reconstruction work going on at the 610 Loop and get onto Interstate 45. We were leaving about 1pm and I told him that if we used I-45, we would run into evening rush hour traffic in Dallas. He would have none of it, so off we went, toughing it out up I-45.
The road way finally opened up somewhere around Conroe and off we went. True to form, we reached Dallas around 5pm and promptly ran into Dallas evening rush hour traffic around the point where I-45 ends and the road continues, turning into State highway 75. As with Houston, there are only either three or four lanes that go through downtown Dallas. It took a good one hour and twenty minutes to make it through Dallas and its northern suburbs before the traffic lightened up again. I was amazed how far the region had suburbanized. I spotted a new interchange that was being constructed in the outskirts of the Dallas Metro along highway 75. It will be needed.
As it was, I drove along highway 69 through Oklahoma, eventually hitting Interstate 44 east of Tulsa, which led to St. Louis. While driving along I-44, I saw a night train rolling in the opposite direction along the Interstate, reminding me that many of our roads followed where the trains ran.
We went through St. Louis around 4:00 am. I found the road network around St. Louis to be rather tricky. The interstates around St. Louis are full of turns, and the roads undulate with the terrain. If you aren't careful, then it's very easy to miss the turn offs that you're supposed to hit in order to stay on course.
I eventually made it to Lincoln Illinois by 7:30am. I let my father drive the rest of the way into Chicago. He is up there in age. I had let him drive for about 1 hour during the night, but he kept veering off onto the shoulder of the road, waking me up in the process from a brief nap. I then took back over driving until daylight, when it was safer for him to drive. We got into Chicago after 19 hours on the road.
Chicago
Many people have extolled about Chicago having an extensive mass transit system, and it does. Nonetheless, there was no doubt in my mind as my father and I entered Chicago on that snowy morning in late December that Chicago is in fact a city that is primarily built around the automobile.
We came into town and my father briefly drove around the convention center area. I saw quite a few hotels either directly connected to the convention center, or within a few blocks walking distance. The center also happened to be empty as we drove by. It reminded me that there are only so many conventions to go around and that Houston should not be wasting its energies on the convention business. We have far more pressing business to attend to than worrying about fighting over the scraps with a hundred other cities for convention business.
There was snow on the ground the entire time I was in Chicago. The temperatures hovered in the 20's during the day, and dipped into the teens at night. It was okay for a day or two, but after that I started to realize how thankful I was that I did not grow up, nor spend my adult life in Chicago.
I have a niece who is going to university in Chicago. She, like many students, has a car, but often walks with her friends to nearby restaurants and clubs. She also takes public transportation.
On the other hand, we stayed with my God parents while in the city. They never take public transportation, going everywhere by car - and yes, they have a pair of very nice cars! My sister had rented an SUV for the situation, so we mostly went back and forth between my aunt's residence and my God parents' using both vehicles. Only my mother flew into Chicago. We needed cars because it turned out that my aunt had quite a bit of stuff she had accumulated in her apartment. I ended up throwing away some 100 bags of trash in neighborhood bins before I returned to Houston and we took quite a few trips to the Salvation Army to donate items to charity.
Many of Chicago's older neighborhoods have alleyways in the back, where there are parking garages for residents. The alleyways are also where the trash bins, which are city owned, are located. Another item of interest was that in both my aunt's neighborhood and in my God parent's neighborhood, the streets were configured to be one way streets, with parallel on street parking. And yes, parking was often very hard to come by. On more than one occasion, I ended up parking over one block away from where my God parents lived. My father recalled that when the family still lived in Chicago in the 1960's, the streets in those neighborhoods were two way and there were not nearly as many vehicles parked in the street.
My God parents picked up the Chicago Tribune on the Sunday while we were there. While reading the weather pages, I was reminded of a piece of family lore. My father had a lifelong friend who shot a home movie of the blizzards of 1977-1979. For those of you who are not aware, Chicago endured three consecutive winters, 1976-77, 1977-78, and 1978-79, where the city was buried by an avalanche of snow. I recall seeing the home video, mercifully during a Houston summer, as a teenager, but had forgotten about it until I read that story. Another piece of trivia: The chief meterologist for WGN is a fellow named Thomas Skilling. He happens to be the brother of former Enron CEO Jeff Skilling.
But I digress. In 1957, the City of Chicago passed a zoning ordinance that mandated that developers provide one space for off street parking for each residential unit. It became clear to me that this mandate was not providing enough parking for Chicago residents.
We drove up and down Western Avenue many times, as that was the thoroughfare that stretched between my God parents and my aunt's residence. The street has three lanes in both directions, but the outermost lanes are taken up for parallel parking. I also noticed that there were row houses along the street in a few spots, indicating possible spot zoning since the street was obviously commercial. There were some businesses had Houston style parking, such as some CVS / Walgreen's type drug stores and some restaurants we went to. In other words, the zoning codes were clearly not uniform.
There were times where we would see clumps of pedestrians walking in the early evening hours. My father told me that it was likely that those were people who were just getting off work and heading to some neighborhood tavern or nightclub. At one point we passed under an "EL" (elevated rail line). My dad began to reminesce about his life in Chicago before we moved to Houston. He said he would often move to where there was a nearby rail station, as he did not own a car while living in Chicago until he was 36 years old. At one point I asked him how long it took for him to get to work when he lived in Chicago, and he told me about 45 minutes to an hour.
Another item of note was that gasoline prices are some 50-70 cents per gallon higher in Chicago than they are down south. This price discrepancy still held in central Illinois when we bought gas on the way home. I am not sure about why this was the case, but I would not be surprised if the matter has to do with the idea that oil and gas companies have to formulate different type of fuel due to Clean Air Act mandates. This balkanizes the gasoline markets around the country.
The trip home
My mother decided that my dad needed to go home, as he wasn't adapting well to the weather or to the problems of dealing with my aunt's death. Ergo the job fell to me to drive him back to Houston.
My dad directed me to take I-90 / I-94 towards downtown Chicago, then take I-55 south to get out of the city. I'll never forget the view of the skyline of downtown Chicago from a crowded and congested I-90 / I-94. It is not as spectacular as Manhattan's skyline, but it is very impressive. It is that broad downtown area that (at least on paper) justifies Chicago's public transportation network.
As we made it onto I-55, I encountered another amazing sight. It took driving some 30 miles south along I-55 before the traffic finally began to thin out, but that wasn't what startled me. It was that I must have seen 300-400 18 wheelers driving northbound along I-55. At some points, it looked to be that one out of every three or four vehicles was an 18 wheeler. There was a repair facility for 18 wheelers along the road, as well as several parking areas. I caught what I thought was a glimpse of a freight rail line along the way. It reminded me of how Chicago, like Los Angeles, is a vast hub for the movement of freight.
We followed I-55 through as it turned into I-40, down through to Memphis, then turned west through Arkansas on the way back. We made it to the outskirts of Memphis after 9pm, and as we did, I saw hordes of Federal Express freight trucks making their way west bound out of Memphis and into the night.
I reached Texarkana around 1:00am. TX-DOT is constructing a large interchange at the edge of town, and it took several minutes to snake our way through the construction before we hit U.S. 59 for the final drive home. I wanted to make it back into town before the morning rush hour hit with full force. That turned out to be a tough thing to do because U.S. 59, though it is five lanes in many areas, is not an Interstate road. Because of that, the road goes directly through the heart of many towns in East Texas, such as Lufkin, Marshall, and Jefferson. Every time you go through those towns, you have to slow down to urban speeds, whereas the Interstates often bypass or circumnavigate many smaller urban areas which often allows for faster travel.
We made it into Houston at 7:00am, running into rain and mildly heavy traffic along 59 as we reached 610 Loop. I turned at 610 to head towards I-10, and ran directly into the construction work that TX-DOT is doing along the route. I was glad when it was over, as it was another 19 hour drive home.
Final Thoughts
1) I did not run into much traffic congestion driving either to Chicago or back outside the major urban areas. Even St. Louis, which I drove through at rush hour, did not have too much traffic congestion. The big traffic congestion, surprise, surprise, was in Chicago, Dallas, and here in Houston. As such, I strongly believe that the Trans Texas Corridor was (and is) not necessary! The Governor and the political classes can make all the statements they want about traffic congestion, but I didn't see it along I-45, nor along anywhere else.
If Texas really needs new roadway, it would be much cheaper to simply add a lane in either direction along the right of way along I-35 or any of our other major roads. That would be much cheaper on the public coffers than cutting a quarter mile wide swath along the entire state of Texas and building a gigantic infrastructure project costing $150 billion. When doing infrastructure, it's better to make improvements to add to what's already there, if it's necessary, rather than start up gigantic new projects that often lead to disasters.
2) What is necessary is that if government is still going to be the main player in terms of infrastructure funding, then policies ideally need to be developed so that the bulk of the money goes to where the traffic congestion is at - which is the major urban areas. America already has a great road network for its towns and rural areas. What we need to do for them is simply maintain what they have.
In 2010, Congress will probably take up a new six year transportation appropriations bill. The House chair for transportation is Ken Oberstar, who has stated that he wants a massive six year appropriation bill of $500 billion, well over 50 percent higher than the cost of the previous Bush Administration era transportation bill.
Tea Party types should be thinking that considering our country's financial straits, this is utterly irresponsible. The Interstate freeway system, which was the main rationale for collecting the federal gas tax, is completed and there's no stomach in Congress to raise the gas tax. Congress has been funding transportation out of general revenues since the last bill ran out of authorization. Governor Perry might have been ambitious with the Trans Texas Corridor, but his criticism of federal transportation was cogent when he stated that the federal program had become unfocused, because so many gas tax dollars were not getting back to where they came from and they were being spent on items like bicycle trails and light rail systems.
I would argue that the federal government should reduce the gas tax to perhaps 5 cents per gallon. The federal program should go only towards the Interstate system, thereby putting the federal program into maintenance mode, and either let the state and local governments set up policies to fund their own transportation networks, or better yet let the private sector start dealing with the matter. Either way, it's more likely that America would end up with a more rational transportation network for the future and it would be part of a program to start rolling back the centralized power of Washington has drawn the ire of so many.
Wizard
The Wizard recently has been in a rather expansive mood, exploring other aspects and possibilities that life has to offer. About two and a half years ago, a friend of mine made an offer to me to buy in on a wine bar located on Washington Avenue. He was up front and fair with me, offering me a detailed prospectus from the business owners, as well as what to expect from him. I mulled over the offer for about two weeks before turning it down. I had some confidence that the bar would make it. What stopped me was the thought that I simply did not know how much time and effort overseeing my investment would take out of me. My employer frowns on moonlighting and I dreaded the thought of having to get up at 7am in the morning and coming home after midnight five nights out of the week.
And so it was. Yet, it is a good thing to look over offers with an open mind. I ran into this same fellow about two weeks ago, and sure enough we started going over the idea of me buying into something along Washington Avenue. The street is brimming now, of course, with new development, the area being ripe for redevelopment.
So this past Saturday, the Wizard found himself taking a tour of Washington Avenue. There was a carnival atmosphere at the Salvation Army Thrift Store, as well as plenty of people enjoying themselves at various bars and clubs. It was a beautiful day out.
My landlord friend showed me his properties, and described the overall situation he was in. I had to admit it was a bit of gordian knot. To wit, the wine bar which I would have invested in ran into a bit of trouble with an ornery City inspector and had their outside porch ripped out. There went some of their business and the bar had to let go of several employees, and that wasn't the last of what I heard from my landlord friend, or his associates I met with that day, with regards to complaints about being a businessman dealing with the City.
But we moved onwards. We went to another of my landlord friend's properties, another of which is host to a bar. Now here is where I was really leading to with this blog entry. The bar has parking, but there is a lot along the street behind Washington Avenue that recently came up for sale. The lot is undeveloped and needs only to be cleared by its future owner. Now here's the kicker. The lot will probably go around $350,000. Adding the lot would be a bit asset to my landlord friend's property, but he's a bit tied up financially. Hence the possibility of my involvement.
But here's the catch. Ideally, we would be using the property for about 25 parking spaces, and one guy came up with the idea of putting some sand on the lot and allowing bar patrons to play some off street volleyball (this was their idea, not mine!). Now the Wizard has a degree in Economics and you can imagine what is going through my mind. How am I going recoup or otherwise justify investing over a third of a million dollars on a lot that is to be used for 25 parking spaces? That works out to some $14,000 per parking space. I'm not sure a commercial lender will look at me and say that - yes - I can carry another note like that in my current financial condition. Can I amortize something like that over 30 or more years?
Several ideas went through my mind. My landlord friend and I could charge for parking space. My partner has made it clear (as has the City) that parking - not sidewalks or walkability - is the biggest problem along Washington Avenue. Maybe parking is indeed the highest and best use for this lot and that I could generate sufficient monthly fees to justify utilizing that lot as a parking lot. Maybe it would enhance the value of my friend's property and business, thereby we could figure out a way to capture that value and get it back to me.
But ultimately, all of that is not what I'm getting at here. What I am getting at is is that it's an article of faith amongst those who are angry about automobiles or suburbanization that automobile use is subsidized and that automobile use does not pay for itself. I've often wondered how many of those gripers have actually run a business, have been faced with a real world decision on how much parking to provide potential customers, or tried figuring out how to best use a plot of land in a spot market that is both in a recession, yet is dynamic and rapidly changing.
Tom DeGregory was right. In a competitive market economy, the competition in capital markets, in the form of land, labor, and investment, is much more fierce than it is for product markets. It's not an easy thing to figure out, and as George P. Bush said the other night at an event I attended, there are no guarantees in a free market economy. Others will no doubt covet that lot of land, but such a decision on the use of that land certainly isn't something that I would trust to some starry eyed urban planner, or some moron employed in a City bureaucracy, even if the neighbors get noisy and start complaining.
Yes, I know what the answers are going to be. The planners are going to gripe about how City codes dictate how much parking there is supposed to be. They're going to gripe about strip centers and shopping malls full of acres of concrete. They're going to gripe about off street parking, a lack of sidewalks, and all the rest of it. But it still doesn't erase the dilemma I find myself in - whether to pull the trigger and buy?
Multiply this conundrum hundreds of thousands of times over and maybe, just maybe, you can begin to understand why I'm not all that thrilled with zoning or other far distant planning.
The world rolls onwards...
Wizard
Over on Facebook, Tracy posts about a Townhall article where Robert Reich says ObamaCare would wreck the economy. Yes, Lyndon Johnson did lowball the costs of Medicare, something I pointed out when I spoke at the Harris County Republican townhall meeting that was held out in Pasadena the other night. I told the audience how Medicare had an 1,000 percent cost overrun in its first 25 years of enactment. Nobody has any real clue how much ObamaCare will cost taxpayers.
The problem, politically, is that I've been to five or six townhall meetings with almost all Republicans in attendance. What I've heard maybe 10-15 times now from elderly people is that they all agree on how wonderful Medicare is! They just go berserk over the idea that there may be illegals who might be eligible for something too. I told that audience last Tuesday in Pasadena that when you go on Medicare at age 65, you become a ward of the state. In other words, YOU become a welfare queen, and that you are no different than those damned illegals.
There was silence in the audience when I got done saying that. You could have heard a pin drop.
I grew a little gentler at the end of my 2 minutes of allotted time with the mike. I let the audience off by asking the panel if anybody had any cost estimates on what ObamaCare would cost, to which one panel member piped up something to the effect of, "take the Congressional Budget Office estimates and multiply it by 5 and you're on track".
One member of the audience pointed out that the Republican party didn't do anything about rolling back the welfare state when they were in power. He was right. And why was that?
Maybe it's because we are NEVER going to be able to contain government if there are millions of Republicans (much less Democrats) who love Medicare, but merely object to ObamaCare. All those so called Republicans are then doing is admitting that Lyndon Johnson was right all along and we're merely arguing over how much socialism in medicine there is going to be. But more importantly, you've already given up on the argument of whether government should be involved in health care at all. Otherwise, I don't care if I'm Republican or not. Taxpayer funded health care is good for me but not for thee!
Addendum: David Jennings at Big Jolly writes this post on the Pasadena townhall meeting. Here is the Harris County Republican Party's idea platform presentation on health care reform.
Another addendum: See and hear the Wizard himself in action! I do admit that it is impossible to hear what I or the panel members are saying.
Enjoy!
Wizard
Before I go any further, I wish my older brother a belated Happy 50th birthday. I should be thankful that he made it this far.
For the past 10 days or so, the Wizard, along with untold thousands of other Houstonians, has had to put up with the fact that the illustrious Texas Department of Transportation has scrapped up the top 4-6 inches of pavement off of FM 1093, also known as Westheimer Road. Since the Wizard lives right off of Westheimer, the matter has been of some importance to me, especially since I experienced a flat tire last Thursday while driving to work. I found a nail in my old tire, had to wait for AAA to pump up my baby tire so that I could drive the following morning to a Firestone to buy a new tire. The new tire set met back $90.
And so it was. As with many people, I was left wondering exactly why it was that the powers that be decided to repave what was for all practical purposes a perfectly fine road? The official answer was posted on Channel 2 news:
TxDOT says the roadway was hardly perfect before.
"As a driver, driving down a roadway, you don't see all the little things in the pavement," TxDOT spokeswoman Karen Othon said.
Othon says Westheimer Road had cracks that workers have sealed over the years to keep moisture from causing more damage.
The last time this section of Westheimer Road was resurfaced was 2002.
"The actual life of an asphalt pavement is 7 to 10 years, so it was time for it to be resurfaced," Othon said.
We discovered Westheimer Road wasn't actually scheduled to be repaved until April 2011, but when TxDOT received $2.6 billion in federal stimulus money, the state decided to put several projects on the fast track.
"There is a criteria established with the stimulus money, and if you don't use it and go by their guidelines, then we do lose it," Othon explained. "So this is something that we definitely wanted to take part of and use the money that is offered to us."
TX-DOT's website reports that this repaving project is currently estimated to cost $9.45 million.
And yet, that still begs to ask the question. Was this really necessary? I understand probably better than anybody that Westheimer, all eight lanes of it, probably carries some 100,000 (or more) vehicles everyday. Yet the road was in perfectly fine condition. This reminded me of when I lived off of Kirby Drive, where I saw the City of Houston lay asphalt on stretches of the street 2-3 times before deciding in 2001 to tear up the street - yet again - because the City decided to lay an underground storm sewer under the median connecting Buffalo Bayou and Braes, a project now in its second stage between San Felipe and Kirby south of Interstate 59.
It's actions like this, where people decide to do something about what is a non-issue, all because they are chasing after some handout money, that drive me nuts. That money could have been used to repave Richmond Avenue, for example, but God forbid we should repave parts of a badly bruised up Richmond Avenue because we all know that Metro so desperately wants to put a train down that street. So better to spend $1.5 billion to put a 10-11 mile light rail line down Richmond, rather than spend less than one percent of that amount to smooth out the wrong street. How is it that we can so often be so penny wise and pound foolish?
The repaving of Westheimer is not only a $10 million microcosm of the $787 billion stimulus plan, it is a microcosm of irrationality and absurdity of politics as a whole. People wonder why there are skeptics out there who question whether doing stuff like this is worth passing the bill on to our children's future. It isn't.
An item of note: Bob Lemer passes on that there will be a 90 minute workshop of City of Houston finances September 25th from 11:30am - 1:00pm. Cost is $35 for Houston CPA members and $50 for members of the public.
Wizard
This past Saturday, the Houston Chronicle published an editoral on the City of Houston's finances. The editoral from Houston's newspaper of record generally offering praise for Mayor Bill White's handling of the City of Houston's public monies in a worldwide economic downtown. The Chronicle's editorial board wrapped up their assessment of the Mayor's financial wizardry with a statement that
With little more than 7 months remaining in his last term, Mayor White has deftly steered Houston through both fiscal and tropical storms. His successor will have a tough act to follow.
Hmmm. The Wizard decided to make his own assessment of the City's finances. I spent part of this evening gazing into my crystal ball, from whence I found the City of Houston's fiscal year 2008 Comprehensive Annual Financial Report (aka CAFR).
Amongst the items of interest are:
1) The status of the City's pension plans. There are three plans listed; one for the firefighters, one for the police officers, and the Municipal Pension system that covers everyone else. The status of these plans can be read on page 123 of the report:
A) The actuarial value of the assets of the firefighter's pension plan was $2 billion in 2004 and $2.633 billion in 2008. The accrued liabilities in 2004 were $2.266 billion in 2004 and $2.892 billion in 2008. Overall, the funding ratio of the firefighters plan improved from 88 percent to 91 percent.
B) The actuarial value of the assets of the police officer's pension plan was $2.394 billion in 2004 and $3.005 billion in 2008. The accrued liabilities in 2004 were $2.875 billion in 2004 and $3.858 billion in 2008. Overall, the funding ratio of the police officer's plan dropped from 83 percent to 78 percent. In 2002, the police officer's plan was funded at a ratio of 90 percent.
C) The Municipal Employees pension plan had assets of $1.501 billion in 2004 and $2.194 billion in 2008. The accrued liabilities in 2004 were $2.634 billion in 2004 and $3.128 billion in 2008. Note that the liabilities in 2004 were $3.278 billion. Overall, the funding ratio of the MEPS plan was 57 percent in 2004 and 70 percent in 2008.
One wonders how much of an improvement executing a lien against the downtown Hotel of the Americas improved the HMEPS balance sheet? Better yet, the City is keeping its funding ratios more or less the same, but the dollar values of the mismatch between assets and liabilities is growing. Is the City accruing pension and other liabilities that it cannot afford?
2) On page 246 of the report, one can read about the amount of general bonded debt outstanding owed by the City. In the time frame between 2004 and 2008, the amount outstanding rose from $1,979,786,000 to $2.926,444,000. On page 209 of the report, the CAFR states that the amount of taxable property went up from $103 billion to $135 billion. Per Capita debt levels went up from $985 to $1325 per City resident.
It seems to the Wizard that property values are not increasing at a rate that would sustain continued bonding to accrue, especially since we are in a recession.
2) On page 226 of the Adobe file (or page 196 of the City CAFR), one can read that the total primary CoH net assets have fallen from $5.371 billion in 2003 to $3.891 billion in 2008, a drop of about $1.5 billion. The Wizard is not an accountant, but it seems that during Mayor White's tenure as Mayor, the City devoured its accrued capital (in all of its forms) in order to keep the ship of state afloat.
3) On page 229 of the document, the City states that general revenues from property taxes went up from $639,888,000 in 2003 to $829,837,000 in 2008. The difference between property taxes from 2007 - 2008 was a rise in property taxes collected from $738,578,000 to $829,837,000. According to the Mayor's revenue cap, it seems that Houstonians may be in for a bit of a refund if Council actually follows the cap.
It was also noted recently that Richard Vacar, a longtime powerful administrator of the Houston Airport system retired abruptly. ABC's Mya Shay broke the story and the Chronicle is following it.
Speculation on Vacar's retirement has focused on Vacar's involvement with airport operations in other cities and country, denoting that a non-profit was involved on the deal. Kevin and company talk about it here, wondering about transparency issues or shoddy deal making that would reflect on the Mayor.
A better question to ask is why did the Houston Airport system start working on such deals with airports elsewhere in the first place? The motive for that, gentle readers, can be discerned from the 2001 City Revcap battle and Mayor White's counter charter amendment, which the seems to have prevailed in court. The Mayor's charter amendment offered a cap in increases in revenues from property taxes and drainage fees to the lower of of 4.5 percent per year, or the increase in population and indexed inflation.
It should be obvious to readers that any monies to be gained from the Houston Airport system would not fall under the Mayor's Revcap charter amendment, whereas it would have under the citizens Revcap. Ergo, it would make sense for the City to aggressively pursue such avenues for increased revenues to come into City coffers since they would not be covered by the Mayor's charter amendment.
I am at a loss in explaining why the Mayor canned Mr. Vacar. That is a job for the media to uncover. Better yet, will one of Houston's fourteen City Council members work up the political courage to confront the Mayor, a man whose administration is seeing the twilight of its rule, at the Council table and ask a simple question: Why Mr. Vacar was abruptly asked to take a walk?
Sigh... Such are the joys of taking a job that is so inherently political in nature.
Wizard
Today's entry, gentle readers, makes one want to shake one's head. The Wizard was forwarded a link in his email from one of his friends which led to a YouTube video of Federal Reserve Inspector General Elizabeth Coleman answering questions from Florida Democrat congressman Alan Grayson. I don't surf the Internet too much looking at sites like the Daily Kos, but their post was as good as any on the subject.
The inspector general tasked with overseeing and auditing the Federal Reserve knows pretty much nothing about what the Fed is doing. That's the conclusion that comes from watching the exchange Tuesday between Rep. Alan Grayson (D-Fla.) and inspector general Elizabeth A. Coleman.
Narrolibertas is similarly outraged. Bloomberg News reported back in February that the taxpayers are on the hook for bailing out the financial sector in this crisis for $9.7 trillion dollars!
The Houston Area Liberty Campaign has been calling for a thorough auditing of the Federal Reserve, perhaps by Congress. Narrolibertas suggests calling your Congressman.
The Wizard has long believed that, contrary to making responsible decisions, government - for the most part - aids and abets the abrogation of responsibility. And so it goes.
Wizard
Well, well, well. I'll be adding addendums to this blog entry as the day wears on, but as gentle readers know, the Wizard was working the Houston Tea Party events as a member of the welcoming committee. It was my job to act as a crier, encouraging tea party attendees to sign up so that we could get an accurate head count of the number of people attending.
One of the members of our committee took all of our sign in cards and sheets home. She told us that there were so many people waiting to get in at the start of the event that two women volunteered on the spot to join our committee. She stayed up until 3:00am this morning counting the number of signatures.
We collected 8,532 signatures for the event. We filled up 248 single pages of 20 signatures, 31 pages where signatures filled up both sides of the sheet (40 signatures), and 139 sign in cards. The discrepancy between the numbers of sheets filled up and the total attendees is accounted for because some people signed in for themselves and their spouses, boy or girl friends, children, or other family members. Since some people indicated to us that they did not want to sign anything but rather just attend the event, we believe that there were probably about 10,000 people who attended the Houston Tea Party.
Incredibly, we had 389 people check off the "I want to volunteer" column, indicating they want to work for future events. We may well put them to work, as we are contemplating holding an event for July 4th.
More later. It's time to go back to work.
Addendum: Here is a photograph of the Wizard at work at the April 15th gathering.
Wizard
So, the Wizard is at it again...
The Wizard will be working the Houston Tea Party, to be held at Jones Plaza in downtown Houston. No, the Wizard will not tell gentle readers how it was that I got involved with the Houston Tea Party, as I did not even hear about the original Tea Party until some two weeks after it had occurred. How I got involved came about in a round about way anyway.
More to the point, I have gotten quite concerned about what has happened in Washington over the past 8 or so months, starting with the Fannie Mae and Freddie Mac excitement. There has been quite a bit of reporting about President Obama's $3.6 trillion federal budget for fiscal year 2010. What a lot of people don't seem to realize is that this will represent some 26 percent of the U.S. GDP for this upcoming year. Before World War Two, federal expenditures were under 10 percent of overall economic activity. This jumped enormously during the Second World War. After a brief whittling down period between WWII and the Korean War, federal expenditures vascillated between 18-22 percent of economic activity since the start of the Cold War. Even after the Cold War ended, the Clinton Administration pared down the military by one third, but domestic expenditures expanded to fill in the breach. Still, Clinton was - gasp! - the most fiscally responsible president America has had over the past 30 years, largely thanks to facing a hostile Republican led Congress for his last six years in office.
The bottom line is, federal expenditures have now reached 26 percent of GDP, and that represents an enormous jump in overall governmental involvement in the economy.
* Just yesterday, a story came across the wires that the federal deficit for February 2009 was $192 billion! It used to be that people were outraged when that was the federal deficit for an entire year.
* Brian Shelly notes that Social Security is going to go into the red eight years earlier than was previously projected.
* The Bush Administration told the American public just months after invading Iraq that the army would be coming home in a few months. Well, here we are 5 years, and over $500 billion later, and we're still there.
* The Obama Administration wants to push through universal health insurance, at some completely unknown cost.
* The Bush and Obama Administrations have given AIG $180 billion. I have no idea where it went, other than some vague notion that it went to cover AIG's screw ups over credit swaps.
* The Obama Administration is bailing out the car companies and has fired GM CEO Rick Wagoner. Now, a better term for the American auto manufacturers would be to call them Government Motors.
Some years ago here in Houston, we had a big company that completely failed called Enron. Politicians couldn't run away fast enough from that debacle, other than to send in the prosecutors to witch hunt Enron's executives.
One thing to thing about is this. Will Americans not be able to buy cars or insurance if either GM or AIG fail? Were Americans not able to obtain natural gas just because Enron failed?
* State and local governments don't look much better, mostly because of massive pension obligations to workers on the government payrolls.
* Because certain interest groups and the media have whipped up the public into a lather over global climate change, the Obama Administration is contemplating either a carbon tax, or a cap and trade regime for carbon emissions. Notably, there's been no talk of how this is going to affect my pocketbook. But according to Reason magazine, a cap and trade regime could turn out to be nothing more than yet another monster of a corporate welfare program. Some 2,300 lobbyists have besieged Capitol Hill on the matter, a huge sign how much is at stake. It is also a sign that an awful lot of rent seeking is going on.
* Taxes from every level of government now take up about 35 percent of my money. Taxation is now my largest personal expense, far exceeding my second largest expense, which is mortgage and fees for my housing.
The Wizard, as usual, will not get to make any speeches. Others always seem to grab the spotlight, even though I am often able to evoke ovations when I speak and have been told countless times how articulate I am at the microphone, even though I have only 2-3 minutes to get my points across. Instead events like this always need people to do the dirty work, including whipping out the wallet to put up money for the event, which nobody ever seems to want to do. Some people I know are quite good at wanting to pass out stuff and committing others to do the dirty work on their causes, while running away as fast as they can when it comes to actually carrying the load of getting the job done. Others will also be pushing their messages, while I don't know how many times I've had to put up with old fogies who don't get off their rear ends to do a damned thing to organize events, to defend property rights, or liberty, tell me how we are to handle the problems that we will face in putting on this event. Instead, I will likely have to help pick up the trash after this thing is over. That's the dreary reality of working in the trenches of grass roots politics.
And yet, I am going to work this event on Wednesday because I am seriously starting to wonder about the financial stability of my country and because of what I perceive to be an immense grab for power by the Obama Administration to reach ever further into American life. I'll do the mundane things that the Houston Tea Party event will require to be successful because I don't want to live in an America that allows me to only have a little bit of pocket money left over at the end of the week. I'd rather die on my feet than live on my knees.
So, the Wizard will be at the sign in tables, helping to distribute some of the 6,000 adhesive stickers for people's names that I've purchased for the event. I have a feeling that I'll be seeing some of you there.
Wizard
Addendum: To **** with you, Paul Krugman.
Today, the Houston Chronicle's new transportation beat writer Rosanna Ruiz broke the news that the unelected board of the Harris County Metropolitan Transit Authority decided not publicize the details of their Facility Provider (FP) contract with Parsons Transport Group before a board vote on the contract that is to be scheduled during a special meeting on Wednesday. The story generated tons of comments on the Chronicle's website, as well as a protest from Jennifer Pebbles from Texas Watchdog, and posts from various bloggers.
Well, what does the Wizard have to say about this? Not much, other than to reveal yet another small pearl that I possess in my treasure hoard. And what, pray tell is that? Well gentle readers, it just so happens that the Wizard possesses a copy of Metro's 2007 FP contract that the agency negotiated with the previous vendor, Washington Group International, which is now a part of URS Corporation. You see, I put in for a Freedom of Information request to Metro sometime around May or June of 2007 for a copy of Metro's contract with WGI. I received a copy of the FP contract, (number CT0700035 to be precise), and dated May 8, 2007, several weeks later at the cost of somewhere around fifty dollars.
The May 2007 FP contract that I received runs into many hundreds of pages and covers an astronomical number of issues; including (but not by any means limited to) estimated project costs for the first phase of the contract, not to mention delving into matters like stray current, provisions for dealing with hazardous materials, performance and reliability issues, ride quality requirements, design of train stations, access to records, contracting with small and disadvantaged businesses, indemnification and insurance issues, corrosion control, hopes and financing for transit oriented development, project bidding, dispute resolution, and so on. Yes, there really is a lot more to this than simply getting to take a trip on a rigid, non-maneuverable form of transportation and riding it without having to pay for it. The contract is so thick that it immediately put any thought of trying to copy it and posting it online out of the question.
The point being made here, however, is that Metro has in fact made available to interested members of the public copies of previous FP contracts. So why are David Wolff and company turning gun shy now?
Sigh...
Wizard
I logged this morning to check my web mail. After doing so, I subsequently found a story that was carried by my ISP about how the price of crude oil is falling, but that the price of gasoline at the pump has been slowly going up.
So what's the deal? The article did a somewhat decent job of describing the overall situation of what's happening in the worldwide oil markets, or at least not a bad job for a journalistic article, but at the end of the article there were a pair of statements that were made by two people interviewed for the story.
"Drivers are being ripped off even more now than before," said Stuart Pollok, who was filling up recently at a Chevron station in downtown Los Angeles. He pointed out Exxon Mobil Corp. reeled in billions in profits last year when oil prices neared $150.
Others see the conspiracy reaching higher.
"It got really low during the elections and now it's going back up," said Christel Sayegh, a 23-year-old graphic designer in Los Angeles. "They do that every election, though, right?"
In response to both Mr. Pollok's wailing about Exxon's obscene profits and to the young graphic designer's conspiracy oriented view of the world, I present an article that was written in this past week's U.S. News and World Report by Robert Bryce about how Exxon paid $116 billion in taxes in 2008. That's right gentle readers. Exxon made an immoral and obscene $45 billion in profits in 2008, but the corporation's overall tax bill in 2008 was - oh well - only a petty $116 billion or 2.5 times as much.
Exxon of course is the largest privately held Big Evil Oil Company in the Big Evil Oil industry. However, as everyone knows there are plenty of other companies in the oil and gas industry that are also paying untold billions of dollars every year in taxes to governments of all stripes.
I posted this message to an Internet discussion group that I belong to and got a response back from a well known guy in the transit industry:
That headline – Exxon’s 2008 tax bill was $116 billion – reminded me of something I was just working on.
From Federal Highway Statistics, Table HF-10, “Funding for Highways and Disposition of Highway-user Revenues, All Units of Government, 2006,” the Grand Total Receipts, from all sources, was $161.061 billion.
That $161 billion includes:
Motor Fuel and Vehicle Taxes $85.540 billion
Tolls 8.108 billion
Property Taxes and Assessments 8.599 billion
General Fund Appropriations 25.979 billion
Other Taxes and Fees 9.878 billion
Investment Income 9.512 billion
Bond Issue Proceeds 17.828 billion
(It does NOT include road use fees not used for roads, including:
Nonhighway purposes $ 8.794 billion
Mass Transportation 10.520 billion
Collection Expenses 3.218 billion
Used for Territories .245 billion)
OK, not that I have done my accounting busy work for the day, what this means is that the amount of taxes paid by Exxon-Mobil for 2008 was about 72% of the entire spending on U.S. Roads in 2006.
Now, Exxon-Mobil is the largest oil company, but it sure isn’t the ONLY oil company that pays U.S. taxes, and while there are a lot of different uses for oil, transportation uses (ALL modes) is two-thirds of U.S. oil use, and I think it is not unreasonable to believe that road use of oil for transportation is the biggest share of that.
You folks have heard me whine before about FHWA not including most fuel sales taxes into the computation above.
So, when someone tells you that roads don’t pay their way, here is another thing to bring into the analysis.
Sigh...
Wizard
This month's Houston Lifestyles magazine has a story on the last page of its dead tree edition (the online version of the story can be read here) which has both a fascinating perspective on Houston's historical experience with buses and trolleys, as well as a link to a wonderful, must see website on Houston's history put together by the Sloane Gallery.
To wit, here is what Houston Lifestyles and the Sloane Gallery had to say about the bus and rail issue:
It seems that every year we are presented with a new light rail expansion proposal. In 1923 the city of Houston enacted a plan to remove the trolley tracks on Main Street. The removal was completed in 1925 much to the delight of merchants and pedestrians. It was evident that a train running down Main Street did nothing to help the hundreds of retail shops that lined the boulevard. Today, we have a train on Main Street and a virtual ghost town of retail blight to go with it.
snip...
History provides us with ample evidence that rail is a successful way of moving people and freight. Unfortunately, history also illustrates how politicians refuse to take into consideration the hard learned lessons of the past in regards to rail placement.
I would correct the well meaning sentiments expressed by the good folks at both Houston Lifestyles and at the Sloane Gallery. The powers that be at Metro, as well as the rail constituency, knew damned well what they were doing. They knew that they had to run rail lines in every direction simply because in order to get the 2003 Metro Solutions election to pass muster at the ballot box, they had to promise something to each and every last constituency in Metro's 1285 square mile, far flung service area. That not only included building rail lines in every direction, it also meant promising new park and rides everywhere, more HOV lanes, 50 percent more bus service, etc. All of this was to be done, of course, without having to resort to raising taxes.
Addendum: Read this epistle from Swamplot about the $14 million subsidized Houston Pavillions project, which is located right on Main Street along the Metro rail line.
Sigh...
Wizard
The Wizard admits that he is belatedly trying to wrap his mind around the staggering news that President Bush is trying to browbeat Congress into approving a whopping $700 billion to bail out Wall Street.
With that in mind, I present to the public a Microsoft power point presentation that should help explain to the viewer in easy terms how Wall Street and the financial community at large got itself into the sub prime mortgage mess in the first place. Note that the power point presentation is about 2.5mb in size, ergo it will take a minute or so to download, depending upon your Internet connection. Follow the usual power point instructions to go through the presentation; press the ESC button to get out and the up and down arrows to go forward and backwards in the presentation.
I get a laugh every time I go through it and laughs are few and far between these days.
Enjoy!
Wizard
In an act that borders on serendipity, KHOU-TV's Jeremy Diesel ran a story the day before tax day on the City of Houston's Floodway Ordinance. Diesel's story can be read here.
Amongst the property rights disasters include the loss of $38 - $70 million per year in tax revenues. O'Connor and Associates pegs the City's property regulatory takings at $1.9 - $3.5 billion. Diesel says that the loss to Houston could be bigger than the entire tax base of any city in Harris County except Pasadena.
The Wizard first told this story back in June 2007. It only took Houston's paper of note four months to catch up on the story.
The Wizard spoke to Pat O'Connor and told him that information in real estate markets on the effects of the Floodway Ordinance changes were not well known because the City of Houston made this ordinance change in secret. And one wonders why - pray tell - would the City do that? This is alluded to in the report published by KHOU-TV and which can be read here.
Look for the Floodway Coalition's Nancy Wilcox to speak at the upcoming American Dream Coalition conference on May 17, 2008. The Wizard knows that lawsuits are pending...
Wizard
This past week, the FTA issued letters to one, Mr. Frank Wilson, CEO of Harris County Metro, informing him that the FTA has moved the North Corridor and Southeast light rail alignments back into preliminary engineering status for fiscal year 2009. Of note, Metro stated in its FEIS for the Southeast alignment (see page 50 of this document) that a light rail component would cost $329 million (2006 dollars). The FTA PE approval letter now states, two years later, that the updated cost estimate is up to $663 million for the alignment. As for the North Corridor alignment, the FEIS for it stated that the North Corridor would cost $354 million (see page 50) in 2006 dollars. The FTA letter now states that the alignment will cost $677 million in year of expenditure dollars. The FTA administrator and outside auditor wrote in the accompanying report that Metro's estimated annual increases of 3.25 percent were optimistic because of volatility in commodities markets, uncertain scope of the project, and items like utility relocations. In other words, the cost of these two alignments has gone from $682 million to $1.34 billion in inflationary dollars, a rise of 96 percent. If you factor in inflation, the project's cost rise is about 63 percent and the outside auditor says these numbers are optimistic.
Folks, the word is now official. This 30 mile of the Metro Solutions Phase 2 expansion will cost over $4 billion - which I had predicted 4 months ago - and Metro will go bankrupt ponying up a mere one third of that money. Houston Chronicle transportation beat writer Rad Sallee wrote on March 28, 2008 that there is a problem with the Harrisburg rail alignment crisscrossing Union Pacific rail tracks. No problem if the money can be found to build an overpass. With the cost escalations however, this means that the 4 mile, 4 stop Harrisburg rail alignment will cost $500 - $600 million and will presumably be replacing a local bus route with many more stops. It will only cover a short stretch of the #50 Harrisburg bus route, which in 2007 carried a mere 4,192 riders per day. This is down some 20 percent from the pre-Main Street rail line peak patronage Metro achieved with the Harrisburg bus route in 1999 of 5,499 riders and in 2000 of 5,277 riders.
As for travel forecasts for both proposed rail alignments, Metro stated in its FEIS for the North Corridor in 2006 that a rail alignment would draw 14,000 riders per day. That's right folks. $677 million for 14,000 riders per day. For the Southeast alignment, Metro forecast in its FEIS that a BRT alignment (not a light rail alignment) would draw 13,900 riders per day. It's quite possible that light rail would draw more riders. Either way, we are looking at two rail alignments whose capital costs approach 50 percent of the entire cost of the Katy Freeway refurbishment and expansion, but will probably only carry about the equivalent of two lanes of passengers and do nothing to expedite the movement of freight or goods. Transit ridership is up about 10 percent over 2007, but transit still carries only 4-5 percent of work trips and only 1-2 percent of overall trips. Moreover, transit patronage is up for both bus and rail.
Mobility is what matters, not mode. There is a very strong argument to be made that patronage would also improve if Metro simply installed dedicated bus lanes, decreased the frequency of stops to improve bus travel speeds, and increased headway frequencies to cut down on catastrophic wait times. This could all be done at a fraction of the cost of $130 million per mile light rail lines.
==============================================
But enough of today's troubles. The purpose of this post is to talk about a wonderful book that every transportation fan should have in his or her library and that book is Steven M. Baron's Houston Electric - The Street Railways of Houston, Texas.
Baron, a rail fan, writes that the book - which he published in 1996 - was a time consuming process and gives much credit to a number of streetcar enthusiasts who are no longer with us. The amount of material Mr. Baron managed to uncover was tremendous, considering that hard evidence on Houston's streetcar system is very scarce. He still managed to publish a book that is 223 pages long, including footnotes and sources. I should thank Mr. Baron for his efforts.
Baron starts off, appropriately, at the beginning. In 1868 Houston was, in his words, a 1 square mile hustling place with nothing but dirt roads which of course turned to mud when it rained. Nearly everyone walked. That is when Houstonians were greeted to the news that a horse car would be utilizing some old tracks from the Houston Tap & Brazoria Railroad which had been built years earlier, but had fallen into disrepair. Mule pulled cars started operating along Houston roads. Mules were preferred because they were steadier than horses and did not frighten or bolt. Baron goes on to describe the schemes which various early pioneers tried to get regular rail service into operation during the 1870's and 1880's.
Baron says that many figures were involved in the initial construction of Houston's early streetcar system, but perhaps the one man who was best known and identified with it was Henry MacGregor. MacGregor, who was born in New Hampshire but moved to Houston as a young man, became a secretary of the Galveston City Railroad, then later bought out and became general manager of Houston's budding streetcar lines (along with William Sinclair) in 1883. He had a swath of real estate holdings and eventually became involved in the effort to widen the Houston Ship Channel. He left MacGregor Park along with North and South MacGregor Way (which lie on either side of Braes Bayou, south of the University of Houston) to the City in his will. MacGregor and Sinclair took over a company called Houston City Street Railway, which had received a state charter in 1870, but regular service did not really start until years later. HCSR faced competition from another rail line, but Sinclair and MacGregor stepped in and acquired the assets of both companies.
Things went well until April of 1888 when another trio of ambitious men received a franchise from the Houston City Council to start a competing streetcar system. For a while in 1889, Houstonians experienced the drama of two companies laying track, a battle where City Council members led both sides and which led to legal fights, injunctions, and a handful of arrests. Despite this, Houston lamentably still had chronically muddy roads.
This state of affairs improved dramatically in 1891 when enough capital and technological expertise was available to electrify the streetcar lines. In scenes that were reminiscent of the Main Street rail line, Baron describes how service was often dangerous. Still, the electrification of the streetcar lines were a tremendous boon to the city, even in the midst of the nationwide depression of the 1890's.
Streetcars in Houston, as they did in every city of the world, also aided and abetted suburbanization and sprawl, just as the automobiles which succeeded them did. In a letter written in 1893 to the newspapers, a person who signed the letter "A Poor Man" wrote:
The adoption of electricity as a motor by the streetcar company in Houston is a blessing to the poor people of this city, because it allows a man of limited means to rent a house or to build a home in the outskirts of the city where rent is cheap or lots can be bought for a very small price, and live there and at the same time get into town early enough to attend to business. Rapid transit is the only thing that can enable a poor man to own his own home.
Real estate was big business after the 1890's and no savvy developer would really want to develop without streetcar access. Most famously, the Heights was developed with the streetcar in mind, but most other neighborhoods were also.
Baron also describes the strikes from labor unrest, management difficulties, and financial problems which plagued HCSR until out of state bondholders created a reorganization plan which brought the engineering firm Stone and Webster into the management picture. S&W brought capital, expertise, and some financial stability to the management of Houston's streetcar system and in fact provided management services all the way until the system went through its final shutdown in 1940. S&W helped oversee bus services during WWII and for some years afterwards. S&W reorganized the company and renamed it Houston Electric Company. The streetcar company was known by this name even after Houston Lighting and Power came along, and which in fact contracted to sell power to HEC in the 1920's, an idea that alleviated HEC from having to produce its own power. He also tells of the innovation and design of the Birney car and the resulting cost savings that were reaped by HEC because of the ability to do away with a conductor needing to be on board the vehicle.
In November 1914, a booming Houston, fresh with a new ship channel and flowing oil fields, witnessed a new competitor into the transit picture - the jitney automobile car. Baron goes on to write how competitive pressures from jitney cars drove HEC management absolutely crazy for the next decade, as jitneys eventually captured some 22 percent of the market. It didn't help that inflationary pressures from the First World War crippled finances, as did rising capital expenditures. Efforts to raise fares were usually met with petition drives from Houstonians opposing the measures, which often passed in elections.
Intriguingly, in 1920, the City of Houston hired a traction consultant named John Beeler to do a thorough study of Houston's transportation system. Beeler wrote, amongst many other things, that two-thirds of the streetcar routes were losing money. But he also wrote:
One of the reasons why the jitney bus has made such inroads into the railway business is because it saves time... The public demands rapid transportation.
Beeler went on to note that the average speed of travel achieved by streetcars was about 9 miles per hour, whereas the jitneys were averaging 14 miles per hour. Successive ordinances were implemented to subject jitney cars to ever increasing regulatory measures over the following decade. They were opposed by jitney drivers, but in 1924 City Council unexpectedly shutdown and banned jitneys altogether.
Baron goes on to state what is well known in historical and transportation circles in Houston, namely that the streetcar network reached its apex in 1927 with 90 miles of routes. What few know however is that as early as 1924, Houston Electric started trying out substituting or supplementing shuttle and commuter bus services to neighborhoods instead of going through the massive capital expense of extending streetcar tracks. The now affluent Southampton area of Houston got bus service, as did Harrisburg alignment in February 1928 - ironic considering that Metro now is going to spend huge sums of money to bring rail back to the street. The famous Bellaire streetcar route was abruptly replaced with bus service in September 1927 because the track was falling into poor condition. By 1929, Houston Electric was operating some 70 buses on 16 routes. Meanwhile, the City of Houston was implementing a paving program on its streets and was requiring that Houston Electric pay for paving of lanes where its streetcar tracks were, which proved to be another massive drain on HEC's coffers. The Depression proved to be a hard blow to HEC, with patronage and farebox recovery plummeting and transit losing patrons to an ever growing fleets of private automobiles. Baron includes a telling photo, dated approximately 1938, where a streetcar is pictured going south on Fannin, but which is seemingly lost in a crowd of ever increasing automobile traffic.
The story Baron tells is one that Houston's streetcar system did not abruptly collapse. Instead, the story that emerges from his book is that Houston's streetcar network experienced a steady switch from streetcars on rail to buses from the period of roughly 1924 - 1940. The company executives at HEC knew something that so many people who argue and fight over transit today do not, namely that the capital costs of running buses was - and always will be - a tiny fraction of the expense of trying to maintain and extend streetcar rail networks. They knew as early as the late 1920's that the future belonged to the bus. Moreover, the per capita number of rides that people took on transit had been in steady decline for decades. The peak ridership per person was in 1913 where people took over 220 rides per year on streetcars. This number had declined to 159 per year by the late 1920's and decline accelerated over the decades of the 20th century and into the 21st. Baron writes nothing about alleged conspiracies to put streetcars out of business and replacing them with buses.
Baron tells the story of how Houston's new bus network served Houston during WWII. It was ironic that Houston dismantled its streetcar network just before the war, as patronage went from 56 million in 1940 to a record 130 million in 1945, a figure that has never been equaled. Conceivably, this surge in ridership, caused by wartime banning of automobile production and gas rationing, might have helped HEC keep its streetcar network alive until perhaps the early 1950's, but nearly all cities except for a few older cities in America dismantled their rail lines as the 20th century moved onwards.
Baron has a chapter on the aftermath of the dismantling of Houston's streetcar network, telling readers that patronage continued to decline during the 1950's and bus headways were steadily lengthened. Municipal ownership was discussed as early as the late 1950's. He tells of Bernard Calkins's valiant efforts during the 1960's to keep bus service running, but Calkins was unable to reverse declining ridership and had to sell out to National City Lines. He tells of the City of Houston's purchase of the bus system from NCL in April 1974 for $5.3 million, with the new company being named HouTran. Metro was voted into existence in August 1978 and, armed with a 1 percent tax on commerce, the rail plans started coming immediately, heedless of the fact that transit only was carrying 1-2 percent of all travel trips in Houston. In 1988, Baron notes that Metro carried 76.9 million passengers on 980 buses on 106 routes. In 2008, Metro is on track to carry about 112 million boardings using about 1,000 buses on a similar number of routes. On a per capita basis, there has been practically no change in the past 20 years in per capita ridership despite the fact that gasoline is now nearly $3.50 per gallon.
Baron's general history of transit comprises about half the book. The later half of the book describes individual neighborhoods and the lines which served them. In what can only be described as a godsend, Baron also includes yearly patronage and farebox numbers that HCSR and HEC achieved in their years of operation. This alone makes his book a wonder to read.
In summary, the Wizard think this book should be required reading by every political figure, both elected and appointed, in America. I think that every political interest group should also read this book. I think that every person who voices or writes an opinion on public transportation in this country should also be required to read this book and should keep their mouths shut until they do. There just might be a small chance that the world might become a far more rational and saner place if they did.
Wizard
On February 13, 2008, the Wall Street Journal published a fascinating story on a largely unnoticed revolution going on in American transportation. American railroads are, for the first time in a century, making massive new investments in their infrastructure. Better yet, not one dime of the $10 billion (with $12 billion more planned) is coming from public coffers. From the story:
For the first time in nearly a century, railroads are making large investments in their networks -- adding sets of tracks, straightening curves that force engines to slow and expanding tunnels for bigger trains. Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior.
The story goes on to say that this burst of new private development of railroads has been driven by a massive burst of finished consumer goods coming in from Asia. These goods add to the usual cargo that freight rail carries, such as coal, grain, and chemicals. Compare all of this to the slovenly inefficiencies of Amtrack or light rail inner city transit. Moving goods is cheap. Moving people - at least in the economically affluent part of the world - is expensive.
This development, the story goes on to say, is generating development along the pathway of the railroads, but the development is primarily commercial in nature. Also, the railroads and freight trucks complement each other, where trucking companies find that sometimes they can ship goods long haul over rail rather than doing it over the Interstates.
And speaking of the Interstates, I was reading a story in this weeks' issue of The Economist of China's massive spending on transportation projects. The print edition carries a side story on the effects that America's Interstate Highway system had on productivity while it was being built. The Interstates were initially estimated to take 12 years to build at a cost of $25 billion. At the end, it took 37 years and cost (in 2006 dollars) $425 billion.
Question: Was it worth it? According to Ishaq Nadiri and Theo Manuneas, yes it was. America went through its greatest and most long lasting economic boom during its history after WWII and the Interstates had quite a bit to do with raising that productivity and making America a vastly wealthier country. Broadly speaking, Nadiri and Manuneas say that the greatest gains were reaped early on in the program and declined slowly as time went forward. The gains of the late 1950's were 31 percent of America's economic productivity growth, 25 percent by the late 1960's, and down to 7 percent by the late 1980's as more money was spent on road maintenance. One out of every five dollars was also being siphoned away from road building to build rail transit and bike paths. Freight costs in 32 of 35 industries dropped by an average of 24 cents for every dollar spent on the system.
Could something similar to the Interstates been done privately? The Interstates had incorporated into them some 14,000 miles of toll roads, mostly in the Northeast. Conceivably, a far seeing Governor and Legislature in some states could have launched state wide initiatives using toll roads, but it would have taken multi state cooperation to achieve a similar result to the Interstates. As it is, now that the Interstate system is complete, I wonder whether it would not be such a bad thing to turn most of it over to the states and either curb or shutdown collection of the federal gasoline tax the way that the Republican Congress of 1994 wanted to do? Entertaining ideas.
Wizard
The front page story on today's Houston Chronicle bespoke of the travails of $100 per barrel petroleum to modern day society. It was a good article, underlying the fact that the oil and gas industry does not waste one drop of a barrel of petroleum, but instead finds a way to use all of it. I write here because there was one aspect of the price rise of petroleum in recent years that was not covered by the story and that is the weakening of the United States dollar as a currency. This matters because petroleum is denominated in U.S. dollars when it is traded on world markets.
To give gentle readers a sample of how much the U.S. dollar has weakened in value over the past 5 years, I point you in the direction of the excellent Yahoo Finance and world currency website. What is really great about the Yahoo finance pages is that a reader can easily compare how the dollar has fared in world currency markets and what effect this can have on tradable goods.
Examples of how much the dollar has weakened include:
1) The dollar verses the euro. The dollar has gone from being worth 1.20 euros in 1999 to 0.96 euros in January 2003, all the way down to a petty 0.678 euros in January 2008. Put it another way, the euro was worth some 85 cents when it was created. Now a euro is worth about $1.50. The dollar has effectively lost some 44 percent of all of its value against the euro in the past 9 years.
2) The dollar verses the Brazilian real. I went to Brazil in 2003 on vacation. The real, (pronounced "hey ais"), was trading at 2.8 to 1 dollar when I went there. As one can see from the chart, the real has gone from 3.5 reals to 1 dollar in January 2003 to 1.76 reals to 1 dollar in January 2008. That's right folks. The Brazilians, who possessed currencies which suffered massive hyperinflation during long stretches of the 20th century, are now in possession of a currency which has doubled in value against the dollar in the past 5 years.
3) The Canadian dollar verses the U.S. dollar. The loonie has gained 1:1 parity on the dollar for the first time in some 30-40 years, having been worth only 64 cents in January 2003. So the loonie has also gained 55 percent in value against the dollar.
4) The U.K. pound verses the U.S. dollar. When I first went to the U.K. on holiday in May 2002, the Queen's money was worth $1.50. Now the pound, which hit $2 earlier this year, is just under, currently trading at $1.97. The dollar has lost 30 percent of its value against the pound in the past 5 1/2 years.
5) The Thai baht verses the dollar. The baht was trading at 43 to the dollar in January 2003, but now it only takes 30 baht to buy a George Washington note. The dollar has slid some 31 percent in value against the baht in the past 5 years.
6) The Russian rouble has gone from 32 to the dollar in January 2003 to 25 to the dollar in January 2008.
But then we compare these numbers against some of America's big trading partners, including Mexico, Japan, and China.
7) The Mexican peso has held steady against the dollar, losing only 8 percent of its value since January 2003.
8) The Japanese yen continues to bounce around the 110-120 yen to the dollar mark, a range it has done with some exception of the endaka period of the Clinton years.
9) Even the Chinese yuan, which traded at 5.2 to the dollar when I was in China, and which was revalued at 8.28 o the dollar in the 1990's, has been gaining strength and is now at 7.4 to the dollar.
As is well known, the Asian and Middle Eastern countries have routinely purchased untold amounts of U.S. Treasuries, both to help buoy their own currencies so as to continue to be able to sell something to America on terms helpful to themselves, and as a hedge in case markets lose faith in their own currencies. They also need a place in which to invest which is relatively safe and where their money will be put to productive use. They find all of these when they buy American treasury notes. In contrast, countries which have done little to interfere with currency markets have seen their currencies strengthen considerably against the dollar.
The Wizard thinks that what we are seeing is a long slow correction in the world's terms of trade with America. The United States has been running astronomically large current account deficits for 25 years now, and we have run up trillions of dollars of debts on our federal treasuries. Americans have essentially stopped saving money. Moreover, we will see in the next decade the retirement of the Baby Boomers en masse, which will per force require the United States to either raise taxes to meet the political demands of the Baby Boomer cohort retirements, cut their benefits, or continue to let things stay as they are and run up deficits and inflate them away through a punitive devaluation of the U.S. dollar.
The logical conclusion here is that world currency markets have spoken and have decided that the United States will not put its financial house in order, hence world markets will force America to put its house in order via the devaluation of the dollar. This of course revalues the terms of trade in all tradable foreign goods. As the Chronicle article notes, Americans will find foreign travel much more expensive, but we know that petroleum is also one of those traded goods. The Wizard postulates that had the dollar retained its strength, then we would be seeing oil prices at $60-$70 per barrel and not $100. That of course still means that the price of a barrel of oil has gone up 2-3 times since 2000, but that is different from a 5 fold increase in prices. What is interesting though is that a continuing slide in the value of the dollar would presumably improve terms of trade vis-a-vis the rest of the world, but it would also continue to push up the cost of petroleum imports which in turn would offset the improvements of the balance of America's terms of trade.
It is hard to tell how much of a correction would be required for America to come back to an equilibrium. The Wizard supposes that the Chinese, Japanese, and the Middle Eastern countries would need to be convinced that the dollar would continue to erode in value to the point where they would quit buying them. That in turn would send the dollar into a fully corrective tailspin. Maybe the dollar needs to lose another 50-75 percent of its value, on top of what it has lost already, before our current accounts finally balance out once again. On the bright side, manufacturing and other aspects of the economy which are not stuck in country would find it more preferrable to stay in America rather than to flee offshore. Jobs would be more likely to stay in country, indeed some of them might come back here.
As for what that would do to the price of a barrel of oil? Well, are you prepared for oil selling at $200 - $300 per barrel? Hold on to your seat folks. That would be a great reason for those jobs to come back here if we see prices like that. Prices like that also might finally make alternatives like cellulose ethanol a viable competitor to conventional petroleum. Hmmm. Now is that another reason why those Middle Eastern governments buy up our treasury bills? Think about it.
Wizard
As anyone who has been following the news in America over the past year, two of the biggest news stories have been turbulence in housing markets across the land, and what is the the story with petroleum prices. Tory wrote a blog entry back in August 2007 which raised questions on housing and commuting costs in American cities. In turn, his blog post linked to a story carried in Forbes about housing and commuting costs throughout the land. Naturally, much was made about commuting in Houston eating up a substantial part of our household budgets around here.
The Wizard has never put too much stock in such debates, indeed your learned commentator did not even bother to reply to Tory's post. Nor does yours truly think very highly of those who rage about transportation costs incurred from automobile use. And why, pray tell, is that? Let's just pay a visit to a very helpful and insightful website which reveals much: The United States Bureau of Labor Statistics web page which describes household consumer spending over the past 100 years.
Before going any further, we should remind ourselves that the figures from 100 years ago on household consumption are - well - just that. They are 100 years old. Governments of course have been collecting information on their respective populaces for a very long time. Still, there are as always the quality of that information, but the BLS does state that their statistical information on household expenditures for residents in Boston and New York City are amongst the oldest pieces of information that they have been continuously collecting and are of considerable interest when thinking of such issues.
So what does the Wizard believe are the observations of greatest import when it comes to household expenditures since 1900?
1) Rising incomes. American household incomes have gone up 10 fold or more since 1900. Budget constraints have been pushed outwards to astronomical levels. One very famous economist strongly believed - even during the depths of the Depression - that this massive accumulation of human wealth would continue. Regardless of what else you may think of him, on this issue he was absolutely correct.
2) Reduction in family size. The mean size of an American household was 5 people in 1900, whereas it was 2.6 people in 2000. The ramifications of the drop in the size of households cannot be underestimated. In 1901, the BLS says that American households spent some 42 percent of their household budgets on food, but 22 percent on housing (29 percent in Boston).
But reduction in household size also rolls over into housing markets. In the short run, the social demand curve for housing is very inelastic. And why is that? The reason is that very few people are willing to sleep outdoors or in their cars at night. In Houston, there are an estimated 10,000 homeless people out of an urban area of some 4 million people. When I read urban economics with Barton Smith, we discussed the issue of budget constraints one day and he said that poor people are often willing to part with 50 percent (or even more) of their incomes on making sure there is a roof over their heads. They are willing to double up if necessary, to move back in with family, or give up other consumer goods in order to make sure they do not have to face the elements.
Thus, reduction in household size allows for much greater monies for other goods, resulting in some very interesting changes in individual and household indifference curves. One thing I am very confident I can say is that housing is a normal good, as is spending on transportation.
My observations find confirmation if one studies BLS data on household spending for housing and transportation over time. The 1934-1936 data is the first time the BLS displays data for transportation expenditures. The U.S. household percentage was 8.3 percent, while the Boston and New York figures were 5.1 and 5.7 percent. The 1960-1961 data show that U.S. household expenditures for transportation were 14.7 percent, while New York households spent 10.7 percent and Bostonians spent 13.5 percent. The 1984-1985 data show that transportation spending was 19.6 percent, 15.8 percent for New York and 19.3 percent for Boston. The 2002-2003 transportation figures were 19.1 percent for the U.S., 15.4 percent for New York and 17.3 percent for Boston.
The food budget fell from 42 percent in 1901 to 33-36 percent in 1936, then to 24-28 percent in 1960-61, 12-16 percent by 1984-85. Food budgets have stayed at 13 percent since then.
Housing expenditures rose from 23 percent in 1901 (29 percent in Boston) to 32-35 percent by 1934-1936. They stayed at 30 percent in the 1960-61 and 1984-85 periods. They rose however by 2002-03 32 percent across the U.S, and 36-37 percent in Boston and New York.
So what can we say about all of this, besides the fact that housing and transportation are normal goods? It can be pointed out that food production has increased dramatically with modern agricultural methods. Some have pointed out that fossil fuels have much to do with this in terms of providing fertilizer, pesticides, and farm machinery fuel, but one has to wonder whether there are substitutes for these? Can genetic manipulation of crops provide even greater crop yields? The Wizard is watching the work of one man in particular to see what holds in store for the future, not only for agriculture production, but for future liquid fuel production and a lot of other items as well.
But I digress. Clearly household budgeting for food would fall with the decline of family size regardless of any other factors. Also, it does help to remember that not only was food a bigger part of family budgets 100 years ago, but to reiterate that family incomes themselves were lower! Even if our children were to see an era of rising food prices due to an alleged decline in the amount of fossil fuels or phosphorus available (and an implied decline in agricultural productivity), is that not to mean that we cannot put land back into agricultural use?
I ask questions like this because what all of this shows is that there are a number of issues that those who see nothing but doom and gloom for man's future seem to not consider. We do not know what future incomes (and hence household budget constraints) will be; we do not know what technological improvements will happen, nor do we know exactly how fast they will happen (and they may happen very quickly!); we do not know what percentages of household budgets people in the future will be willing to allocate towards various desires.
Are you just dying to see the world's stock of petroleum to run low so that people will stop driving gasoline powered cars, knowing that electric cars are more expensive? Did you ever think that the automobile manufacturers might consider allowing people to carry an 8 year car note instead of 5 years? Did you ever think that Americans might consider downsizing their average house sizes from 2,300 square feet to 1,700 square feet, and perhaps cutting down the size of their house notes 25 percent in the process? If doing so results in a drop in the amount they are carrying on their mortgage by $50,000, that would result in a drop of $300 per month every month for 30 years, if a mortgage is carried at six percent interest. And what will people do with that extra $300 per month? They just might spend it carrying a note on a $35,000 flex fuel car which might be powered up during their work day by an electrical outlet that is provided by their employer's parking lot, but we don't know that do we?
And that is the reason why the Wizard did not put much effort to get worked up about the Forbes article, nor do I worry about such things as how much of American household budgets go towards transportation costs, food costs, or any of the other things that work other people who really have nothing else to worry about into a lather. I am concerned about whether people try to make certain household expenditures more expensive than they need be because of political or aesthetic preferences. People will make adjustments as they want or need to do so, but why force them to make tradeoff decisions that they otherwise might not need to? I would have much more to be concerned about had suffered the genuine misfortune, like 80 percent of humanity, of having been born in a really poor country.
Wizard.