Wednesday, July 29, 2009

Green Jobs

I've been working on a "green jobs" article the past few days for my job. I read way too many state and non-profit reports on the "green economy" and "green jobs," and then wrote up a comparison of different approaches. I will say it has been interesting to see the different methods used, and the different ways to define the ubiquitous, and too-often malleable, concept of the green economy. That said, the process has been as infuriating as it has been enlightening. A few thoughts:

For one, no study that I read mentioned any downside to the "greening" of the economy, as it is called. Going green is universally acknowledged as the saving grace of the US economy, the thing that will launch us into the 21st Century. This in spite of the fact that even the most optimistic studies put green jobs at somewhere between 3 and 4 percent of total employment. Since green is universally good then, these researchers never seemed to meet a green proposal they didn't like. No mention of opportunity costs, no mention of profitability lost by diverting resources to money-suck projects like wind farms. Certainly no mention of individual rights. What are you, crazy?

Second, the identification of a green job is difficult. Is the term limited to those employed at "green firms" like solar power manufacturers? Or does it include workers at non-green firms that perform green functions, like updating production lines to be more environmentally friendly, whatever that means. This creates discrepancies in final jobs totals on a scale of about 3.

Third, identifying a particular job activity as green is suspect. One study I looked at found hundreds of glaziers to be "energy efficient" jobs. This data was reported by employers in a survey. Glaziers, for those of you who've never worked on a house, are the people who apply glazing to windows. Glazing is the stuff that forms a seal on the outside of the window between the glass and the wood of the frame. Since it's used on wood frames, it's typically used on older houses. Nevertheless, I had a difficult time understanding how this job, one that's been around basically since glass windows were invented, could be anything but green. By keeping the pane in place, you are necessarily increasing "energy efficiency." Not much regard for marginal effects in this study.

What I'm trying to say is that the green economy consists of two components: economic activity that adds value by saving people and businesses money on energy, and economic activity that couldn't exist without coercing people into supporting it. This means that the policy implications are none for the former, since it will occur just fine on its own, and "stop, stop, for the love of god stop!" for the latter, since it shouldn't occur, EVER.

Tuesday, July 21, 2009

Not Very Accomodative Islamists

There's an interesting op-ed in the WSJ today by a gentleman named Sadanand Dhume. He is writing about the American hotel bombing in Indonesia. Specifically, he makes the case that American hotels are signs of Western influence that Islamists want destroyed. The writer makes the refreshing argument that Islamists' preference for attacking Western hotels is based on deeper premises than the sheer practicality of sneaking weapons into a place designed to be accomodating. He writes:

For Islamic radicals, who seek to order all aspects of 21st century life—from banking to burqas—by the medieval precepts enshrined in Shariah law, the secular nature of a hotel is galling enough. But perhaps this would not matter as much if it weren’t appealing to local elites. In a place like Peshawar or Kabul, and to a large degree even in Jakarta or Mumbai, a five-star hotel represents an island of order and prosperity in a sea of squalor. It hints at the prosperity promised by free markets and a culture of individual liberty. It is living proof that the worldly can successfully be split from the divine.

I'd say that's pretty much on the dot. He also discusses the necessarily secular nature of hotels, as they cannot display any religious preference, lest they lose a sizeable chunk of international clientele to competition.

Here is another example of how globalization is bringing the civility of capitalism to the Muslim world. At the same time, however, the dark ages philosophy prevalent in those societies is growing more and more violent in its resistance.

Saturday, July 18, 2009

Shut Out of the Aristocracy of Pull

Well, the Aristocracy has revealed a financial services firm who isn't on their list. CIT, a company I hadn't heard of before this week, looks like it will go under this week barring some big infusion of private capital. The firm is a big lender to small and medium-sized businesses. I didn't think much about it, until I saw this WSJ article: The CEO Left Off the Lifeboat. According to this article:

On June 17, Jeffrey Peek, chief executive officer of CIT Group Inc., spoke at a conference in the nation's capital where the keynote speakers were Federal Reserve chief Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. His real mission there, Mr. Peek told others, was to raise his profile among Washington's movers and shakers.

This week his politicking foundered, as the U.S. spurned pleas for financial aid from CIT, one of the nation's largest lenders to small and midsize businesses.

CIT had been trying for months to improve its connections in Washington. It spent close to $90,000 last year on lobbying, and $60,000 in the first quarter of 2009. It brought onto its board of directors former Congressman Christopher Shays, a Connecticut Republican.
One day I will conduct a study on the use of politicians on boards of directors. It's a really scary trend. And finally, there was a description of CIT's CEO that was one of those paragraphs that makes you double-take, and question you were reading a description of Jim Taggart, a description that is becoming far too ubiquitous:

He installed CIT's top brass in a glitzy office building on Manhattan's Fifth Avenue, eschewing the company's historical base near a big shopping mall in Livingston, N.J., and brought CIT into his high-society orbit as well. CIT became a sponsor of the New York City Opera. Its role as a donor to the Metropolitan Museum of Art may have helped Mr. Peek win a prestigious spot as a museum trustee in 2008.

Mr. Peek threw parties both at the office and in his home. At an Edwardian-themed fete at his home on Valentine's Day 2008, male guests donned top hats provided by the Peeks.

Mr. Peek is a "personable, likable guy" who showed incredible recall for names and personal details, said one former top CIT executive. When he arrived, Mr. Peek criticized CIT's culture, which he deemed too cautious, says the former executive. He hired a psychological-evaluation firm to "understand us," the executive recalled, and used the results to hire hundreds of new sales people who didn't fit the old CIT mold.

Not that there's anything wrong with supporting the opera, but you get the idea. I suppose it's a good development that the Powers have stopped finding "systemic risk" around every corner, but it could simply be that none of them had the requisite number of connections to this guy and his company. I don't really know what to read into this development. The whole situation is just kind of sad.

In other, better news, Mark Cuban is off the insider-trading hook. That's good.

Sunday, July 12, 2009

Finance Bitch #1

The Obamanons are rolling out some convoluted derivatives regulation, and there is some discussion over how this might hurt airlines, farmers, and other "real" companies--as opposed to financial firms. Pathological hatred of bankers aside, I want to explain what I think is a very important detail in this discussion, especially as oil prices are rising and the bogeyman of "speculators" comes back. Incidentally, the price of oil dropped last week, so people stopped talking about speculators for a week.

Anyway, I'd just like to make sure all my readers understand the two main reasons that derivatives are used. Derivatives are, as their name suggest, financial instruments that derive their value from other assets. There are several kinds of derivatives, the main categories being futures, forwards, options, and swaps. Futures are standardized contracts that guarantee the delivery of a certain asset--say, oil--for a pre-specified price. Forwards are similar contracts, except that they are not standardized, but rather custom-made. Options give the holder the right, but not the obligation, to purchase or sell an asset for a pre-specified price. This is how stock options work, with the hope that the holder will work to improve the stock price and make it in his interest to exercise the options. Finally, swaps, the much-maligned instruments that AIG used, are actually very useful, and involve the "swapping" of cash flows on different securities.

Now, here are the two main ways derivatives can be used: to hedge or to speculate. Hedging consists of balancing out a long (profit when prices rise) position with a short (profit when prices fall) position. For instance, a farmer who sells corn might sell corn futures so that he can sell his corn at a known price instead of hoping that the price rises when he goes to market. When he grows his corn, he is long, and thus his future creates a balancing short position in corn.

Speculating, contrary to popular political wisom, is not a form of 21st Centural witchcraft. In fact, it is simply the opposite of hedging, whereby the investor takes either a long or short position in an asset, without balancing out the position. If you own stock and don't simultaneously short the stock, you are speculating in that stock. Similarly, if a bank wants to purchase an interest-rate swap to hedge against movements in interest rates, you can speculate in certain interest rate movements by taking the other side of that swap and not hedging yourself. To bring it closer to home, if you buy health insurance, you are shorting your health in order to balance out your automatic long position in your health. The insurance company, on the other hand, is taking an unhedged long position in your health.

Ok. Now you know.

Thursday, July 9, 2009

Innovation, If We Let It

Sorry I haven't been blogging in a while. I've been sort of busy. Today's post will be short. I simply have had a thought over the last few days. I've been reading several stories about innovation in the tech sector. Apparently, Google is coming out with its own operating system. At the same time, Microsoft is scrambling to replace the disastrous Vista. Similar movement is happening in the internet browser market. Conversely, Microsoft is trying to chip away at Google's dominance of the search engine market. Microsoft, despite having immense "market power" as the economics buzz word goes, continually has to innovate for fear of losing market share.

It is amid this whirlwind of creativity that the gruesome specter of ANTITRUST rises from its shallow grave like Jacob Marley, complete with ludicrous Dickensian morality. His Majesty's Justice Department understands Antitrust as the club it really is, and intends to use it as such. Microsoft and Google already need to dance around antitrust in hopes they don't compete too well to be labeled "anti-competitive." Obama is sure to extort some rents from them, the same way that the Clinton White House did with Bill Gates in the 90s. Also, hearings are being held on that pimple on the face of our nation known as Capitol Hill, ostensibly to determine the appropriateness of allowing cell phone makers to grant exclusive offering rights to service carriers, a la the iPhone.

I've said this before. After the murderous thugs at the FDA, anyone who would enforce Antitrust should be next in line for tar and feathering. This is a criminal legal quagmire, whose express purpose is to trap every business in its confusion, thus forcing all to bow to the whim of whatever feckless poll-dancer happens to be anointed our Leader. Draw what conclusions you may from that. I'm going to bed!

P.S.: For some excellent discussion of the current application of antitrust, reading any of ARI analyst Alex Epstein's writings on the subject.