Some Semi-Random Thoughts

  • It occurred to me a while ago that having noticed that Afghanistan has large reserves of untapped natural resources … that one solution to the social problem there is to let loose the dogs of greed instead of the dogs of war. That is, instead of trying namby-pamby nation building we try some old fashioned colonial exploitation. That is to say, don’t nation build and plan to leave, hire them to help us tap them resources. And make a pretty penny in the process as well.
  • The Administration and the Democrats seems determined to ignore the jobs thing. They offer another “big” financial fix package (well in advance of the return of the commission enacted to figure out the causes returns). Then when they have trouble passing the bill, decide at the 11th hour to “ask business leaders” what impact they think the bill will have. Hmm, clearly the effect on business was not very firm in their vision when they were fussing in their basements putting the bill together. They’re putting together a cap/trade bill to battle the putative effects of carbon emissions. Have they considered the impact on jobs? They’ve decided to fight to stop deep water drilling. Jobs? Nah. From the ’90s recessions started taking longer and longer to recover employment rates. In the 2001 recession it took 23 months to recover after a relatively quick recover on other fronts. If that trend continues … the job thing? Well, it’s likely to be sticking in the 10s for some time.
  • In Fault Lines, Mr Rajan points out that there is a connection between the more impersonal crueler business environment in the US compared the EU where business fail not infrequently, but that innovation is far more prevalent. This he links to the comparative safety nets in the states vs the EU as well. The Democrats would prefer big fat soft safety nets … forgetting there is a price. You lose the pace of  innovation that has enabled so much of the modern world. TANSTAAFL. You think those safety nets are nice and cool? There’s a price. A price many would rather not pay. 
  • In the WSJ yesterday there was a short piece which as an aside highlighted Mr Obama’s part in the 2007 McCain bi-partisan immigration bill. Mr Obama publicly supported the bill, but was instrumental in inserting pieces into the bill which killed it. It may be argued that this is good politics. It is however, fundamentally dishonest. That core dishonesty is a repeating theme with him. 

 

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21 comments

  1. Boonton says:

    Not quite following your safety net thoughts. Are you saying that Europe innovations more than the US and that’s because the US has a bigger safety net? I’m not really seeing how that is. Or are you saying that the US has a smaller safety net and innovates more than Europe?

    I think we should differentiate between types of safety nets. Compare unemployment in the US with labor’s relative dominance in Europe. In the US you get fired you get to collect unemployment (usually). In Europe its very hard to get fired. I would argue that the latter type of safety net probably squashes more innovation since once you get a job you’re quite comfortable and businesses don’t want to risk giving someone a job unless they are 100% sure about him. Likewise businesses seek to secure their markets in order to provide for secure employment. Market upstarts and disrupters are hardly welcome in this type of social arrangement.

    On the other hand, I would argue that universal health coverage is relatively pro-innovation. Right now buying reasonable health coverage on your own is almost like taking on one to three car payments. So much for the 20-yr old who wants to start a business out of his basement! To secure coverage you either got to be a starving artist (thereby getting Medicaid) or get a secure job at a very large company. Not very pro-innovation if you ask me.

    In general if you want more innovation you need a safety net that promotes risk taking rather than safe behavior. It’s not so much having a big safety net as much as what type of safety net you have.

  2. Boonton says:

    They’ve decided to fight to stop deep water drilling. Jobs? Nah. From the ’90s recessions started taking longer and longer to recover employment rates. In the 2001 recession it took 23 months to recover after a relatively quick recover on other fronts. If that trend continues

    Sounds like you’re telling us the gov’t was better with regulation back in the Carter years and got worse since then. Funny as I thought one of Reagan’s selling points was deregulation????

    Anyway you’re right that it is taking longer to recover from recessions but I doubt that can be linked to one-off regulatory initiatives like the deep drilling ban or cap-n-trade (which doesn’t even exist yet).

  3. Mark says:

    Boonton
    I’ll elaborate tonight. on the safety net thing.

    Anyway you’re right that it is taking longer to recover from recessions but I doubt that can be linked to one-off regulatory initiatives like the deep drilling ban or cap-n-trade (which doesn’t even exist yet).

    Wow. Complete non-sequitor. The point of that little vignette was that in a series of 3 recessions in which jobs have recovered more and more slowly … and that whle for the last 9 months “jobs” has been the biggest problem in the view of the electorate jobs has never been a priority of Mr Obama’s, in fact his initiatives have in the main been anti-job.

  4. Boonton says:

    The figure cited for jobs in deep sea drilling at risk has been something like 38,000 (which I suspect is probably less because companies will take some of those people on overseas tours). That amounts to not even a single month of even the anemic new job creation we are seeing at this point. It also doesn’t equal the jobs destroyed by the oil spill.

  5. Boonton says:

    To demonstrate the silliness of this line of thinking:

    A rough estimate of the number of prostitutes in the US is about 100,000 based on arrest figures. No doubt if prostitution was legal throughout the entire country rather than some empty parts of Nevada we’d see many more, probably at least 50K-100K more. Therefore Obama’s a liar when he says he supports jobs unless he’s willing to support a bill legalizing nationwide prostitution using Congress’s right to regulate interstate commerce.

  6. Mark says:

    Boonton,
    The figures I see cited in a quick google search range from 20k to 380k jobs. The last figure is likely outside of Louisiana alone clearly, likely it’s a cash out divided by average salary sort of calculation (which you say is relevant for stimulus … and likely just as valid here too). That means you’d better take the 380k figure, not the 38k.

    Louisiana has ~ 1.8 million employed. The job addition in that state in may is listed as 11k. So … 38k jobs would indeed make a dent, 380k a big dent (as you point out the 38k employed mean quite a bit of subsidiary employment as those people now spend money in the region). Or are you being dishonest and counting in this case “just the direct” jobs created and when you count stimulus you count secondary and tertiary jobs?

    Your “prostitute” thing doesn’t scan. Mr Obama in the wake of a recession hasn’t “suddenly” put in regulations restricting prostitution, did he? Oh, wait he didn’t. If he did the claim that “jobs were not his first priority” in that regard would still hold. He hasn’t eased a single regulation regarding job creation …

    Therefore Obama’s a liar when he says he supports jobs unless he’s willing to support a bill legalizing nationwide prostitution using Congress’s right to regulate interstate commerce.

    Huh? Is a liar? The bullet point on deep sea ban had nothing to do with his honesty. That was a completely unrelated bullet point. There is no logical connection between his casual untruths regarding immigration reform and jobs … and I made or implied no such linkage.

  7. Boonton says:

    Direct, indirect doesn’t matter much. If 38K direct deep well drilling jobs becomes 380K jobs after the multiplier is factored in then 50K prostitution jobs becomes 500K after you factor in the indirect.

    But the answer to that is just because job creation is your top priority doesn’t mean that any and all job creating policies (or nullifying job inhibiting policies) are to be accepted without question.

  8. Mark says:

    Boonton,
    Actually it does matter somewhat. You are arguing that the jobs impact was insignificant. Perhaps Nationally, but certainly not regionally.

    But the answer to that is just because job creation is your top priority doesn’t mean that any and all job creating policies (or nullifying job inhibiting policies) are to be accepted without question.

    I agree. If you think that legalizing prostitution is the first and best regulation to relax to spur the economy, well, we’ll take that as an indication of who serious you are. On the other hand, if you want to argue that a really unnecessary and stupid stoppage of drilling is a regulation which needs to be suddenly put in place in a bad economy. That’s going to be a hard argument to make. The experts Mr Obama consulted to justify the ban all denied its usefulness. I confess to a failure of imagination myself. I can’t understand how any rational person thinks such a ban is a good or necessary thing to do. There are lots of good reasons why not to ban deep water drilling. Alas, I cannot think of any good ones. Too bad Mr Obama hasn’t offered any in his defense.

  9. Boonton says:

    Here I think you’re confusing short versus long term. If the prostitution ban in place in most states is a foolish regulation it should be revised on those grounds alone. Whether or not employment is high or low doesn’t really come into play. If its a bad policy its a bad policy that should go, if it’s a good one then it should stay.

    experts Mr Obama consulted to justify the ban all denied its usefulness.

    Well the usefulness is pretty clear. You won’t get these oil leaks again if you don’t do deep water drilling. I would say the question is backwards, deep water drillers should prove they are safe before drilling, not drill until proven unsafe.

  10. Mark says:

    Boonton,
    As has been pointed out, cessation of drilling is possibly more dangerous than proceeding with drilling, after all the BP/Deepwater incident occurred as they attempting to shut down the site.

    I see, a 40 year safe track record is not proof of safety. Given that, there is no possibility for proof, which explains somewhat the makeup of Mr Obama’s committee.

  11. Boonton says:

    Well there’s two possibilities, one is that BP is the exceptionally bad oil company that has ruined it for everyone else. In that case Obama is amptly justified in calling for BP to compensate other oil companies for the revenue lost due to the drilling moritorium (it’s not even a ban).

    The other possibility is that deep water drilling opens up a host of risks that are not associated with shallow water drilling (I think your ’40 year safe track record’ is mixing up shallow water drilling with deep water). In that case BP was just the unlucky company to have the first major accident.

    Now let’s say its the 2nd case. Clearly new wells should be ceased until we have a set of safety protocols that addresses the new risk factors. If shutting down wells in itself causes risks then a grandfather system can be put in place but you’d still not want to add yet more active wells to the problem if you can’t even turn them off safely.

    Talking about a 40 year track record is pretty out of touch here. It’s on a par with talking about how with all the thousands of skyscrapper years human history has logged there’s only been two where large airplanes slammed into them therefore there’s no need to consider such an issue when planning new mega-skyscrappers.

  12. Boonton says:

    Add to this the factor that the incident demonstrated we cannot rely on oil management capacity as stated by the industry. BP claimed it had the capacity to easily handle tens of thousands of barrells a day in leaks and could quickly bring in backup capacity if need be, clearly all of that was a lie or at best hyper-wishful thinking.

  13. Mark says:

    Boonton,
    Untrue, deep sea oil drilling has been ongoing since 1965 in the North Sea. You’re right, it isn’t 40 years, its 45.

    Case 1, compensation for other companies does not address lost employment for drill operators who are typically not employed by the oil firms apparently. Secondly, at some point BP will just declare bankruptcy and nobody will get anything. If it is indeed the case that BP was negligent … how do you justify the ban/moritorium (uhm, I don’t get what you’re driving at by making a distinction here).

    Case 2, why? There is a distinct problem here regarding regulation. In my business its the “functional spec”/”detailed design” distinction. Regulators don’t and in fact shouldn’t tell “how” to do the drilling, but what they want done, i.e., set limits and standards that need to be met. Regulators don’t have to regulate “how” drilling is done but set functional regulations, i.e., how much oil spillage/leaks are under the radar and set a fine and cleanup responsibility structure for such events over threshold. That is all regulation need do and in fact should do. The suggestion that the admin can’t figure out (or hasn’t figured out) what is reasonable for such standards and cannot set them in less than a few hours is just plain stupid. You claim that Mr Obama is not stupid. However, you’re not demonstrating that is the case by any means.

    As for

    If shutting down wells in itself causes risks then a grandfather system can be put in place but you’d still not want to add yet more active wells to the problem if you can’t even turn them off safely.

    Which was not done was it?

  14. Mark says:

    Boonton,

    Add to this the factor that the incident demonstrated we cannot rely on oil management capacity as stated by the industry. BP claimed it had the capacity to easily handle tens of thousands of barrells a day in leaks and could quickly bring in backup capacity if need be, clearly all of that was a lie or at best hyper-wishful thinking.

    BP was required by law to use the models for leak and geography specified and supplied by the government. So there’s a problem with calling that BPs wishful thinking. They were compliant with regulations. (see functional spec vs detailed design spec above for the source of that particular problem.

  15. Boonton says:

    Are you saying BP had the capacity on hand to handle 50K barrels of oil a day if the leak happened per the ‘models’ mandated by the Federal application but this type of leak was radically different so BP’s capacity dropped to less than 5K? And you know this how?

    Even if this is true, and it almost certainly isn’t because you’ve botched almost all your facts on the BP spill, its still an argument in favor of the moratorium. Companies drilling should have the capacity to handle catastrophic leaks. If that was not being checked before it should be confirmed now before we allow more drilling.

  16. Boonton says:

    Case 1, compensation for other companies does not address lost employment for drill operators who are typically not employed by the oil firms apparently. Secondly, at some point BP will just declare bankruptcy and nobody will get anything. .

    Actually we aren’t sure whether or not BP would compensate just the company owners or the employees for lost compensation.

    Yes BP can declare bankruptcy but BP’s assets are somewhere around $300B-$500B. You just don’t shout ‘bankruptcy’ and all your debts disappear (a good episode of the Office though…). All in all BP is unlikely to declare bankruptcy and even if it does it will hardly be the case that ‘nobody will get anything’.

    If it is indeed the case that BP was negligent … how do you justify the ban/moritorium (uhm, I don’t get what you’re driving at by making a distinction here)

    I justify it on the grounds that we don’t know and even tens of thousands of jobs for a period of 6 months do not justify acting blindly. This is what happened on 9/11. All flights were grounded for a few days until we were sure there were no more hijacked planes out there and we had some stopgap measures to limit the risk of additional hijackings. If everyone but BP is perfectly safe then BP should pay as the one who ‘ruined it’ for everyone else (and everyone else will be able to get back to work again soon).

    There is a distinct problem here regarding regulation. In my business its the “functional spec”/”detailed design” distinction. Regulators don’t and in fact shouldn’t tell “how” to do the drilling, but what they want done, i.e., set limits and standards that need to be met.

    I think you’re view is a bit too limited. Drugs and nuclear reactors have a ‘detailed design approval’ system. You submit a specific drug for approval along with its data. You aren’t given a set of limits (must shrink tumor size 3% per week, must keep side effects within this band) and allowed to put out whatever you want provided its within that.

    In this case a set of specs would be something like “reduce odds of a unstoppable blowout to less than 1 in a million”. Contrast that to a spec like “no more than one barrel of oil released into the ocean per day”. The second is easy to measure but what about the first? If the rig has a thousand in a million chance it will still see many days of operation where nothing goes wrong.

  17. Mark says:

    Boonton,

    Even if this is true, and it almost certainly isn’t because you’ve botched almost all your facts on the BP spill, its still an argument in favor of the moratorium. Companies drilling should have the capacity to handle catastrophic leaks. If that was not being checked before it should be confirmed now before we allow more drilling.

    Then why do none of the experts in the field find a moratorium useful or necessary?

    I justify it on the grounds that we don’t know and even tens of thousands of jobs for a period of 6 months do not justify acting blindly. This is what happened on 9/11. All flights were grounded for a few days until we were sure there were no more hijacked planes out there and we had some stopgap measures to limit the risk of additional hijackings. If everyone but BP is perfectly safe then BP should pay as the one who ‘ruined it’ for everyone else (and everyone else will be able to get back to work again soon).

    “All flights were grounded for a few days” … a few days moratorium/pause might be reasonable. 6 months … not so much. All flights weren’t grounded for 6 months. Arguably we still haven’t really done a good evaluation of threat to flights.

    Drugs and nuclear reactors have a ‘detailed design approval’ system

    And by and large this is a bad thing. You submit a drug for approval along with data. You also have to submit detailed explanations and descriptions of manufacturing and production processes. A “functional” description/regulation of a drug would only evaluate and expect a purity/quality and chemical composition of the finished product and manufacturing details would not be required. Yet they are. This is a problem not a feature. Likewise with nuclear plant regulation.

    Contrast that to a spec like “no more than one barrel of oil released into the ocean per day”.

    Keep going. Failure of imagination of ideas you to which you are resistant is your common theme. Besides the fact that “one barrel/day” is ridiculously low the spec needs to be completed with a sliding scale of levels of leaks aligned with how efficient cleanup should be and fines allocated for said levels of leakage. You are (if I recall) a lawyer. Craft a realistic regulatory scheme which ignores the “how” of drilling is done but the parameters within you want it to operate, i.e., how clean, how much env. impact and so on.

  18. Boonton says:

    “All flights were grounded for a few days” … a few days moratorium/pause might be reasonable. 6 months … not so much. All flights weren’t grounded for 6 months. Arguably we still haven’t really done a good evaluation of threat to flights

    Thought it was more like a week. All air travel in the US is a huge amount of economic activity relative to Gulf Coast deep sea drilling. I wouldn’t be surprised if the accumulated lost income exceeded 6 months worth of drilling.

    And by and large this is a bad thing. You submit a drug for approval along with data. You also have to submit detailed explanations and descriptions of manufacturing and production processes. A “functional” description/regulation of a drug would only evaluate and expect a purity/quality and chemical composition of the finished product and manufacturing details would not be required.

    I can speak with full authority but I suspect the regulatory system is a hybred. Drug approval is not contigent on manufacturing. Drug manufacturing is regulated in its own right and may very well be more functional than “detailed design” approval. Of course no drug company submits an experimenal drug for approval without first considering whether or not its feasible to manufacture it. In terms of generics the regulation is more functional with generic companies simply having to prove that the active ingredient in their generic drug is the same as the brand name. Then there’s biologics which are so complex that quite often even the drug company is only aware of a portion of the active molecule’s structure……but that’s another can of worms.

    Actually the ‘one barrel a day’ was just a simple example, I’m sure the actual regulations are much different. But the failure of imagination was yours. What we want is basically a requirement that deep sea rigs go from having a low chance of an uncontrolled blowout to a very, very low chance of having one. The problem is that most of the time a rig with a low chance will behave just like the rig with the very, very low chance. If your regulation only comes into effect after the blowout as fines for the mass release of oil you aren’t really going to get what you want.

    While raising the issue of bankruptcy wasn’t very good in BP’s case, it futher illustrates the problem. A small company can ‘bet the farm’ on the cheap ‘low chance’ rig rather than opting for the more expensive ‘very very low chance’ rig. If nothing happens they profit. On the off chance it does, the company will go bankrupt. In fact an enterprising lawyer could structure each rig as its own company letting a hedge fund like outfit game the system entirely.

  19. Mark says:

    Boonton,

    Thought it was more like a week

    Hey. I was quoting you. Its unclear why the accumulated cost matters. If that could be settled in a few days … why not drilling too? Given that he’d ignored the experts opinions on this … the reason for the delay is not technical. It’s political. But for the life of me I don’t see a good reason for it.

    Drug approval is not contigent on manufacturing.

    In my (admittedly limited) experience that’s just not true. I was involved in an automation project on a line producing medical compound extracted from human blood. We were told the processing details were contingent on the approval, i.e., they couldn’t modify the manufacturing process without reapplying for FDA approval which given its expense was impossible. As it turned out their process worked in the lab but didn’t scale up … and their approval documents didn’t give them enough flexibility to figure out why.

    In the late 80s and 90s tank mfgs didn’t use CAD/CAM in their design, development, and implementation processes because “changes to designs” literally required an act of Congress. This is exactly the wrong way to go about doing things.

    What we want is basically a requirement that deep sea rigs go from having a low chance of an uncontrolled blowout to a very, very low chance of having one.

    Exactly. But you don’t have to regulate how a thing is done to achieve that. This goes over to the military. It’s the job of government to tell the military what it wants done. Not how. That was one of the big errors of micro-management and Congressional screwing its role up in the Vietnam war. That goes for nuclear regulation and oil wells as well. What not how.

    And in the meantime … let me ask you … the other deep sea drillers. They make choices and decisions every day. Do you think that the presence of the BP/Deepwater accident makes the chance of another accident in the next 6 months more or less likely? Remember the track record is very very good already (45 years).

    In fact an enterprising lawyer could structure each rig as its own company letting a hedge fund like outfit game the system entirely.

    And I’ll be there are enterprising lawyers who could rig regulation to make that hard without having to do a detailed vs functional regulation methodology.

  20. Boonton says:

    It sounds like maybe what you were working on was a biologic, which from my own limited understanding is almost like a middle ground between a drug and a biological life form so the manufacturing process is highly complicated and what’s interesting about them is that the end product is a bit of a mystery. There’s a big debate over biologic generics because even duplicating the manufacturing process doesn’t necessarily guarantee the exact same product…..

    In regards to the rigs, I’m still not clear how your ideal regulation would work given that an unsafe design will look very similiar to a safe one in results *until* something goes wrong. I suspect the result needs to be a combination of regulations. Stated capacity to handle spills needs to be verified given our experience with BP. There probably should be design specific regulation in regards to blowout preventor backups and inspections.

    I’m not sure if this is ‘functional’ regulation but I’d also imagine some of the regulation should be somewhat open ended. Similiar to the ‘stress tests’ that large banks were subjected too about a year ago, I think regulators should take a rig and model it against some hypothetical events like a full collapse, a collision with a large ship, hit by two large hurricanes in a row etc. They then would order design specific regulations based on the results. The entire design needn’t be approved but the overall design and actual rig would need to be evaluated. This is similiar to banks where the FDIC doesn’t examine every single loan the bank makes but evaluates the bank as a whole. Banks that are seriously in trouble can be ordered shut. Those that aren’t quite that bad can be issued specific orders to address whatever its defects are.

  21. Mark says:

    Boonton,
    It was a clotting factor for haemophilia.

    My impression is that there are methods of evaluating risk that can identify safe vs unsafe practices. Typically there are signs that a design is robust vs solid before it fails.

    There probably should be design specific regulation in regards to blowout preventor backups and inspections.

    Why? If someone designs a “better mousetrap”, i.e., a different technique for halting leaks (say for example a different pipe design) … that couldn’t be put into practice without deep regulatory changes. That’s stupid.

    You mentioned the nuclear industry. You realize that since 1960 there have been a number of more advanced designs for reactors which are far safer, yet one big reason why we can’t implement them is because our regulatory environment is detailed vs functional in its methodology.

    Perhaps we need to read this The Failure of Risk Management: Why It’s Broken and How to Fix It … but my inbox is full right now.