Archive for June, 2008

I’d Rather Drill on Mars!

June 23, 2008

I listened today to one of those cable political shows that featured the regular crew of clueless pundits. After a long discussion on how evil the oil companies are, one asked a very simple question: Why is it that oil companies would rather drill is Saudi Arabia, in Iraq where a war is going on, in Nigeria where you need a armed escorts to go to the bathroom, than drill in the U.S? Everyone ignored the question. You would have thought that this was the first time someone had ever asked such a profound question on cable T.V.

On the surface the answer might be simple. Drilling here is impossible, as is building more refineries to process the oil. Impossible is a strong word, but in the case it is not strong enough. This country has killed oil internal exploration and exploitation at every level of government and every branch of government. With increased prices come calls to add even more restrictions, including the ultimate restriction: < 0% return on investment, guaranteed.

But the bigger answer to this question is perhaps is at the heart of a lot of what ails this country. You can see it in the current election cycle where the press has proclaimed the current winning slogans are “Hope” and “Change”. I see these two slogans as religious propaganda. Words that make you feel good, that someone better than you is going to make your life better. That the future is not in your hands, but in the hands of others. That physics is not as important as meta-physics.

It reminds me of my Berkeley Econ professor who basically said that inflation will go down if we all believe that it will go down. What followed was 50% inflation over the subsequent 5 years (the Carter administration).

I guess we didn’t believe enough until Reagan came into office.

What does “may” mean?

June 13, 2008

I saw an AP news story today the starts: “Silver dental fillings contain mercury, and the government for the first time is warning that they may pose a safety concern for pregnant women and young children.” What does “may” mean in this case? Does it mean that for some people there is a safety risk? that there some weak scientific evidence that everyone is at risk? No and No.

These sort of news stories are very popular: coffee may increase risk of cancer, breast implants may cause autoimmune disease, Clinton may drop out of race this week, … Is this news? News today not about facts or things that actually happen but more about things that might happen or might be happening but we don’t know or cannot know. The list of such things is infinite, but the truth of them is never shown. In fact, in most cases, these “may” statements turn out to be false.

So what is the real story about silver fillings? It turns out that someone sued the FDA and to settle the lawsuit the FDA put a warning on its website. My headline: FDA declarations now decided in court not in laboratory.

The Real Story in the Democratic Race of 2008

June 11, 2008

The real story of the race between Obama and Clinton for the nomination of the Democratic party has not been covered by any news agency. The news today is not really news, it is more like People magazine. Instead of news one hears opinions posed as news. The two biggest gimmicks: quoting someone’s statement as a fact, and polls.

If I were to say, “the earth is mainly made of silicon”, a modern news agency would say: “Oybama: Earth is really Silicon.” Yeah, maybe I said that, BUT IS IT TRUE? “Gore states that scientists overwhelmingly believe Global Warming is caused by humans.” Sound familiar? A fact? Well it is true that Gore stated this, but that doesn’t mean that either scientists do believe that or that Global Warming is caused by humans. In fact, in this case the real story should be “Gore thinks what scientists believe is more important than what they can prove.” Now that would be a truthful headline.

But the more disgusting People Magazine posing as news these days are polls. Every day there is a new poll. Election results are covered in 2 seconds: Clinton 55%, Obama 42%.. the rest are poll results. 90% of this group voted for Clinton, 60% of that group would not vote for Clinton if she wore blue lipstick. What nonsense.

What gets lost then are the facts of the election. So let me tell you a fact. You can predict very accurately which states voted for which Democratic candidate by looking at a single variable: % of black people in that state. Obvious you might say… Well, not so fast. Here are the facts:

1, Of states + D.C. with black population greater than 20%, all of them (that is 100%) went for Obama;

2, Of states with black populations between 6.3% and 20%, all but 3 went for Clinton (of the 3 that went for Obama, one was his home state),

3. Of states with black populations less than 6.3%, 16 out of 20 went for Obama, only 4 of 20 went for Clinton.

That means that one variable: % of black population between 6.3% and 20%, will predict 86% of the actual election results. Have you heard that reported anywhere? No, but I’m sure you’ve heard hundreds of polls trying to explain who voted for what.

Now the question one might ask is why fact 3. Obviously fact 3 was the real difference in the Democratic election. Unlike the press today, I will refrain from explaining why. Maybe if I poll 100 people I can find out the answer.

Can Corporations Pay Taxes?

June 11, 2008

Today the Senate voted against a special new tax on oil companies. What was the purpose of this tax? I guess it would have raised many billions of dollars in the short term, but the real reason was to get even with the evil oil companies. Let’s take their money. That will show them! But take money from whom? Who pays taxes? Can corporations pay taxes?

I guess it all boils down to this: what is a tax? I would define a tax as a burden, a pain, a unavoidable force to make you work – a slavery of sorts. While it is true that you can put a burden on a corporation, will it feel the pain? Can you enslave a corporation? The answer is a simple NO. A corporation cannot feel pain. It is not human. Corporations are born, and can die, but they feel no pain.

So what is a corporate tax then? Who really pays that tax? There is no one answer to that question, there are many people who pay the tax:

The eventual payers are the owners of the corporation, which for almost all corporations, are the PUBLIC. So a big tax on oil companies is really a tax on the public. Most people don’t realize that they own interests in lots of companies. You might buy shares of the company, of course, but you might have a retirement account. Work for the State of California, you own stakes in almost every corporation on the face of the planet, even some that are private. Of course, some corporations are owned by a few small number of people, but most of those corporations are thought of a “good” corporations: like google, microsoft, yahoo, etc. The majority of corporations today are owned by large funds, especially retirement funds, and small shareholders. How many people own shares in Chevron? lots, perhaps as many who buy gas from their pumps.

The second payers, often the first to pay the real “pain” of corporate taxation, are its lowest level employees- the ones that are easiest to hire and more importantly, easiest to fire. If a company needs a bottom line to look better the answer is usually to fire people (payroll is normally the biggest liability a company has). Occasionally a corporation might fire the highest paid people, but usually those people make the decisions and deciding to fire yourself is a difficult thing to do. Along with low level employees, suppliers may be forced to carry better financial terms when profits drop. One can hope that oil companies might be able to convince their OPEC suppliers accept delayed payments, but I doubt it. On the other hand local suppliers are not so powerful and would feel the pinch.

Generally the effect of corporate taxation has only a small effect on the users of the product (or service) the corporation produces. Why is this? You always hear that a company will just pass on the price increase to the consumer, right? Well if a single corporation could just raise its prices without losing business then it would have done so a long time ago. In a free market, if one company raises its prices then people will buy from a different company.

That said, the windfall profits tax will increase prices at the pump, again hurting those least able to pay for gas. How could that be, I just said the free market would prevent this. Well, in this case the tax applies to ALL oil sold in the U.S. adding the effect of collusion to the “free market”. We normally think of collusion as bad because it allows companies to fix prices. Well the Government is the ultimate collusive force. Unless some other replacement of oil is offered as an alternative, oil companies would be able to raise their rates in unison. The consumer has no alternative. Oil companies would not be able to recover all of their profits however, because as prices go up, demand would go down, pushing prices back down. That is the law of supply and demand.

So, those that want oil companies to “pay” for the increase in gas prices using a “windfall profits tax” would really just be taxing the public and causing some unemployment for the lowest paid employees of the oil companies and jacking up prices for those least able to pay.

There is a better way to take revenge on oil companies – build hundreds of nuclear power plants, but that is another post.