Category Archives: Business

The Finance Crisis

Explained, by Iowahawk:

I know what you’re saying — “who invited the fat chick to the Twister party?” Certainly, all of us (with the possible exception of Randy) wish she wasn’t here. But it’s important to remember that fat chicks are often an important source of party supplies, and we must take the good with the bad. In the same way, Fannie Mae supplies the critical financial weed and beer to keep our national economic party going.

The numbers are complex, but let me boil it down for the economic layperson. Fannie Mae is a government company type thing that has a large pile of money, which I will call “A”. The first thing it does is create $20 million bonuses for high performance executives like Franklin Raines, James Johnson and Jamie Gorelick, which I will call “B.” Next, it allocates an amount “C” to lobbyists to make sure important Congressmen always get a thoughtful holiday card from Fannie Mae. After subtracting B and C from A, they are left with D, which is lent to homebuyers. These homebuyers then pay back the amount E, which, when subtracted from D, leaves F, the amount Congress has to come up with. In order to keep this important financial system humming along at peak efficiency, it is necessary that you, the taxpayer, are F’ed.

RTWT, and save the Dave!

Economic Idiocy

The Dems are finally starting to come to their senses about energy production, but not quite:

One idea floated by Reid would require that whatever oil is drilled in newly opened areas would need to be sold in the United States.

This is pure, unadulterated economic ignorance. Senator Reid, go to the board and write one hundred times, “OIL IS FUNGIBLE.” WTF difference does it make where the oil is sold? The important thing is to get it on the market. If we are pulling new oil off the north slope, it might make sense to ship it to Japan, improving our balance of trade with them, and relieving them of the cost of shipping it all the way from the Persian Gulf. It might in fact make sense to simply ship new oil from the Gulf of Mexico to Gulf refineries, but that should be a market decision, not an arbitrary and idiotic political one. “Energy independence” is an economic myth.

And then, we have this:

Democrats also want any compromise plan to include investments in clean and renewable energies, a crackdown on oil speculators and proof that the oil and gas companies are fully utilizing land that is already leased for exploration.

What does a “crackdown on oil speculators” mean? It’s called a futures market, and a lot of people play. It serves a function of reducing risk for many in the industry. “Speculation” is simply a dirty word for “investment.” This new scheme where people can buy gasoline ahead of time at a fixed price? That’s speculation, folks.

And this:

“If they were showing in good faith that they were drilling on some of the 68 million acres they have now, it might change some of our attitudes,” said Sen. Claire McCaskill (D-Mo.).

So, in order to get access to leases with high potential, they have to waste their money drilling on leases with low potential? Brilliant.

The only way to change the attitudes of people like this is Economics 101. And I doubt if even that would help.

Hofstadter’s Law

That’s the recursive bit of wisdom that Douglas Hofstadter came up with, that goes “It always takes longer than you expect, even when you take into account Hofstadter’s Law.”

Jeff Foust has a good example of it today, as he examines the state of the suborbital industry. It looks now like no one is likely to enter commercial service prior to 2010, unless Armadillo can make it. Which brings up a little problem.

When the Commercial Space Launch Amendments Act (CSLAA) was passed in 2004, the industry got regulatory relief for eight years–until 2012–in which FAA-AST would not regulate the vehicles with respect to passenger safety, as long as there were no accidents involving passenger loss. This was in recognition of the fact that a) the agency didn’t really know how to do that and b) if it attempted to do so, the industry might be still born as a result of a costly and time-consuming regulatory overburden. The eight-year period was provided to allow the companies time to develop and test vehicle design and operational concepts, with informed consent of the passengers, that would provide a basis for the development of such regulations as the industry matured (as occurred in the aviation industry in the twenties and thirties). In light of the SS1 flight in fall of that year, there was an expectation that there would be other vehicles flying in another two or three years (as Jeff notes–Virgin was predicting revenue service in 2007), which would have provided a five-year period for this purpose.

But if few, or none are flying until 2010, that leaves only two years before the FAA’s regulatory power kicks in, which will be an insufficient amount of time to meet the intended objectives of the original maturing period.

Assuming that the logic still holds (and it certainly does for me, and I assume most of the industry and the Personal Spaceflight Federation) the most sensible thing to do would be to simply extend the period out to, say, 2018. Unfortunately (at least in regard to this issue), the most sensible thing is unlikely to happen.

In 2006, control of the Congress passed to the Democrats, which means that Jim Oberstar of Wisconsin took over as chairman of the relevant committee. He was opposed to the regulatory relief, railing against it as a “tombstone mentality” (whatever that means). He was unmoved by the argument that overregulating now would save passengers, but only at the cost of none of them ever getting to fly. Being in the minority at the time, he lost the battle, but now that he’s in charge, it will be difficult, if not impossible, to get an extension from him. In fact, even an attempt to do so might result in losing it altogether if the issue is revisited under his jurisdiction.

For those hoping for what would seem to require a miracle–Republicans regaining control of at least the House, this would be one more reason to wish for that, if they’re fans of this nascent industry. Either that, or at least hope that Oberstar (and his partner in dumbness, Vic Fazio) moves to a different committee.

[Afternoon update]

Not that it affects the point in any way, but as a commenter points out, I goofed above. Oberstar is from Minnesota. I could have sworn he was a Badger.

Who Says It’s Inelastic?

Has our oil consumption dropped to 2002 levels? We’ll see what effect it has on the economy. It has to be hurting tourism.

[Late morning update]

Paul Dietz mentions Bob Zubrin’s flex-fuel crusade in comments. It looks like both candidates may be on board with a mandate for this:

The really good news is that both Senators John McCain and Barak Obama have declared their support for the Open Fuel Standard that must be adopted to ensure that each of the roughly 17 million cars we buy in this country every year are Flexible Fuel Vehicles.

Thanks, Florida!

Florida just bought 300 square miles of cane fields in the everglades to return them to wetlands. They paid $1.75 billion. That buys out US Sugar that was responsible for 10% of the US sugar lobby. In April, in response to one of Rand’s posts, I wrote that we needed to find a way to buy out big sugar. For 6 MT times $0.10 implicit subsidy/lb, that’s $1.2 billion/year. US Sugar’s share of that is $120 million per year. So $1.75B is a pretty good price for their concession.

Sweet deal, Rand! Thanks for taking one for the team as a Floridian to lower sugar prices nationwide.

An Engineering Manpower Crisis

There’s an interesting article over at the NYT about the Pentagon’s difficulty in getting good engineers, particularly systems engineers.

In short, the pay is too low, it’s not seen as exciting as a lot of the other opportunities for new grads (e.g., Google, or other fields such as finance), programs take too long and are technologically obsolescent, and there’s too much bureaucracy. Sounds kind of like the reasons I left fifteen years ago.

This was amazing to me, but I guess that after almost three decades in the business, it shouldn’t be:

Their report scolded the Air Force as haphazardly handling, or simply ignoring, several basic systems-engineering steps: considering alternative concepts before plunging ahead with a program, setting clear performance goals for a new system and analyzing interactions between technologies. The task force identified several programs that, hobbled by poor engineering management, had run up billions of dollars in overruns while falling behind schedule.

I’ve seen this happen at NASA many times over the years, but that doesn’t surprise me because space isn’t important. National defense is, or at least should be. One wonders how to change the incentives in the system to get better performance. Part of the problem is that the services themselves, particularly the Air Force (with which I have the most experience) don’t value procurement highly enough as a career path. It’s a lot easier to become a general via the cockpit than it is through logistics or development. The other problem is that you often having young lieutenants and captains given responsibility for programs of a size far beyond what they’d be managing at a similar experience level in private industry. This is good from the standpoint of encouraging recruitment, but it often means that they lack the experience to handle the job, and even (or especially) when they’re good, they may be promoted up and out of the program. That’s one of the Aerospace Corporation’s primary functions–to provide program support to the blue suits, and maintain an institutional memory to make up for the fluidity of personnel changes of the AF staff.

In theory, it’s a big opportunity for people like me (I actually have a masters degree in aerospace program management), but it’s hard to get consulting work as an individual due to arcane procurement rules. Also (though the article didn’t mention it) it’s a hassle to deal with a clearance, and I’m not in any rush to renew mine, though I’m starting to consider it, because I really do need the income. Blogging just isn’t paying the bills.

Oh, one other thing. The description of the problems above bears a strong resemblance to a certain controversial large NASA project, where maintenance of the job base and pinching pennies seems to take precedence over actually accomplishing the goal. Or “closing the gap.”

[Via Chicago Boyz]

Where Is The Money Coming From?

And where is it going, in commercial space?

I have to say, I thought this was pretty funny:

Virgin Galactic has already been watching its back with the EADS suborbital space plane (pictured above), set to make its first flight by 2012. But now there’s cash across the pond. “We have invested substantial money into this project,” Auque said without citing exact figures. “The problem is that we need to create this market.”

I doubt very much that Virgin Galactic is worried that EADS Astrium is going to raise a billion dollars to build a suborbital tourist vehicle. There’s a reason that Auque didn’t cite “exact” (or even approximate) figures. He expects to do it mostly with someone else’s money, if he can find a sucker (like ESA?).

The Rough Road To Space

I have a new piece up over at Pajamas Media on space transportation and the Interstate Highway System.

Hey, it was Mike Griffin who made the analogy, not me.

I should also note that while the title is mine, the subheadline is theirs.

[Late afternoon update]

Only Mark Whittington would have the native talent to so misread this piece as to think that I was “expressing astonishment.” Of course, it’s not the first time that he’s fantasized about my views.

[Another update]

Now Mark is fantasizing that I actually want, or expect NASA to build the Interstate to space.

Well, it’s totally in character for him.

I sure wish he’d learn to read for comprehension.