Silicon Valley Clean Energy

Yesterday we got a flier in the mail from Silicon Valley Clean Energy (SVCE).  I was about to recycle it when I noticed the following paragraph:

SVCE Opt Out I read that a few times then turned to the fine print.  Here’s what I saw.

SVCE Opt Out Details Silicon Valley Clean EnergyYeah, I know that’s hard to read.  Imagine how difficult it is for us old folks.

So here’s the summary.  Beginning in July we will be automatically switched to SVCE unless we opt out.  My lovely wife keeps up with local politics and knew that SVCE had been formed.  But the automatic enrollment was a surprise to her — and not a pleasant surprise at that.

Any doubts about California being the nanny state have now been erased.  Frankly, this is outrageous.  We are being asked to buy a pig in a poke — except that the swine will be automatically delivered at an unknown price unless we do something.  As far as I can tell there are no long-term price guarantees.  And if some of the “green energy” subsidies are removed, watch your bill soar.  (Of course I’m not talking about California subsidies.  Those will stay in place until the sun goes supernova.  But the federal tax subsidies are another matter entirely.)

For those who are curious, images of both sides of the mailer and a pdf version are below.  The image files are pretty big, so be careful where you click.

pdf:

SVCE flier

Images:

SVCE fliier front Silicon Valley Clean Energy

(click for larger image)

 

SVCE fliier back Silicon Valley Clean Energy

(click for larger image)

 

 




The Sorry State of California

Is the state heading toward third-world living?

Tony Lima
August 23, 2015
Copyright 2015 Tony Lima. All Rights Reserve. May not be quoted, excerpted, or otherwise cited without written permission from me.

[This excerpt includes the introduction and the executive summary.  The full pdf version of the report is below.  Please note and respect the copyright notices.=

The latest round began on Monday, July 27. At 10 am our landline and cell phones rang at the same time. We knew what was coming: Tuesday would be a PG&E “SmartDay.” And we got the same call Tuesday and Wednesday mornings: three straight SmartDays.

The SmartDay program contributes significantly to the deterioration of the quality of life in coastal California. But it is only one of the state’s policies that seem designed to induce people to leave. Add in the disastrous mismanagement of the state’s water resources and it’s easy to write about the sorry state of California.

Water Carriers The Sorry State of CaliforniaFigure 1 Compare and contrast. Left: A Haitian woman carries a 5-gallon jug of water on her head.
Right: A recent scene from a northern California back yard.[1]

Executive Summary

California imports 43 percent of its electricity consumption. The main sources are Oregon and Nevada (hydroelectric), Arizona (coal and natural gas), and unspecified foreign countries (most likely Mexico). The reason is simple: the state’s devotion to green energy has produced very cost-ineffective power generation. The state is importing electric power and exporting pollution.

The water situation is, if anything, even worse. Proposition 1, the $1.1 billion water bond issue passed last year, has a clause that basically prohibits any of these funds from being used to increase supply. Here’s the relevant description:[2]

Nancy Vogel, deputy secretary for communications at the California Natural Resources Agency, said the project is not eligible for funding from Proposition 1, as funding cannot go to any project that would negatively affect a river protected under the state’s Wild and Scenic Rivers Act.

Most of the $1.1 billion is devoted to conservation, research, and (of all things) flood control.

The most promising idea to increase supply is to raise the height of the Shasta Dam by 18.5 feet. Proposition 1 funds cannot be used for this. Senator Diane Feinstein (D-CA) has introduced a draft bill (FLO15C29) that devotes the first 97 pages to fish before getting to Title IV: FEDERAL SUPPORT FOR STATE AND LOCAL DROUGHT RESILIENCY PROJECTS. This includes payment of up to 25 percent of total project cost or $20 million, whichever is smaller. The estimated cost of raising the height of the Shasta Dam is $1.4 billion. It’s pretty clear that the state can only count on $20 million from the Feds.

Where will the other $1.38 billion come from? Good question. The state doesn’t seem to have an answer.

[1] Photo of Haitian woman carrying a 5-gallon jug of water on her head amongst other residents collecting relief aid in Petit Place Cazeau, Port-au-Prince, Haiti, Feb. 23, 2010, during Operation Unified Response. U.S. Soldiers assigned to the 82nd Airborne Division provide security during the relief operation. Photo by MCCS Spike Call. Public domain photograph from defenseimagery.mil. Photo on the right by the author.

[2] http://www.sfgate.com/news/science/article/Study-Shasta-Dam-expansion-feasible-but-6417780.php Accessed August 6, 2015.

The Sorry State of California v3




Operation Choke Point and Marijuana Legalization

On Monday, December 5, 2016, KPCC-FM (Pasadena, CA) aired a segment on “Take Two” about potential banking problems for California’s soon-to-be-legal recreational marijuana industry. California State Treasurer John Chiang was stunningly unprepared, suggesting that a possible solution was state-chartered banks. Anyone familiar with Operation Choke Point will immediately realize the utter ignorance behind that suggestion. Here’s the short version.

Every U.S. bank, whether a national bank or a state bank, is insured by the Federal Deposit Insurance Corporation (FDIC). And to their everlasting shame, FDIC was one of the agencies that helped implement Operation Choke Point. The point of this program was to deny banking services to businesses alleged to be high risk. The fact that many of those businesses were also politically opposed by the Obama administration is, um, irrelevant, I guess. Here are some of the lawful businesses targeted by Operation Choke Point:

  • Firearms
  • Ammunition
  • Coin dealers (?)
  • Government grants (??)
  • “Racist materials” (First Amendment, anyone? Bueller?)
  • Tobacco sales

The title of my original article was, “Using the Banking System to Circumvent the Constitution.” Since I wrote that, I have had no reason to back down on that title.

I have written about Operation Choke Point several times. Over at the Daily Signal, Kelsey Harkness has done yeoman’s work staying on top of this story. I won’t bother to include detailed links. Search either this site or the Daily Signal for “operation choke point” and you’ll get an eyeful.

Here’s the point. (“About time.” – The Couch, now I owe Jonah Goldberg $1) Dealing with state banks will not avoid Operation Choke Point restrictions. While FDIC and the Treasury Department have denied that this program is ongoing, there is evidence that banks are still enforcing the, um, suggestions.

And, oddly, there is an obvious solution. Credit unions are not monitored by FDIC. The National Credit Union Association (NCUA) is the insurance vehicle for these entities. Credit unions offer checkable deposits, savings accounts, and so on. If I was young enough to be entrepreneurial I would start a credit union called “Buds Credit Union” headquartered in Laytonville, CA.

But when the lame-stream media wonders why they get no respect, it’s partly because they talk to idiots like Mr. Chiang instead of people who actually know factual information.




Vancouver House

Vancouver BC Imposed a Fifteen Percent Tax on Foreign Home Buyers. Guess What Happened Next?

In the best rent-seeking tradition, I support this law. Demand will shift from Vancouver to the west coast – including the greater Silicon Valley area where my wife and I own two houses.

Somehow I missed this story when it hit the newswires in July. Vancouver, British Columbia, is a delightful town with breathtaking scenery, a pedestrian-friendly downtown, and attractions for all manner of tourists. Add in the Mediterranean climate and the magnetism is almost irresistible. Apparently the lure was enough for flight capital from China to push up housing prices, especially in the higher-priced segment. According to Reuters,

The new law comes weeks after the province released preliminary data showing that foreigners invested some C$1 billion ($756.7 million) in British Columbia housing from June 10 to July 14, with about 86 percent of that in Vancouver.

The cost of a typical home in the Vancouver area jumped 32 percent over one year to hit C$917,800 [$694,500] in June. Foreign buyers have taken the brunt of the blame for the runaway market, though factors like low interest rates also play a role.

The results have been all too predictable. Bloomberg reports that the demand for $1 million plus priced houses in Seattle has spiked. The tax went into effect August 3. Here’s what happened:

Demand Shifts South and East

Demand Shifts South and East (click for larger image)

Here are the details (from Bloomberg):

The Seattle metropolitan area has already seen a 50 percent jump in house prices in the past five years, thanks in part to a booming technology industry and growth in companies such as Amazon.com Inc. and Microsoft Corp. Still, the median home value is $409,900, less than in San Francisco and Los Angeles, according to Zillow Group Inc. In Vancouver, the benchmark home price is C$919,300 ($680,000), or C$1.06 million ($782,000) with the tax.

Interestingly, some of the demand is shifting to Toronto. Please, folks, look to the south. It’s pretty nice along the California coast from Bolinas to San Diego.




California State Treasurer John Chiang Proposes Violating State Constitution

John Chiang California State Treasurer John Chiang Proposes Violating State ConstitutionCalifornia State Treasurer John Chiang unofficially launched his 2018 bid for governor via a letter to Wells Fargo Bank. Mr. Chiang announced the state government would suspend business with the bank in three areas. Mr. Chiang, of course, has broad authority to grandstand … er, to take actions to benefit the state’s citizens. But the letter goes further and includes actions that violate the state constitution.

The three lines of business targeted by Mr. Chiang are:

  • Suspension of investments by the Treasurer’s Office in all Wells Fargo securities;
  • Suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by my office; and
  • Suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds, where the Treasurer selects the underwriter.

He also includes the threat that the sanctions might last longer than one year:

Please note that if Wells Fargo fails to demonstrate compliance with the Consent Orders or evidence surfaces that Wells Fargo has re-engaged in the same behavior showing systemic problems have not been addressed, the measures described will be extended and additional measures may be taken, up to and including a complete severance of all ties between the Treasurer’s Office and Wells Fargo.

According to the Los Angeles Times,

Deputy Treasurer Tim Schaefer estimated the bank earned about $1.75 million in underwriting fees dating to the beginning of 2015 and perhaps as much as a few million dollars in brokerage fees during the most recent fiscal year. Those are tiny figures for a bank that recorded $22 billion in revenue and $5.6 billion in profit in this year’s second quarter alone.

Exactly. Mr. Chiang was trying to generate headlines, not actually damage the bank. Total cost to Wells Fargo: probably less than $5 million, about 0.1 percent of the bank’s profits.

Why Now?

Mr. Chiang faces an uphill battle in his gubernatorial bid. According to the San Francisco Chronicle, Lieutenant Governor (and former San Francisco mayor) Gavin Newsome has star power. Former Los Angeles Mayor Antonio Villaraigosa and billionaire San Francisco environmentalist Tom Steyer are also potential competitors. Each of the three has far more name recognition than Mr. Chiang. There’s nothing like a splashy press release to improve his chances.

Unconstitutional

But the second page of Mr. Chiang’s letter includes this:

In addition, I will use my seat on the boards of the nation’s two largest pension funds (i.e., the California Public Employees’ Retirement System and the California State Teachers’ Retirement System) to pursue governance reforms ensuring this type of behavior and systemic corruption does not recur. Combined, the two pension systems have more than $2.3 billion invested in Wells Fargo fixed income securities and equity.

…provides that the board’s duty to participants and beneficiaries takes precedence over any other duty.

This poses a serious problem. Its name is Proposition 162. Passed in 1992 by the state’s voters, the proposition has one basic purpose: to protect the pensions of employees of the state of California. BallotPedia.org has a good summary. One particular clause is important. Proposition 162→

Presumably those “other duties” would include political grandstanding or advancing a personal agenda. By the way, Proposition 162 amended the California constitution. It is not “merely” a law approved by the voters.

Why It Matters

Basic finance and economic theory says that limiting the choices available to portfolio managers inevitably reduces the efficiency of their diversification efforts and usually reduces the expected rate of return on the portfolio. Removing Wells Fargo securities from the portfolio necessarily adds unnecessary risk to the portfolio while, at the same time, reducing expected return. Somewhere Bill Sharpe and Harry Markowitz are screaming with outrage.

Mr. Chiang has broad authority to manage California’s budget. However, he lacks any authority to diminish the efficiency of CalPERS investments. Doing so would violate both the letter and the spirit of Proposition 162.

(Those interested in more information about Proposition 162 should consult BallotPedia.org and CaliforniaStateRetirees.org.)

 




Lincoln Anderson collecting sticky cards that trap California red scale, a citrus pest. CalPERS Meets Reality

CalPERS Meets Reality

Lincoln Anderson collecting sticky cards that trap California red scale, a citrus pest. CalPERS Meets Reality

Lincoln Anderson collecting sticky cards that trap California red scale, a citrus pest.

Disclaimer: I am currently receiving a pension from CalPERS. I also receive Social Security and payments from a self-funded 403(b).

The California Public Employees Retirement System (CalPERS) is the largest public pension fund in the country. Public pension plans keep two sets of books. The accounting method reported to the public uses actuarial standards. The other method, not reported ever, uses market values. Any economist worthy of the title will tell you that market valuation is the correct way to value, well, just about anything. The scandal is what happens when a pension plan tries to leave CalPERS’s not-so-tender embrace.

(For future reference, CalPERS plans are defined-benefit plans, guaranteeing monthly pensions based on formulas, usually involving the length of time one is employed. Most private sector pension plans (including 401(k), 403(b), IRA and SEP-IRA) are defined contribution plans in which the employee and employer contribute to the plan. The eventual payments depend on the market value of the fund at the time of retirement. The easiest way to make withdrawals from defined contribution plans is by using the balance to purchase a single or dual lifetime annuity.)

The Saga of Citrus Pest Control District No. 2

That happened to Citrus Pest Control District No. 2, serving just six people in California. The agency tried to pull out of CalPERS to convert to a 401(k) plan instead. CalPERS had assured them they were well above the minimum required balance.

For public reporting purposes, CalPERS discounts future pension liabilities using their assumed annual rate of return, currently 7.5 percent per year.  But market interest rates are considerably lower.  Later I’ll discuss the California Pension Tracker.  For now, just note that the discount rate that website uses is currently 3.723 percent, about half what CalPERS assumes.  A lower discount rate means a higher present value of future liabilities.  That present value is what any defined benefit plan should have on hand when an employee retires.  By using a higher discount rate for public reporting, CalPERS is vastly underestimating the true extent ot pension liabilities..

Today’s New York Times Business section has a long article analyzing public pension plans with an emphasis on CalPERS. Most employees of the state of California are automatically enrolled in this institution as part of the standard employment package. But other agencies can also sign up for coverage.  Here are some excerpts from that article.  (The article may be behind a paywall.  If you run headfirst into said paywall, e-mail me and we’ll work something out.)

When one of the tiniest pension funds imaginable — for Citrus Pest Control District No. 2, serving just six people in California — decided last year to convert itself to a 401(k) plan, it seemed like a no-brainer.

After all, the little fund held far more money than it needed, according to its official numbers from California’s renowned public pension system, Calpers.

Except it really didn’t.

In fact, it was significantly underfunded. Suddenly Calpers began demanding a payment of more than half a million dollars.

That was the case with the pest control district for years. And since there seemed to be a surplus, Calpers said the district owed no annual contributions. Calpers’s numbers hid it, but the six members’ pensions were going unfunded.

“Every economist who has looked at this has said, ‘It’s crazy to use what you expect to earn on assets to discount a guaranteed promise you have made. That’s nuts!’” Professor Sharpe said.

Bill Sharpe

Prof. Bill Sharpe CalPERS Meets Reality

Prof. Bill Sharpe

Professor Sharpe is, of course, Professor William F. Sharpe, inventor of the capital asset pricing model, long-time professor of finance at the Stanford Business School, and Nobel Laureate in Economics (1990). Professor Sharpe now lives in Carmel-by-the-Sea, California. He calculated the market value of Carmel’s pension liability. The results were eye-popping and terrifying. In 2013 Carmel-by-the-Sea had unfunded pension liabilities of $22,972 per household from CalPERS only. (Total unfunded liability was $25,914.)

 

To learn more about Prof. Sharpe, click here.

SIEPR

I audited Prof. Sharpe’s graduate finance course when I was at Stanford. And I’m proud to say that my alma mater has done a public service for the citizens of California. The Stanford Institute for Economic Policy Research (SIEPR) has assembled a website that crunches the numbers for you. Here’s the summary for the entire state:

California Public Pension Liabilities CalPERS Meets Reality

California Public Pension Liabilities

And here are the top ten governmental entities ranked by unfunded pension debt per household. Data is for 2013, the most recent year on the website.

Top Ten Pension Liabilities CalPERS Meets Reality

Top Ten Pension Liabilities

Dr. Joe Nation, the project director, credits both faculty and student members of the team for creating and maintaining this site.  There are plans for expansion later this year.  In an e-mail, Joe described them as

BTW, we are appending 2014 to CalPERS and independents next month, plus adding CalSTRS pensions.  Then we’re adding retiree health (aka OPEBs) for all 2,700 CA local government agencies.  I expect the 2014 total “pension debt,” or unfunded liability, to hit about $1.1 trillion.  Then OPEBs will add about another $200-$300 billion.

Conclusion

Sunlight is the best disinfectant. It’s about time CalPERS was called out for their accounting shenanigans.




Another San Jose Job Killer

Obama the Job Creator Another San Jose Job Killer

Obama the Job Creator

Re-upping the above cartoon from three years ago. From Townhall.com.

Today’s San Jose Mercury-News includes an article titled “Plan to boost part-timers’ hours sparks debate.” The proposal by the South Bay Labor Council would require any company in San Jose with more than 35 workers to offer part-time workers more hours before they hired anyone new. If implemented this proposal will have several effects. But it will not accomplish its objective. Indeed, employment is likely to fall rather than rise. This is yet another San Jose job killer.

“There is a crisis of underemployment in this community and tens of thousands of workers suffer from not being able to get enough hours of work,” said Ben Field, executive director of the council. “We believe that the primary reason is that some employers are trying to avoid paying for health care insurance by keeping their employees in a part-time status. Many workers are crying out for help.”

There is indeed a “crisis of underemployment.” But Mr. Field does not understand the source of the crisis. Failing to diagnose it correctly, he offers a solution that will, in reality, make the problem worse.

The negative effects of Mr. Field’s proposal include slower business growth, companies moving to neighboring towns, and, possibly, much higher costs. One benefit is likely to be a proliferation of new businesses (which, presumably, can hire all the part-time workers they want).

The Root of the Problem

The source of the part-time work problem is the Patient Protection and Affordable Care Act (usually called Obamacare, referred to henceforth as ACA). Remember, for ACA purposes full-time employment is defined as working 30 or more hours a week.[1] About 3.5 years ago I wrote this:

And consider the marginal cost of hiring employee number 50. “Businesses with 50 or more full-time workers must pay a $2,000 penalty for each employee, beyond the first 30 workers, who qualifies for subsidies and does not have employer coverage.[1] Part-time workers also count toward the number of employees in the firm (and thus toward the 50-employee threshold), but the government does not penalize firms for not offering them qualifying insurance.” (from the Heritage Foundation, but widely available. Other good articles are here and here.).  So hiring employee number 50 carries a potential cost of 20 employees (50-30) times $2,000 per employee fine equals $40,000.  That could easily be more than the actual wages paid to the 50th employee.  I suspect there will be many firms that will simply stop hiring once they get to 45 employees.

Is there really any point in calculating marginal tax rates when the dollar penalty for hiring employee number 50 is so high? Well, in fact, yes there is. Consider an employer who wants to expand a business. The firm currently has 72 employees, well above the ACA limit. But some are part-time and, therefore, exempt from ACA. An employee is working 29 hours per week. What is the cost of giving that employee one more hour of work?

That additional labor hour means the employee is now covered by the ACA. And the employer must either provide health insurance or pay the fine of $2,000 per year. Prof. Casey Mulligan has calculated the effective increase in the tax rate caused by the ACA.[3] His best estimate: seven full percentage points. The ACA is the third largest tax increase since 1946. Here are Prof. Mulligan’s estimates.

Casey Mulligan's Tax Increase Estimates Another San Jose Job Killer

Casey Mulligan’s Tax Increase Estimates (click for larger image)

Does this matter? Yes, for a reason not immediately obvious from the graph. That bright red bar means every single percentage point of the ACA’s taxes are “employment and hidden taxes.” That means the taxes are obfuscated. Most people won’t even realize there has been a tax increase. But they do notice stagnant wage and economic growth, as well as the sharp increase in the underemployment rate.

What Will Happen to San Jose?

First, consider business mobility. Some businesses can’t move. Restaurants, hospitals, and universities are three examples. But there are many businesses that can relocate at fairly low cost. Lawyers, dentists, doctors with small clinics, any manufacturing business – in fact, any business that does not own a large, fixed building with substantial physical capital. In fact, the San Jose Mercury-News might be such an example. I don’t know if the Merc owns and operates its printing presses, or even if the newspaper is printed in San Jose. But I’m pretty sure that there is a large physical presence in the city, with a highly integrated editing and publication system.

Finally, there is a large group of businesses that could be located anywhere. Any information workers can do their jobs anywhere there’s a halfway-decent internet connection. I do much of my work from my home office. Moving would be a hassle, but not impossible. But I’m not in San Jose. And there’s another reason I don’t have to worry about idiotic proposals like this.

I have no particular growth aspirations for my business. Which leads to a second way of slicing the problem: growth versus no growth. Businesses that want to grow – especially those that want to grow rapidly – will either leave San Jose or never open an office there. The latter group includes start-ups. Milpitas and Alviso are nearby and fairly affordable. Santa Clara, Cupertino, Mountain View, and Palo Alto are also popular (if you get the venture capital funding to open an office there).

Suppose you own a San Jose restaurant. You want to expand. But most of your employees are part-time, courtesy of the ACA. You will probably give up your expansion plans. So will most people who own small and medium-sized businesses. Mobile businesses that want to grow will move. And San Jose’s tax base will stagnate as economic growth stalls.

Other Side-Effects

Which employees will get the additional hours? Ideally that work would go to the most productive workers. But in the real world I suspect lotteries, other random selection methods, and/or political favoritism within the firm will be more popular options. That will be especially true in service industries where productivity is difficult to measure.

The Underemployment Rate

The official unemployment rate dropped to 4.7 percent in May. But that’s because about half a million people dropped out of the labor force. Here’s a quick look at some alternative measures of unemployment.

Alternative Measures of the Unemployment Rate Another San Jose Job Killer

Alternative Measures of the Unemployment Rate (click for larger image)
U1: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons.
U2: Special Unemployment Rate: Unemployed and Discouraged Workers
U3: Special Unemployment Rate: Unemployed and Marginally Attached Workers

Conclusion

“Socialism is great until you run out of other people’s money to spend.” That quote is usually attributed to Margaret Thatcher. The South Bay Labor Council is simply trying to spend other people’s money in the guise of helping workers.

[1] The actual law may well read more than 30 hours. I don’t have the time to look up what is a fairly trivial fact.

[2] The portion of the health care law on the employer mandate explicitly states that firms with more than 50 employees are required to offer “full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan.” The Department of Treasury, however, has issued a proposed rule linking both the affordability of employer-sponsored insurance and compliance with the individual mandate to single coverage only. Since the employer is not penalized unless an employee enrolls in the exchanges, it is possible that if this proposed rule is adopted, employers will either drop family coverage or be indifferent to the affordability of the workers’ family coverage. Alternatively, the government may ultimately require employers to provide family coverage to workers with dependents. See Patient Protection and Affordable Care Act, Public Law 111-148, § 4980H.

[3] Casey B. Mulligan. “Side Effects.” iBooks. https://itun.es/us/i49E2.l Figure 1.1 page 40. Copyright © 2014 by JMJ Economics JMJ Economics, 2050 Evans Road, Flossmoor, IL 60422

 




How Much a Human Life is Worth

This question came up while I was reading Mr. Roadshow’s column today. More on him in a minute. For now I want to use some data he wrote about today to calculate how much a human life is worth. The issue is California’s specially formulated gasoline that reduces air pollution. Let’s do some cost-benefit analysis.

The Basics

Licensed Drivers by State How Much a Human Life is Worth

Licensed Drivers by State (click for larger image)

According to the StateMaster website there are 22,657,288 licensed drivers in California. Mr. Roadshow cites a University of Michigan study showing California’s ultra-clean gasoline saves 660 lives per year. In exchange, each driver pays a higher price for gas. How much higher?

“And the cost? A study in March by Severin Borenstein, a professor of business at UC Berkeley, concluded that reformulated gasoline costs the average California motorist $37 to $51 a year, since not all of the difference between the U.S. average price and California’s gas prices is attributed to the cleaner-burning fuel.”

Prof. Borenstein is a respected expert in this field, so let’s use his numbers. Multiplying his cost per year estimates (high and low) by the number of licensed drivers gives a total annual cost between $838,319,656 and $1,155,521,688 per year. Dividing each number by lives saved per year (660) gives the implied value of a human life: between $1,270,181.30 and $1,750,790.44.

Cost per Life Saved How Much a Human Life is Worth

Cost per Life Saved

Is this too much? Too little? That’s a policy question. I will say that the generally accepted figure is around $5,000,000.[1] My best guesstimate is that benefits exceed costs.  But I have to add that I’d like more information on that claim of 660 lives saved per year.

A Counterfactual

Let’s do a counterfactual.  How many lives per year would need to be saved to raise the cost to $5 million?  That’s easy.  The number of lives needing to be saved per year is simply the total cost per year divided by the cost per life saved — in this case, $5 million.  The number of lives that need to be saved for costs to equal benefits is between 167.66 and 231.10.  California’s population is 38.8 million. My guess is that saving around 200 lives per year with cleaner gas is very likely.

Required Lives Saved How Much a Human Life is Worth

Required Lives Saved

Mr. Roadshow

Gary Richards How Much a Human Life is Worth

Gary Richards

Mr. Roadshow is the nom de plume of Gary Richards in the San Jose Mercury-News. In his column, he answers questions about cars, road conditions, and all things automotive. And he does this in six issues a week.

As always my methods are transparent. Click here to download the Excel workbook.

[1] Tom Tietenberg and Lynne Lewis, Environmental and Natural Resource Economics (9th edition, 2012). ISBN 978-0-13-139257-1. Addison-Wesley. Chapter 4 includes a long discussion of this topic.




L.A. labor leaders seek minimum wage exemption for firms with union workers

 

Rusty Hicks L.A. labor leaders seek minimum wage exemption for firms with union workers

Rusty Hicks

Wow. “L.A. labor leaders seek minimum wage exemption for firms with union workers.” That’s the headline in the L.A. Now section of the Los Angeles Times website. The law in question would raise the Los Angeles minimum wage to $15 by 2020. There would be step increases during the next five years.

Unions have opposed all requests by business owners for exemptions from this minimum wage. Restaurant owners, particularly those with slim profit margins, will be hit especially hard since tip income cannot be included when measuring the wage rate for a worker.

Why, then, does the union want an exemption for businesses whose employees are unionized? Simply stated, this is a recruiting tactic. Rusty Hicks, head of the Los Angeles County Federation of Labor, will visit a restaurant owner struggling to make ends meet with the higher minimum wage. Mr. Hicks will point out that he can get the owner out from under the minimum wage by simply unionizing the workforce. And, of course, once union membership has increased, the union will negotiate a wage below the minimum wage.

I am as opposed to the minimum wage as anyone. But Mr. Hicks’s proposal almost makes me favor the Los Angeles law. His idea represents the very worst kind of rent seeking behavior. He is essentially proposing to sell out groups of workers in exchange for more union members — and, of course, more union dues.




Another Hidden California Tax

California DMV home page another hidden california tax

California DMV home page

Before you can register a car in California, you may be required to have it checked for emissions (“smog-checked”). This week, I discovered another hidden California tax caused by this requirement. And, as an added bonus, this tax also increases total vehicle emissions!

A Very Dead Battery

The tale begins with our 1996 Dodge Caravan. On Tuesday, September 16 I decided to get the smog check done. This van is driven infrequently, so I wasn’t surprised when the battery was dead. Luckily, the registration wasn’t due until September 22, so I called AAA, got the battery jumped, and started the car. While Calvin (the great guy from Ellison’s Towing in Mountain View) did the paperwork, I casually mentioned that I needed the car running to get it smog-checked.

Calvin looked a little nervous. He suggested I call my smog place (yes, there is one place that does all our checks). His fear was that the battery had been so dead that it may have wiped out some memory in the car’s computer. He suggested that I might need to drive the car about 100 miles.

I called my smog guy (Mohamad at Mountain View Smog Check Only) and explained the situation. After inquiring about the year, make, and model, he said, “120 miles, can’t all be in one trip or on the same day.”

I was stunned. This van gets pretty good mileage, but even at 20 mpg that’s six gallons of gas, about $21 at today’s prices. But, of course, the serious cost was the three hours I spent driving around aimlessly. And, naturally, all that driving added to vehicle emissions!

Now there’s a tax! The main cost is the consumer’s time — at least $300 in my case. Plus the mileage. In 2013 the IRS mileage deduction rate was $0.565 per mile for a total of $67.80.

The Technical Details

After a bit of Bing searching, I found articles at ToolMonger.com and CarDealerForums.com that explain what’s going on. It turns out that the car’s computer keeps track of “drive cycles,” a sequence of driving styles that must be completed before the car can be smog-tested. From CarDealerForums.com:

For most cars, short drive cycles are published individually for this or that emissions system. Hyundai doesn’t publish any for my car. What’s almost worse is that instead of using those short cycles, Hyundai uses two humongous all-purpose sequences. One is supposed to emulate city driving, the other highway driving. Each of these tests takes about ½ hour. They are neither easy or safe.

I had a savvy friend ride shotgun. I drove, and he watched the road, read the instructions to me, and timed the intervals with a stopwatch. The whole procedure is nerve-wracking. It includes speeding up, accelerating and decelerating according to a strict schedule, and maintaining unsafe speeds on both city streets and highways. For example, the company seems fond of 40 MPH: that’s over the speed limit on the streets, and slow enough to get you rammed on the highway. It was a teeth-clenching trip.