Friday, August 25, 2006

Alaska Deciding if BP Still Owes the "Vig"

From an August 18, 2006 Dow Jones Newswire article,
Stepping up its investigation into the shutdown of the Prudhoe Bay oil field, Alaska state officials on Friday issued subpoenas to BP PLC (BP) and its partners for documents on maintenance and corrosion-control programs that failed to uncover some pipeline problems.

Alaska's attorney general has been pursuing a claim against the BP-led consortium to recover lost revenues related to the partial shutdown of Prudhoe Bay, the largest producing field in the U.S. The state maintains that the venture should compensate the state for lost money if company negligence is found to be the cause of severe pipeline corrosion that led to last week's shutdown.


Alaska is heavily dependent on revenues for oil operations on its territory for revenues. As the largest oil field in the state, Prudhoe Bay provides the single largest share of oil revenues for the state's $7.6 billion budget, which began the fiscal year with a $200,000 surplus.

Look at what the state of Alaska is trying to do. They are behaving as if they've been "damaged" by "negligence". But damages, and negligence are legal concepts that apply to
individuals or corporations who either have no relationship or a voluntary relationship between each other. The state has neither; it has a coercive relationship with BP Oil, as do all governments. It did not enter into an agreement voluntarily with BP, nor was it hanging around minding it's own business. It dictated the terms under which BP would surrender its revenue to the state. It decided the percentages, and it decided who's taxes it would rely on to fund its operations.

Now it's unhappy with the results, and looking for someone to blame. This mechanism is nothing but a veiled attempt at an ex post facto law, changing the law after the fact. Alaska is hiding behind the mask of a "injured bystander", when the real negligence lies with the state itself. Alaska is more like the powerful bookie, who doesn't care if you have the cash or not. You still owe.

All business entails risks in its operations; earnings can be volatile as a result. The basic investor knows not to put all his money into volatile instruments if he needs a steady income flow to deal with his expenses. Alaska, instead, is heavily dependant on oil revenues for it's tax revenues. Like fools they rely on an income stream that is inherently volatile, and now wonder why it's not delivering 15% every quarter.... and the rent is due.

Wednesday, August 16, 2006

Just When you Thought You Needed State-Funded Science

I hate state-funded science. It is a product of welfare-state mentality, and advocated by statists on both the right and the left. While the choice of research targets differs depending on what side of the political aisle one is one, the fundamental idea that basic research is a province of the government goes unchallenged.

Fundamental research is much better directed by private, entrepreneurial and corporate interests, than it is by the government. The profit motive drives better research than does the arbitrary whim of government beaurocrats, open to political pressure.

So it was with mixed feelings that I read the August 16th, 2006 Wall Street Journal article, "Donors Sustain Stem-Cell Effort In California Amid Funding Battle",

Amid court challenges from groups opposed to the state effort, private donors have contributed more than $100 million in recent years to prop up the new stem-cell research agency, the California Institute for Regenerative Medicine, as well as research programs at state universities, according to a tally by The Wall Street Journal. Among the donors are Ray Dolby, the founder and chairman of Dolby Laboratories Inc., who has devoted $21 million to stem-cell-research programs in the past two years. Los Angeles real-estate developer Eli Broad has given at least $27 million. Venture capitalist John Doerr, bond-fund manager Bill Gross, and Qualcomm Inc. founder Irwin Jacobs have also been major contributors.

Such donations underscore the strong support for the controversial research in some corners of the philanthropic world, even as a larger debate rages about the role of government funding. Without these private contributions, the state might have been forced to sharply curtail operations. At the same time, the money has raised concern about the potential for private individuals influencing the direction of the research.

While I wholly disagree with state-funding of medical research, there in the midst of a beaurocratic log-jam was a perfect example of what would happen if the such research was abandoned to private interest. They'd step in, that's what; faster, better, and with more money than that state could provide by raiding its tax coffers.

If only those on the right who claim they favor limited government could dam the log-jam permanently, and redirect basic research to its rightful caretakers.

Wal-Mart didn't really need Chicago anyway

From August 16th, 2006 Wall Street Journal Article "Big Box Rebellion", responding to a new Chicago law,
Target was the first big chain to react, recently cancelling plans to open a new superstore in a run-down area on the city's North side. Only a few months ago the project was hailed by city leaders as an anchor for redeveloping that depressed neighborhood. Now it gets to stay depressed. Wal-Mart has also announced that its plans to build 20 new stores in the city over the next five years are "on hold" until the wage issue is resolved.

This isn't what the politicians said would happen when they mandated that certain mostly non-union "big-box" retailers pay a minimum of $13 in wage and health benefits by 2010, or more than two-and-a-half times the national minimum wage...

The entire "living-wage" movement is the latest product of upper-income politicians who want to stick it to non-union companies in the name of helping the poor. But the working poor lose twice in Chicago: first, in lost retail jobs and then in less access to low-cost goods. Alderman Carrie Austin, who represents the area where the Target store was supposed to locate, puts it this way: "My colleagues are saying, 'Don't worry they [the big box retailers] will come.' Well, mine just left."
There is a contradiction in thinking that lawmakers didn't realize until they actually saw the effect of their actions. Commonly, blamed for "exploitation" of the working class, big box retailers actually help the working class first by providing jobs, and second by figuring out how to deliver the lowest cost goods possible to stretch the working dollar. Retailers cannot simultaneously hurt the community and help it. Punish them for being bad, which they are not, and you'll get to find out just how good they were.

The other thing these lawmakers missed was that any entity that makes investments, whether an individual or corporation, has options. Would Wal-Mart like to have a store in Chicago? Sure, but only if it's a good investment, i.e. only if it can make an above average profit. Investment choices are driven by returns, i.e. profits. A money-losing store is something no investor will invest in, regardless of location. If Chicago wants to turn its city into a bad investment option, well then don't be surprised if investment capital dries up. Now, who really needs who? and who is the bad guy in this senario?