Kevin Drum - May 2009

Windfall Profits

| Fri May. 22, 2009 9:56 AM GMT

I've written before about the virtue of auctioning off 100% of the emission permits in any cap-and-trade program.  The problem with allocating permits to electric utilities for free is that energy prices will go up anyway and the utilities will reap a windfall profit.  The explanation for how this happens is a little convoluted, but it's very real: utilities in Europe profited handsomely from the first botched phase of their cap-and-trade system.

Several readers, however, have emailed to say that since most utilities in the U.S. are regulated entities, they wouldn't be allowed to raise their prices unfairly.  And that's a good point.  In fact, at one time I had the idea of writing a piece about how a broad emissions program like cap-and-trade (or a carbon tax) would intersect with the fantastically complex, interlocking set of state, local, and federal regulations that govern most power utilities in the United States, but I gave up pretty quickly.  It didn't take long to figure out that I'd probably have to study the subject for years to have any real understanding of how it works.

Luckily, however, Peter Fox-Penner and Marc Chupka, who already have the expertise, have a guest post over at ClimateProgress on exactly this subject.  Their conclusion is that Waxman-Markey does a pretty good job of ensuring that no one is going to get a windfall profit from free emission permits:

The key to W-M’s success in this area is that it is careful to give the overwhelming majority of free utility allowances to the electric or gas retail distribution company, not the generator or the entity that sells wholesale gas or power itself....State regulators, city managers, or coop management boards — who have full access to the accounts of distributors — set distribution charges so as to manage the profits earned by the distributor.  This is a key point.  Unlike some other parts of the utility industry, distributor profits are strictly controlled.

....Each state regulator or manager of a coop or municipal utility must conduct a proceeding to determine how the value of allowances will be treated — for example some of the proceeds might help fund energy efficiency if the regulators decide that represented benefits to retail customers.  But, W-M does not allow the size of individual customer rebates to reflect that customer’s metered energy consumption.

With these provisions, it will be awfully hard for any utility to harvest a windfall from the free allocations — especially a shareholder-owned utility.  Yes, the free allowances given to the distribution utility will be worth a lot.  But the law is pretty clear that the benefits of receiving the free allowance go to the utility’s customers, not their shareholders.

....The important takeaway is that material windfalls are about as likely as the Washington Nationals winning the pennant this year.

There's much more at the link, including a Q&A, if you want to dive into this more deeply.  And I'll confess to some lingering skepticism, since this depends largely on local regulatory authorities keeping things on the straight and narrow.  Still, this is one of those complex areas that I'm just flatly unqualified to judge, so I'm outsourcing my brain a bit.  Basically, if Joe Romm vouches for these guys and their analysis, then I'm ready to believe them unless some contrary evidence comes along.  I'm still not happy with the vast number of permits being allocated under Waxman-Markey, but (a) I understand the political realities that forced this to happen and (b) it sounds like it's not quite as bad as I thought.

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The Guantanamo Quandary

| Fri May. 22, 2009 9:12 AM GMT

Here is Barack Obama yesterday on what he plans to do with enemy combatants currently held at the military prison in Guantanamo:

First, whenever feasible, we will try those who have violated American criminal laws in federal courts....The second category of cases involves detainees who violate the laws of war and are therefore best tried through military commissions....The third category of detainees includes those who have been ordered released by the courts....The fourth category of cases involves detainees who we have determined can be transferred safely to another country.

....Now, finally, there remains the question of detainees at Guantanamo who cannot be prosecuted yet who pose a clear danger to the American people....Examples of that threat include people who've received extensive explosives training at al Qaeda training camps, or commanded Taliban troops in battle, or expressed their allegiance to Osama bin Laden, or otherwise made it clear that they want to kill Americans. These are people who, in effect, remain at war with the United States.


Hilzoy is not pleased:

No. Wrong answer.


The power to detain people without filing criminal charges against them is a dictatorial power. It is inherently arbitrary. What is it that they are supposed to have done? If it is not a crime, why on earth not make it one? If it is a crime, and we have evidence that this person committed it, but that evidence was extracted under torture, then perhaps we need to remind ourselves of the fact that torture is unreliable. If we just don't have enough evidence, that's a problem, but it's also a problem with detaining them in the first place.

I appreciate the outrage, but this is a genuinely knotty problem.  It was knotty under Bush and it remains knotty under Obama.  For various reasons, some defensible and some not, Obama is right: there are almost certainly a small number of Guantanamo detainees who are (a) unquestionably terrorists and unquestionably still dedicated to fighting the United States, but (b) impossible to convict in any kind of normal proceeding.

At the same time, they aren't American citizens.  They were captured on a foreign battlefield, not U.S. soil.  They are, essentially if not legally, prisoners of war in a war with no end.  So what do we do?

There is no president of the United States who has ever lived who would release such people.  There's no president who would survive doing so even if he did.  It's an impossible situation.

So what do we do?  This is a case where, unfortunately, I think outrage is too cheap and too easy.  We're still left with the question: what do we do?

UPDATE: Glenn Greenwald makes the argument against Obama's proposal here.  Big Tent Democrat responds here.

Free Speech in Korea

| Fri May. 22, 2009 8:46 AM GMT

The South Korean government has filed fraud charges against some bloggers who inflated visitor counts for the websites:

In a statement released Thursday, Seoul police said the phony clicks could "lead to a distortion of public opinion on the Internet."

....The government has sought to outlaw what it calls Internet rumor-mongering and may seek legislation that would require online posters to use their real names.

Last month, the South Korean Supreme Court upheld a lower court ruling that fined a man $2,300 for manipulating the number of clicks on a company's website. The move was allegedly a scheme to lift its popularity ranking among domestic Internet portals.

Some of the bloggers allegedly used "sophisticated viral programs" to boost their traffic rating, which I suppose is at least colorably illegal.  At least one, though, is accused of the nefarious crime of placing a coin on the refresh key so it continued to repeat hits on his posting.  Off with his head!

Oh — and one more thing: all four of the arrested bloggers were anti-government activists "who had criticized the South Korean government and advocated protests after demonstrations last May against U.S.-imported beef."  Is anyone surprised?

Quote of the Day

| Fri May. 22, 2009 8:22 AM GMT

From radio host Mark Levin, screaming at a caller who pointed out that Barack Obama had recently transferred a prisoner from Guantanamo to U.S. soil:


Believe it or not, it gets worse from there.  And this is a man who conservatives have propelled to the top of the bestseller list.

BankUnited Collapses

| Thu May. 21, 2009 2:47 PM GMT

The Wall Street Journal is reporting that BankUnited in Florida has finally been taken into receivership.  No surprise there, but the price tag might be: apparently the FDIC estimates the takeover will ultimately cost taxpayers a cool $4.9 billion — and that's for a bank with less than $15 billion in assets.  I don't think even IndyMac was quite that bad.

Quote of the Day

| Thu May. 21, 2009 2:19 PM GMT

From Conor Clarke, writing about taxes on booze and soda:


That was all of nine days ago!  What would we call a suggestion made in the dark ages of April?

And speaking of old (smooth segue, no?), I tried out the WolframAlpha search engine today for the first time.  It's been getting generally panned, but it sure did an impressively good job on my test drive query.  Check it out:

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Obama and Cheney

| Thu May. 21, 2009 12:46 PM GMT

The media framing of today's national security speeches by Barack Obama and Dick Cheney as a sort of "showdown at noon" has struck me as pretty bizarre.  And yet....I just read both speeches and I have to admit that it's really not so bizarre after all: they could hardly form a starker contrast if they tried.  Obama's speech is all about the rule of law, honoring American values, creating policies that look beyond just today and tomorrow, and trying to figure out how to gain genuine security in a dangerous and complicated world.  Conservatives are going to absolutely howl over it.

And then there's Cheney: no regrets, no second thoughts, not even an admission that any kind of balance should be entertained ("In the fight against terrorism...half-measures keep you half exposed").  It's a pure, white hot defense of an absolutist military approach to every aspect of national security.  Among liberals, Cheney's reputation as a panic-stricken Buck Turgidson will be confirmed beyond doubt.

I want to read both of the speeches before I say any more.  But really, the contrast is truly spectacular.  It's worth your time to read them if you haven't already.

UPDATE: David Corn has a good summary here.   Jacob Heilbrunn has a good take here.

The Credit Economy

| Thu May. 21, 2009 10:27 AM GMT

Megan McArdle shares a horror story of her own about a mistaken tax lien that attached itself to her credit report for years like a barnacle from hell, but then adds a comment:

It is terrifying the power that these bureaus have assumed over us — when my bank made an error on my car loan, my first worry wasn't that they'd upped my payment by $60, but that the subsequent late charge for an undersized loan payment might show up on my credit report.  This was only slightly less panic-inducing than thinking that it might show up as a shadow on a chest x-ray.  The bank fixed its error immediately and cheerfully.  (And may I commend the Navy Federal Credit Union to all who are eligible for membership).  I doubt Experian would have been so accomodating.

But maybe it's worth remembering that the tyranny that credit scores exercise over our imagination have everything to do with the fact that we've built a society so utterly dependent on credit.  If you didn't need a credit card, an auto loan, and probably a mortgage to be considered middle class in this society, these opaque and unresponsive bureaus wouldn't be the most important source of information about us.

It is terrifying that these bureaus have such fantastic power to go around saying anything they want about us with virtually no oversight.  But I'd take issue with the closing paragraph here.  I don't know quite how Megan intended it, but I'd argue that there's nothing per se wrong with the fact that modern economies are so dependent on credit.  Widespread use of credit really does make life more convenient, really does make banking more efficient, really does enable useful advances like online shopping, and really does allow easier access to goods and services that would otherwise be difficult to get hold of.  Used in moderation, it's good stuff.  I sure don't want to return to the days of hauling around travelers checks whenever I fly off to Europe.

Speaking for myself, my jeremiads against the credit-industrial complex have never been meant as an attack on widespread access to credit itself.  Used reasonably, credit cards are a boon and credit reporting is a necessary part of providing credit responsibly in a big, complex world.  That said, credit is critically important to everyday living now, and that means that it needs to handled fairly and transparently.  And that's all I want from these folks: if you make a mistake, you clean it up.  If you can gather negative information automatically, you can also gather positive information automatically.  If you offer a loan at a given rate, then that's the rate.  If you charge fees and penalties, they should be at least vaguely related to the actual cost of the service, not made into a profit center designed to squeeze an endless income stream from the very customers most vulnerable to fine print and slick marketing.

That's all I want.  It's not so much, is it?

Google PowerMeter

| Thu May. 21, 2009 9:18 AM GMT

Felix Salmon updates us on Google's PowerMeter project:

San Diego Gas & Electric [] has recently started installing what it calls “smart meters” in 1.4 million homes in southern California. It’s up to 10,000 now, hopes to get more than 200,000 by the end of the year, and have everybody installed by 2011.

Any of SDG&E’s customers can get their electricity-usage information from the utility’s own website, but now they’ll have the option of getting it straight from Google instead, embedding it on their iGoogle home page, that kind of thing. And the more they see how much energy they’re using, the less they’ll use — a 5%-10% reduction up-front, with more down the road when they start replacing appliances and light bulbs and the like.

SDG&E's smart meters are indeed smarter, but they're still outside, and they're still basically just a fancy replacement for your current power meter.  What's important is having something inside that shows you in real time how much electricity you're using.  Someday that will probably be a physical device, but for now Google is providing this information to SDG&E customers via its PowerMeter app, which can be embedded on your iGoogle home page.  Open it up and you can see exactly how much power you're using every time you turn an appliance on or off.  Neat.

The simple act of making people aware of their electricity usage can probably generate a surprising amount of conservation.  And relatively speaking, it's cheap.  This kind of thing could help in other areas too.  Here's a cheap and simple idea, for example: place the estimated 5-year cost of gasoline on the sticker of every new car.  EPA could easily come up with a formula based on average car use and recent gasoline prices, and it would almost certainly make fuel-efficient cars more attractive if people saw the savings of buying one right in front of their faces when they were comparing cars.  More like this, please.

Forbidden Topics

| Thu May. 21, 2009 8:47 AM GMT

I'm having a little bit of a slow start this morning, so in the meantime here's your idiot news of the day:




Honestly, I don't even know if I blame the principal for this cretinism.  He probably has long experience with mobs of angry parents making his life miserable over trivia.  Not exactly a profile in courage either way, though.