The Stros looked listless after a golf day in St. Louis as the Cards parlayed a four run fifth inning into a 5-3 win at Busch Stadium.
Wade Miller continued to look unimpressive as he walks far too many batters to be effective over the long term. Kent and Lamb had solo yaks, but Berkman‘s 33 game on base streak came to an end. To make matters worse for Berkman, his alma mater was upset 4-3 by Texas Southern in the NCAA Regional Baseball Tournament.
Tim Redding attempts to get the Stros back on track on Saturday night against the Cards’ Jason Marquis.
Daily Archives: June 4, 2004
Excellent overview of the current spike in energy prices
James D. Hamilton is an economics professor at Cal-San Diego who specializes in the economics of energy. In this excellent piece, Professor Sullivan summarizes the recent spike in energy prices and compares it to similar spikes of the past. The entire short piece is worth reading, and here is a tidbit to pique your interest:
The current behavior of oil prices is unlike the spike that preceded earlier recessions in two key respects. First, oil prices have gone up not because of a shortfall of supply but rather because of an increase in demand. The world is producing 3 million more barrels of oil each day relative to last year, nearly a 4% increase. But demand is up even more dramatically. . .
This is quite a different situation from other historical oil shocks that were caused by military conflicts that physically disrupted the production or delivery of petroleum, forcing consumers and firms to make less use of this vital input. The current situation is simply that we have to share the increased supply with other consuming nations. There should be no quarrel with the proposition that a booming world economy overall is good economic news, not bad.
The second way that the current oil price spike differs from those that preceded earlier U.S. recessions is that a good part of the recent increase is merely a correction to an earlier dramatic drop in oil prices. The current oil price of $41 a barrel is 45% higher than the $28 price we saw last September. However, it is important to remember that before those September lows, oil had been selling for $36 back in February of 2003, so that the current price is only 15% above what we saw just a little over a year ago. There were similar corrections (an oil price spike following an earlier downturn) in 1987 and 1994 with no apparently adverse economic effects.
For more a detailed analysis of price spikes in energy markets, review Professor Hamilton’s paper “What is an Oil Shock” that he published originally in 1999 and updated in 2001.
Hat tip to Professor Sauer for the link to Professor Hamilton’s work.
VDH on the New Defeatism
One of the most insightful social commentators of our time, Victor Davis Hanson, posts his weekly article on NRO in which he opines on the real problem in the prosecution of the war against the radical Islamic fascists:
Our Real Dilemma. We do have a grave problem in this country, but it is not the plan for Iraq, the neoconservatives, or targeting Saddam. Face it: This present generation of leaders at home would never have made it to Normandy Beach. They would instead have called off the advance to hold hearings on Pearl Harbor, cast around blame for the Japanese internment, sued over the light armor and guns of Sherman tanks, apologized for bombing German civilians, and recalled General Eisenhower to Washington to explain the rough treatment of Axis prisoners.
We are becoming a crazed culture of cheap criticism and pious moralizing, and in our self-absorption may well lose what we inherited from a better generation. Our groaning and hissing elite indulges itself, while better but forgotten folks risk their lives on our behalf in pretty horrible places.
As usual, Professor Hanson closes by placing the current troubles in Iraq into perspective:
Historic forces of the ages are in play. If we can just keep our sanity a while longer, accept our undeniable mistakes, learn from them, and press on, Iraq really will emerge as the constitutional antithesis of Saddam Hussein, and that will be a good and noble thing ? impossible without America and its most amazing military.
Brad DeLong on the Kerry health care finance plan
In this post, Cal-Berkeley economics professor Brad DeLong examines an interesting aspect of John Kerry’s health care finance plan:
[T]he Kerry campaign has dusted off and brought forward a very clever idea from Brandeis’s Stuart Altman to not eliminate but at least diminish the magnitude of these two ways that market-based health-care reforms self-destruct. The idea? Have the government take its task of social insurance seriously, and reinsure private insurers and HMOs: construct a ‘premium rebate’ pool to pay annual health-care bills over $50,000. This greatly diminishes the cost to insurers and HMOs of covering the really sick. The cost of treating the really sick will then be on the taxpayer rather than on the insurance-purchasing consumer. Insurance rates will fall. And the incentive for the young without many assets to go naked and uninsured will diminish as well.
Thus two of the big problems with our health care system become smaller problems. If this plan is enacted, we will no longer have to worry as much (i) adverse selection–the enormous financial incentives HMOs and insurance companies have to figure out some way not to cover the sick people–and (ii) cost shifting–the fact that those who buy insurance have to pay not only their own routine costs and their own catastrophic costs but the catastropic costs of others and the uninsured as well. The first means that–often–those who need health care the most have a hard time getting it. The second means that–often–those who could afford or would buy insurance if it were priced at its fair actuarial value don’t because of this cost shifting.
This is an interesting proposal. In short, the government would offer reinsurance for catastrophic health care costs. In so doing, this would reduce the incentive for health insurance companies to avoid providing insurance for high-risk applicants. At least in theory, the cost of health insurance should decline, which would make it more attractive to consumers. In effect, the Kerry proposal would make the government’s role in health insurance similar to its role in automobile insurance, where the government subsidizes coverage for the highest-risk applicants.
Indeed, as Professor DeLong points out, the Kerry proposal is consistent with the interests of the Bush Administration’s approach to health care finance. Why then has not the Administration adopted such a proposal? Simply another example of the void of creative policy development that is currently taking place under this Administration.
Paul Johnson reflects on D-Day and Iraq
British historian Paul Johnson (author of “Modern Times,” “History of the Jews,” “History of Christianity,” “A History of the American People,” and his more recent “Art, A New History,” among others) is one of my favorites. In this Wall Street Journal op-ed from several days ago, Mr. Johnson makes the following poignant point about the planning and implementation of the D-Day invasion during World War II, and relates it to the Allies’ current situation in Iraq:
The history of D-Day, and the fortnight that followed, showed the value of meticulous preparations, rehearsals, elaborate testing of every kind of equipment, and the study of logistics. Having secured the bridgehead, the Allied buildup was so rapid that, within a month, the Germans had palpably lost the battle in the West and with it the war. But that did not mean an early Nazi capitulation. Granted the Allied war aim of unconditional surrender, Hitler would clearly fight on to the end, and that meant we had to destroy his large-scale fighting capacity by breaking up all major units and occupying territory. But how, exactly? Montgomery was all for the rapid thrust by armored divisions deep into Germany, backed by overwhelming air-power. “Berlin by Christmas” was one phrase used. This was a fighting soldier’s strategy and one which the Germans, in a similar situation, would certainly have used. Indeed, to some extent it was used by Gen. Patton and his armor. But it was risky. The faster the spearhead moved, the more extended its lines of communication became and the more likely it was that the Germans would be able to mount a devastating lateral attack which might sever the advanced armored units from their tail.
In the end, Eisenhower decided it was too risky and overruled Montgomery’s enthusiasm. Instead, a “broad front” strategy was adopted, the Allies advancing slowly, steady and always as a continuous mass, forward units never out of touch with their companions to left or right. This virtually ruled out the possibility of German counterattack breaking right through the front and nipping off a spearhead. It was the safe approach, and typical of Eisenhower’s minimum-risk attitude to warfare.
But of course such an approach involved penalties. It allowed the Germans to keep their line, to regroup and reinforce, and to maintain morale. Not until the very last weeks of the war did their front collapse, and individual units begin to surrender freely. Moreover, the political consequences were enormous. Instead of the war ending in autumn or early winter 1944, it lasted until the end of April 1945. Instead of the U.S. and Britain occupying Berlin and most of central Europe, it left these spoils to the Russians. The broad-front policy set the stage for 40 years of Cold War. Indeed, had it not been for the firmness of President Truman in reversing Roosevelt’s policy of appeasing Stalin, it is quite possible that Western Europe too might have fallen victim to communism, and that the frontiers of Stalin’s empire would only have ended at the English Channel.
These reflections of D-Day and its aftermath remind us that military decisions can never be entirely separated from their political consequences. Geopolitics is like a game of chess: You have to think a dozen moves ahead. This is as true today as in 1944-45. When President Bush and British Prime Minister Tony Blair decided to destroy Saddam Hussein’s military power, they took a risk that was abundantly justified both geopolitically and morally. But they paid insufficient attention to the possible political consequences.
Unlike Montgomery in 1944, who never underestimated the German genius for counterattack, and made provision against it, the allies this time did not study and prepare for the peculiar Arab genius for counterattack, which is to carry out prolonged and vicious guerilla warfare, completely disregarding human life, including their own. Moreover they did not study and prepare for the difficulties of meeting this form of counterattack against the political background of a free society at home, reacting nightly to what it sees on TV, and reading highly critical reports from the front written by journalists who have their own opinions and agendas and feel under no obligation to pursue the war (and peace) aims of the allied commanders. Both Mr. Bush and Mr. Blair are currently suffering from their lack of provision and foresight.
Given patience and determination, all will be well in time: Democracy and the rule of law will grow in the Middle East, and the roots of terrorism will be destroyed. But we are learning, once again, that the lessons history has to teach are inexhaustible and that statesmen should never plunge into the future, as we did in Iraq, without first examining what guidance the past could supply.
The new definition of “cooperation”
This timely Wall Street Journal ($) article reports on the government’s new pressure tactic in investigating and prosecuting business crimes — pressuring businesses to condition the business’ support of its employees who are under investigation on the employee’s cooperation with the government, which can of course use the employee’s statements against him in prosecuting him for a crime. The WSJ article uses the example of the government’s ongoing investigation into Big Four accounting firm KPMG’s tax shelter promotion (earlier posts on that matter are here). As the WSJ article notes:
Jeffrey Eischeid, a onetime star at accounting giant KPMG LLP, is bracing for possible criminal charges that could land him in federal prison for more than two decades. His offense? Marketing tax shelters that KPMG said were legal.
While the U.S. Attorney in Manhattan is the immediate source of his legal jeopardy, he has another one to worry about: KPMG.
Until recently, the accounting firm staunchly supported both its tax shelters and Mr. Eischeid, whom it sent to Congress to defend the shelters. But this year the firm, which like Mr. Eischeid is at risk of a fraud or conspiracy indictment over the tax shelters, switched strategies. It placed Mr. Eischeid, a 46-year-old partner, on leave, then asked him to resign. And it refused to pay his legal costs unless he agreed to cooperate with the prosecutors, where anything he said could be used against him.
Why the about-face? The answer involves federal sentencing guidelines for businesses, prescribing stiff mandatory penalties for white-collar crimes such as fraud. The sentencing guidelines also tell how companies can lower their odds of being charged with a crime in the first place: by cooperating fully with the federal investigators. And the government has been refining and tightening its definition of cooperation — with broad implications for how U.S. companies interact with employees.
Recent changes, contend critics who include attorneys for some KPMG staffers, encourage companies to break faith with their own employees, making it harder for them to avoid self-incrimination. The critics say that companies, to avoid facing charges themselves, now sometimes feel obliged to fire people, snitch on them, refuse to pay their legal fees and withhold documents they need.
And the price of not cooperating with the government? Based on recent cases, the price is extremely high:
Companies can ill afford to ignore the guidelines because criminal charges, even without a conviction, take a severe toll. This is especially true for financial-services companies. The damage is evident in the fate of such once-mighty firms as Drexel Burnham Lambert and Arthur Andersen LLP, which later faced criminal charges. Drexel folded and Andersen all but disappeared, with a remnant today of only 215 employees.
For a partner like Mr. Eischeid in a firm such as KPMG, the choices and stakes in such a criminal investigation are also extremely high:
After Mr. Eischeid learned prosecutors were interested in him, KPMG gave him a choice. He could cooperate with the investigators, and the firm would pay his legal fees. Or he could go it alone, in which case he would have to foot his own legal bills and would risk being fired.
Mr. Eischeid decided it was too risky to meet KPMG’s conditions for paying his bill. He retained Mr. Arkin. The lawyer recently refused prosecutors’ requests to speak with his client unless Mr. Eischeid is assured “he would not be viewed with the specter of certain indictment or forced guilty plea.”
Mr. Eischeid has a lot to lose. Since graduating from the University of Georgia, he has never held any other job than the one at KPMG and a predecessor firm, and his chances of finding other employment in his field now appear slim.
[Mr. Eischeid] could face more than 20 years in prison if he is indicted and later convicted at a trial. Mr. Eischeid knows that cooperating with the prosecutors prior to charges could mean a smaller penalty. But prosecutors have indicated he would have to plead guilty to at least three felonies, his lawyer says, even though “everything Jeff Eischeid said and did with the tax products he’s now being investigated for selling was scripted by KPMG and approved by KPMG’s professional-responsibility committee.”
Finally, the sad case of Jamie Olis looms large over Mr. Eischeid’s case:
Looming large in Mr. Eischeid’s thinking is the case of Jamie Olis, a midlevel executive at Dynegy Inc. Maintaining his innocence, Mr. Olis went to trial in Houston, was convicted — and drew a 24-year prison term dictated by federal sentencing guidelines. Says Mr. Eischeid, whose last day at KPMG was last Friday, “That could be me some day.”
Let’s assume for a moment that Mr. Eischeid’s tax shelter work was on the margin of tax avoidance legitimacy. Apart from the issue of whether our Tax Code should be written in a manner that encourages such tax avoidance schemes, is not the public interest protected sufficiently by the financial risk that Mr. Eischeid’s clients take in attempting to avoid taxes in this manner? Additional tax, penalties, defense costs and even more accounting fees — clearly, the potential cost of such avoidance schemes is high. Does criminalization of such behavior — particularly where the government’s approach makes it difficult for the persons involved to mount a defense — serve any useful public purpose?