Art Diamond – Page 426 – artdiamondblog.com

Entrepreneur Risks His Money; Government Risks Yours

George B. Kaiser. Source of photo: http://www.forbes.com/finance/lists/10/2003/LIR.jhtml?passListId=10&passYear=2003&passListType=Person&uniqueId=OXNB&datatype=Person

(p. A1) In 2002, Kathleen Eisbrenner, then an executive at El Paso Corp., spent months trying in vain to find a buyer for the company’s novel technology for importing natural gas.

In February 2003, she left for a vacation in Cancun, convinced that El Paso would be forced to abandon the project. As she sat on the beach one afternoon, she got a call on her cellphone. A colleague had a message from an intermediary, who said he had an "interested buyer," identified only as a "Midwest billionaire."

"It’s Warren Buffett calling," she recalls telling her husband as they clinked pina colada glasses together in celebration. "I was absolutely sure."

But it wasn’t Mr. Buffett. It was another billionaire named George B. Kaiser.

. . .

(p. A6) . . . , Ms. Eisbrenner called Nicolas Saverys, the chief executive of Belgium-based Exmar NV. Exmar was building two of the new-style LNG vessels. Ms. Eisbrenner gushed that there was a wealthy buyer. Mr. Saverys was initially skeptical. He changed his mind in late February 2003 after meeting Mr. Kaiser in New York. "At last, I was talking to someone who was putting his own money at stake," he says.

Mr. Saverys sealed the relationship by presenting Mr. Kaiser with a box of pralines from Belgian chocolatier Pierre Marcolini at their second meeting. Mr. Kaiser, an avowed chocoholic, returned the favor a couple of weeks later in Tulsa, giving Mr. Saverys a box of candy made by Christine Joseph, a Tulsa chocolatier who also was born in Belgium.

Convinced that Energy Bridge could work, Mr. Kaiser agreed to take over the business, closing the deal last December. El Paso paid him $75 million; in return, he assumed a $120 million obligation to Exmar. El Paso also agreed to pay to install the underwater pipeline connection that carries the gas from the ship to existing pipelines in the Gulf of Mexico.

The bulk of the $660 million Mr. Kaiser invested went to modify three specially equipped tankers and to charter them for 20 years. If Energy Bridge opens on time in January, it will be at least two and a half years ahead of any new terminals being developed by other energy companies. In addition, civic leaders in Massachusetts and Rhode Island, eager to keep LNG terminals and tankers far from the mainland, are encouraging Mr. Kaiser to build an offshore tanker-based project along the Atlantic coast of the U.S.

Mr. Kaiser, who declined requests for an interview but answered some questions by e-mail, concedes he doesn’t like "taking a risk on an undemonstrated technology." But he says that the chance to import natural gas quickly was "such an obvious and alluring business opportunity" that he felt compelled to get Energy Bridge into operation. He’s betting that new LNG-export facilities expected to come online next year in Egypt, Trinidad and Nigeria will create enough extra supply to provide him with ample LNG.

. . .

He says he acquired Energy Bridge as a challenge. "I don’t gain much pleasure from personal expenditure or recognition," he wrote in an e-mail. "And any gains I make from the enterprise will accrue to charity. But I enjoy problem solving and I want to keep my brain active to forestall (or at least diminish) atrophy."

For the full story, see:

Russell Gold. "Liquid Assets: A Billionaire Takes a Gamble To Fix Natural-Gas Shortage; Mr. Kaiser Plans to Shift Processing Onto Tankers, Avoiding Terrorism Fears; A Deal Sealed With Sweets." The Wall Street Journal (Fri., July 23, 2004): A1 & A6.

(Note: ellipses added.)

Raising Minimum Wage Destroys Job Opportunities

. . . , Ted Kennedy, argues that the minimum wage should be increased because it’s difficult to raise a family with the only breadwinner making the current minimum. It’s a popular claim, but it is flawed, for three reasons.

First, a study by economist David A. Macpherson of Florida State University and Craig Garthwaite of the Employment Policies Institute suggests that only 20% of the workers who would have been directly affected by an earlier $1 increase in California’s minimum wage were supporting a family on a single minimum-wage income. The other 80% were teenagers or adult children living with their parents, adults living alone or dual earners in a married couple.
Second, as economists David Neumark of the Public Policy Institute of California and William Wascher of the Federal Reserve Board show, increases in minimum wages actually redistribute income among poor families by giving wage increases to some and putting others out of work. They estimate that the federal minimum-wage increase of 1996 and 1997 increased the proportion of poor families by one half to one percentage point.
Third, consider the long run. Mr. Neumark and Olena Nizalova have found that even people in their late 20s worked less and earned less the longer they were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life.

For the full commentary, see:

David R. Henderson. "Rule of Law; Minimum Wage, Minimum Sense." Wall Street Journal (Sat., Feb 25, 2006): A11.

Why Fear Nuclear When Coal is More Deadly?

The skin of Timothy Hall’s hands melted together in a coal mine accident in September 2005. Source of image: online version of the WSJ article cited below.

I am not against coal. But I am puzzled why public sentiment and government policy discourage new nuclear reactors. Per unit of energy produced, isn’t nuclear safer than coal?

(p. A1) MCDOWELL, Ky. — Last September, Timothy D. Hall was drilling holes in the deepest part of a low-roofed coal mine when an explosion thrust him from his drill machine and set him on fire.

He crawled 45 feet to a mudhole inside the mine to douse the flames. The fireball melted the bill of his hard hat, charred his oxygen canister and burned his jacket, according to government investigators. After he was carried outside, but before any pain set in, he was shocked to see the flesh of his fingers had melted together.

For the full story, see:

KRIS MAHER. "Deep Trouble As Demand for Coal Rises, Risky Mines Play Bigger Role Small Operations Overall Have Higher Fatality Rates; The Dangers of ‘Dogholes’ Long-Term, a Safer Industry." The Wall Street Journal (Thurs., June 1, 2006): A1 & A10.

In the graphic below, note that the long-term trend has been a decline in fatalities in coal production. But the fatalities remain higher, per unit of energy produced, than the fatalities for nuclear energy production.

Source of graphic: online version of the WSJ article cited above.

Toffler Fear of Future Changes to “worry that the future will arrive too late”

Source of book image: http://www.randomhouse.com/catalog/display.pperl?isbn=9780307265555

The titular wealth they speak of comes from substituting "ever-more-refined knowledge for the traditional factors of industrial production — land, labor and capital." The United States is producing more stuff than ever with fewer workers. The Tofflers write that only 20 percent of the work force is now in the manufacturing sector, while some 56 percent (and growing) is engaged in what they call "knowledge work" — managerial, financial, sales-related, clerical and professional tasks. Even activities like agriculture have gone high-tech, through biotechnology and increasingly sophisticated use of global-positioning satellites to customize irrigation and fertilization down to the individual acre. Knowledge-based wealth, they argue, is revolutionary not just because it gets more output from fewer inputs. Unlike such physical resources as oil, knowledge can be shared by an infinite number of people, and its value and benefits are generally increased by wider circulation. (A network, after all, is only as powerful as the number of participants.) Just as important, the Third Wave wealth system "demassifies production, markets and society," creating space for unending experimentation, innovation and individuation.

. . .

Despite visionary passages about nanotechnology (the manipulation of objects at the atomic level) and potential moon-based helium energy, "Revolutionary Wealth" is less interesting for its specifics (most of which will be familiar to readers of publications like Wired, The Economist and Red Herring) than for its evidence of how far we’ve come since the 70’s, when politics, economics and culture all seemed as played out as Richard Nixon’s denials of criminality. In "Future Shock," the Tofflers warned that many people "will find it increasingly painful to keep up with the incessant demand for change that characterizes our time. For them, the future will have arrived too soon." These days, from Baghdad to Bangalore to Boston, it seems more likely that people worry that the future will arrive too late. That’s no small change, and it’s one on which the Tofflers have been shining a light for years.

For the full review, see:

NICK GILLESPIE. "The Future Is Now." The New York Times Book Review, Section 7 (Sun., May 14, 2006): 9.

The full reference to the Toffler book is:

Toffler, Alvin, and Heidi Toffler. Revolutionary Wealth. Alfred A. Knopf, 2006.

Middle Class Living Standards Have Risen

(p. C1) ONE of the most influential political books of the last few years has been ”What’s the Matter With Kansas?” by Thomas Frank. Published during the 2004 campaign, it neatly captured the Republicans’ success in using social issues to attract blue-collar Kansans who don’t really benefit from Republican economic policies.

”All they have to show for their Republican loyalty,” Mr. Frank writes, ”are lower wages, more dangerous jobs, dirtier air, a new overlord class that comports itself like King Farouk,” and a culture in ”moral free fall.”

The book was a New York Times best seller for 35 weeks.

But close inspection uncovers a big problem with Mr. Frank’s economic analysis. Wages haven’t been falling in Kansas. Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980’s or 90’s, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don’t vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation — which is similar to the national increase — is (p. C10) not especially impressive. It’s certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990’s boom, and pretending otherwise does not jibe with most people’s experiences.

More to the point, some other improvements have accelerated recently. In just the last 15 years, the murder rate has been cut almost in half. Many big cities are far more vibrant places than they used to be. About 33 percent of young adults get a bachelor’s degree these days, up from 25 percent in the early 1990’s. The gap between men’s and women’s pay reached its lowest ever last year. The divorce rate has stopped rising.

Many luxuries of earlier generations — owning a three-bedroom house, flying across the country, calling relatives who live overseas — are staples of middle-class life. If all this doesn’t add up to a rise in living standards, I’m not sure what the phrase means.

For the full commentary, see:

DAVID LEONHARDT. "This Glass Is Half Full, Probably More." The New York Times (Wednesday, May 24, 2006): C1 & C10.

An Unintended Use of Shipping Containers

Source of top image: online version of NYT article cited below. Source of bottom image: http://www.2odessa.com/wiki/index.php?title=Seventh-Kilometer_Bazaar

SEVENTH-KILOMETER MARKET, Ukraine, May 16 – Most of the shops here on the airport road outside Odessa are neither buildings nor stalls. They are shipping containers, stacked two high in rows long enough to be called streets, though these are little more than overcrowded alleys.

From their steel gates spills a consumer abundance of inexpensive clothes, shoes and toys, kitchenware, hardware and software, cosmetics, sporting goods and various sundries — virtually everything, in short, in a part of the world that not long ago was used to getting by with virtually nothing.

. . .

”They were growing wheat here when I came,” said Aleksandr Sedov, who once programmed computers for the Soviet space program and now sells, mostly, suspenders and women’s blouses. ”Now this place is called the field of wonders.”

It was also a dump and a garbage incinerator — paved over and torn down, respectively — when the last Soviet city fathers of Odessa expelled the pioneers in a previously unknown free market from the city, banishing them to a 10-acre spot seven kilometers, or about four miles, from the city’s limits, hence the name. That was in 1989, as the Soviet Union itself was unraveling, and what has since emerged is Europe’s most extraordinary and, some say, largest market.

For the full story, see:

Steven Lee Myers. "Seventh-Kilometer Market Journal: From Soviet-Era Flea Market to a Giant Makeshift Mall." The New York Times (Fri., May 19, 2006): A4.

“What Digital Divide?”

"Jazmyn Johnson, 9, recently helped her mother, Barbara, use their high-speed DSL Intenet connection at their home in Duluth, Ga." Source of caption and photo: online version of NYT article cited below.

(p. A1) African-Americans are steadily gaining access to and ease with the Internet, signaling a remarkable closing of the "digital divide" that many experts had worried would be a crippling disadvantage in achieving success.

Civil rights leaders, educators and national policy makers warned for years that the Internet was bypassing blacks and some Hispanics as whites and Asian-Americans were rapidly increasing their use of it.

But the falling price of laptops, more computers in public schools and libraries and the newest generation of cellphones and hand-held devices that connect to the Internet have all contributed to closing the divide, Internet experts say.

Another powerful influence in attracting blacks and other minorities to the Internet has been the explosive evolution of the Internet itself, once mostly a tool used by researchers, which has become a cultural crossroad of work, play and social interaction.

. . .

"What digital divide?" Magic Johnson, the basketball legend, asked rhetorically in an interview about his new Internet campaign deal with the Ford Motor Company’s Lincoln Mercury division to use the Internet to promote cars to black prospective buyers.

For the full story, see:

MICHEL MARRIOTT. "Blacks Turn to Internet Highway, And Digital Divide Starts to Close." The New York Times (Fri., March 31, 2006): A1 & A15.

(Note: ellipsis added.)

Free Market Wealth Funds Archaeology

Upper left is retired banker Leon Reinhart. Lower right is Bill Saturno, who’s archeology dig is being funded by Reinhart. Source of photos: online version of WSJ article cited below.

(p. P1) NORTHERN GUATEMALA — Aboard a small helicopter crossing a seemingly endless rainforest, Leon Reinhart is describing our destination, the San Bartolo archaeological site. "We are uncovering the oldest-known Maya murals and the oldest writing anyone has ever found in the Americas," he says.

Mr. Reinhart isn’t an archaeologist. He isn’t an academic. He is a retired banker.

In providing funding for the excavation at San Bartolo, Mr. Reinhart is one of a growing number of bankers, entrepreneurs and philanthropists who are playing a crucial role in archaeology. They are providing millions of dollars to study and preserve the relics of ancient civilizations from Latin America to Italy and Turkey, giving life to projects that would otherwise die.

. . .

(p. P4) Among the other members of the new generation of benefactors is Charles Williams II, himself an archaeologist. He directed the enormous excavation project in Corinth and has supported projects in Sicily and at Gordia in Turkey, where Alexander cut the Gordian knot. Through his foundation, David Packard, son of the Hewlett-Packard founder, financed the work at Zeugma in southwest Turkey that rescued a large number of mosaics just before they were submerged by a new dam. And a foundation created by Artemis Joukowsky, the former chancellor of Brown University, is funding conservation work at the Great Temple of Petra in Jordan.

Mr. Reinhart learned about San Bartolo thanks to the efforts of an investment banker, Lewis S. Ranieri, who pioneered the mortgage-securities market at Salomon Brothers in the 1980s and now is chairman of CA, the information-technology concern formerly known as Computer Associates. Mr. Ranieri created the Foundation for the Advancement of Mesoamerican Studies, or Famsi, devoted to archaeology.

On Famsi’s Web site, Mr. Reinhart read an article about San Bartolo written by Bill Saturno, the young archaeologist who literally stumbled across the ruin in 2001. Entering a tunnel cut by looters, he immediately understood that the paintings were much older than previously discovered Mayan murals with such complicated iconography.

Fascinated by Mr. Saturno’s article, Mr. Reinhart sent him an email. Because the project had received grants from Famsi and the National Geographic Society, Mr. Reinhart assumed it was fully funded; he soon learned that wasn’t the case. Mr. Saturno was borrowing on his personal credit card to keep the work going. Mr. Reinhart agreed to cover most of the needed funds — a sum that has now crossed the $1 million mark. (Among this year’s expenses: $65,000 for stabilizing the murals and $18,700 in food.)

For the full story, see:

G. BRUCE KNECHT. "Culture; The Rich Dig Deep: Archaeology’s New Players; As traditional funds for excavations fall short, wealthy benefactors are bolstering the hunt for antiquities." The Wall Street Journal (Sat., May 13, 2006): P1 & P4.

(Note: ellipses added.)

Co-Founder of Home Depot, Funds Ambitious Georgia Aquarium

Scenes from the Georgia Aquarium. Source of photos: online version of the NYT article cited below.

(p. B1) One of its sensations, . . ., is simply its ambition — look what we have gathered and constructed! The Georgia Aquarium is billed as the world’s largest, and one can’t escape statistics of size and number: over 100,000 fish are displayed in five galleries and 60 habitats in the more than 500,000 square foot building; there is a 6.2 million gallon pool in which 1.8 million pounds of salt and minerals have been dissolved since last October and in which two whale sharks — the world’s largest fish — swim, displaying themselves to visitors through acrylic walls that are two feet thick. A stainless steel "commissary" behind the scenes holds 20,000 pounds of frozen food at minus 20 degrees Fahrenheit.

This aquarium is also somewhat unusual in its origins: it is not created by a municipality, or a society of subscribers like those that founded the earliest public zoos. It is almost completely the creation of a single man, Bernard Marcus, co-founder of the Home Depot, as a "gift" to the people of the city in which his company began. He and his wife, Billi, donated $250 million of the $290 million cost.

. . .

(p. B7) The aquarium has been an overwhelming popular success. Even with admission prices of $22.75 for adults ($17 for children), demand has been so great that the building is often sold out. Tickets come with timed entrances, and 290,000 annual passes, costing almost $60 for adults, were purchased before their sale was stopped in January. A million visitors have come since the opening.

For the full story, see:

EDWARD ROTHSTEIN. "Aquarium Review | The Georgia Aquarium A Hundred Thousand Fish, Behind a Pane 2 Feet Thick." The New York Times (Thurs., March 23, 2006): B1 & B7.

(Note: ellipses added.)

Illegal Immigration Reduces Wages for High School Dropouts by Only 3.6%

Source of graphic: online version of the NYT article cited below.

As Congress debates an overhaul of the nation’s immigration laws, several economists and news media pundits have sounded the alarm, contending that illegal immigrants are causing harm to Americans in the competition for jobs.

Yet a more careful examination of the economic data suggests that the argument is, at the very least, overstated. There is scant evidence that illegal immigrants have caused any significant damage to the wages of American workers.

The number that has been getting the most attention lately was produced by George J. Borjas and Lawrence F. Katz, two Harvard economists, in a paper published last year. They estimated that the wave of illegal Mexican immigrants who arrived from 1980 to 2000 had reduced the wages of high school dropouts in the United States by 8.2 percent. But the economists acknowledge that the number does not consider other economic forces, such as the fact that certain businesses would not exist in the United States without cheap immigrant labor. If it had accounted for such things, immigration’s impact would be likely to look less than half as big.

. . .

. . . , as businesses and other economic agents have adjusted to immigration, they have made changes that have muted much of immigration’s impact on American workers.

For instance, the availability of foreign workers at low wages in the Nebraska poultry industry made companies realize that they had the personnel to expand. So they invested in new equipment, generating jobs that would not otherwise be there. In California’s strawberry patches, illegal immigrants are not competing against native workers; they are competing against pickers in Michoacán, Mexico. If the immigrant pickers did not come north across the border, the strawberries would.

"Immigrants come in and the industries that use this type of labor grow," said David Card, an economist at the University of California, Berkeley. "Taking all into account, the effects of immigration are much, much lower."

In a study published last year that compared cities that have lots of less educated immigrants with cities that have very few, Mr. Card found no wage differences that could be attributed to the presence of immigrants.

. . .

When Mr. Borjas and Mr. Katz assumed that businesses reacted to the extra workers with a corresponding increase in investment — as has happened in Nebraska — their estimate of the decline in wages of high school dropouts attributed to illegal immigrants was shaved to 4.8 percent. And they have since downgraded that number, acknowledging that the original analysis used some statistically flimsy data.

Assuming a jump in capital investment, they found that the surge in illegal immigration reduced the wages of high school dropouts by just 3.6 percent.

For the full commentary, see:

EDUARDO PORTER. "ECONOMIC VIEW; Cost of Illegal Immigration May Be Less Than Meets the Eye." The New York Times, Section 3 (Sunday, April 16, 2006): 3.

Increases in Demand for Online Video, Stabilize Prices for Fiber-Optics Lines

Source of graphic: online version of WSJ article cited below.

(p. B1) At long last, the pipes are starting to fill up.

For years, the fiber-optic communications industry has been awash in spare capacity that sent prices for data transmission plunging. Now, thanks to continued growth in Internet traffic, demand is beginning to catch up with supply in many areas of the active global network.

Still, plenty of inactive fiber-optic lines remain — the majority of the lines put into the ground or underwater have gone unused for years and can be activated on short notice and relatively inexpensively. That means the glut has not come to a definitive end and consumer prices are unlikely to rise. But at the moment, prices for sending data traffic at least appear to be stabilizing, providing a welcome reprieve for companies that operate the so-called backbone of the world’s telecommunications infrastructure.

. . .

What’s behind the increased demand for network capacity? Industry executives and Prof. Odlyzko say video sent via the Internet is a key driver. That includes the increasing distribution of movies online, many sent illegally. On local (p. B4) phone networks that reach into most homes and offices there has never been excess capacity, and carriers like Verizon Communications Inc. are spending billions to beef up local connections to handle tasks like video.

. . .

Level 3 Chief Executive James Crowe admits "our crystal ball got cracked pretty badly there" during the tech boom, but says on Level 3’s network now "there’s every sign that inventory that was up on the shelf is being drawn down and in some areas even exhausted."

For the full story, see:

MARK HEINZL and SHAWN YOUNG. "With Rising Internet Traffic, Spare Fiber-Optic Lines Fill Up." The Wall Street Journal (Thurs., April 27, 2006): B1 & B4.