The Power and the Money

Oh, Miami, and an arrest in New York

You are probably aware that a woman in Miami named Filomena Tobias flipped off Joakim Noah after last night’s game against Chicago. Ah, Miami. You may not, however, be aware that ... oh, just click the link. It’s fun, trust me.

In other news, the NYPD arrested a man in Astoria, Queens, for firing a plastic pellet gun and then handing it off to his kids.

The law against realistic toy guns is a good one and it should be enforced. When I was a boy, we would shoot BB guns down by what  is now called Dumbo or across the bridge on Wards Island. We would also sometimes take them into buildings or on city streets in Brooklyn or, even more stupidly, Stanley Isaacs and 1199 Plaza in Manhattan. In 1994, that very game resulted in death when a police officer shot a boy holding a toy gun. 

I strongly support the law banning realistic toy guns.

And I double-support keeping BB guns out of parks: they can hurt people! This guy was letting his three year son and five-year-old daughter point a loaded pellet gun at other people. That is a recipe to blind somebody. (I have every intention of going target shooting with my boy and letting him learn all about firearms. I have no intention of letting him fire even low-velocity projectiles in crowded areas.) I am glad that other parents stopped this moron before anyone got hurt.

There is, however, something confusing. The story says that the other parents quickly realized that it was a toy. One went up to the guy and told him to stop. According to the news, he did so and left the park.

Why then did they call the police? Or did somebody else call the police?

Anyway, this guy was pretty damn stupid. I will cut 10-year-olds in 1980 some slack. A 54-year-old in 2013, not so much.

A self-refuting argument for intervention in Syria

The pressure is mounting on the United States to intervene in the Syrian civil war. Yesterday the New York Times ran an op-ed from Bill Keller proposing the following plan.

“President Obama articulates — as he has not done — how the disintegration of Syria represents a serious danger to America’s interests and ideals. The United States moves to assert control of the arming and training of rebels — funneling weapons through the rebel Supreme Military Council, cultivating insurgents who commit to negotiating an orderly transition to a nonsectarian Syria. We make clear to President Assad that if he does not cease his campaign of terror and enter negotiations on a new order, he will pay a heavy price. When he refuses, we send missiles against his military installations until he, or more likely those around him, calculate that they should sue for peace.”

To his credit, Keller recognizes that success is not guaranteed. “It might well be that the internal grievances are too deep and bitter to forestall a bloody period of reprisals. But that outcome is virtually inevitable if we stay out.”

In short: these terrible things will happen without American intervention. Thus we should intervene regardless of our ability to stop them from happening. That would seem to be a self-refuting argument.

I would prefer to be constructive. Keller’s plan leaves six unanswered questions.

1. What do we do if Assad does not negotiate? 
2. What do we do if Assad retreats into the Bekaa Valley under pressure from U.S. airpower?
3. With whom does he negotiate? 
4. Should the negotiations succeed, how do we keep the rebels from fighting among themselves?
5. How do we keep government supporters from continuing to fight even if Assad chooses to surrender?
6. How do we prevent ethnic cleansing in Alawite territories? 

These questions may have answers, although I fear that they will involve boots on the ground and a whole lot of money. I also fear that they may not have answers. Failure, we should remember, is an option.

Shots and sirens in Cambridge

Somebody robbed the 7-Eleven near our house last night. (Near as in only two small streets need to be crossed to get there.) Exciting, but not blogworthy ... except it turns out that the robbers were the perpetrators of the Marathon bombing.

Right now the subway and busses are shut down. We first got word with an automated phone call from the State Police to our house; that was followed by a flurry of texts and emails advising everyone to stay inside.

Sirens are continuous in the background. My boy is happily pulling himself into a standing position on chairs and bookshelves. My wife is talking to relatives on the pheone. We just got a redundant email announcing that Zipcar is shut down.

I note that the cell networks are still on; shutting them down would not help with the manhunt and would in fact remove some potentially useful tracking tools.

This is just a short personal update; there is no news available here at Franklin Street that you cannot get from the newspapers. I would, however, advise all of you to stick to reading the papers and cut it out with the rumor-mongering. They get things wrong and some are irresponsible (like the New York Post) but they are far far far better than the alternatives.

UPDATE: As of 8:12, the sirens have stopped.

Is the U.S. serious about fighting organized crime in Mexico?

I recently met with a high-level PAN official from the Calderón administration. The official said some things which were very interesting. (I cannot identify the official.) First, the Calderónistas do not see much (if any) substantive policy space between them and the new Peña administration. This is in line with the common feeling that the outgoing PAN president supported the PRI candidate over the candidate of his own party.

Second, the official (do note that I am not even using a pronoun) admitted that Mexican officials do not care how many illegal narcotics cross the border heading north. They do, however, care when the people who earn profits from that traffic suborn justice and bribe officials in Mexico, and they really care when they use violence. That said, they believe that much (in fact, the official intimated it was most) of the violence comes from fighting over the rights to sell drugs within Mexico. This was said in surprisingly blunt terms, but it was not surprising: the administration openly suggested that legalization might be a good idea as early as 2010.

Finally, the official said that they had great cooperation from the United States on everything except ... stopping money from flowing back to Mexico. On that, neither the Bush nor Obama administrations wanted to do much. There was no appetite on the low end to search southbound vehicles for cash in trunks, and there was no appetite on the high end for ... well, click this link and then this one.

The second link will take you the first stories about HSBC’s laundering of narcotics profits going from the U.S. to Mexico. What happened? Well, the United States eventually reached a $1.92 billion settlement against the bank. $1.92 billion! That’s a lot of money! HSBC profits fell 17%!

Only ... well ... the Mexican ex-official was not satisfied. Consider. HSBC earnings went from $16.2 billion to ... $13.5 billion. The CEO’s take home pay declined ... from $8 million to $7.4 million. The number of employees who earned bonuses above £1 million went from 192 ... to 204. 

It is true that the fine wiped out any HSBC profits from moving illicit earnings. The problem is twofold. First, you have let people move blood money, an action that actually carries criminal penalties, but you imposed no criminal penalties! It is easy to agree with Senator Warren (D-Massachusetts) that this is an outrage.

But there is another problem. There is, right now, if you are a bank moving illicit funds, there is a low chance of getting caught. So if the idea is to disincentivize money-laundering, you need to do a lot more than just wipe out the potential profits. You need to wipe-out the risk-adjusted potential profits.

And that the United States did not do.

Which brings us back to the title of this post. Are we? Really?

Drone wars

There has been a lot of recent controversy about America’s drone policy. That controversy is deserved. There seems to be something odd about the use of weapons of war outside a war zone. What are the rules? Where does it end?

When I think about it, there do seem to be clear rules and we know exactly where it ends. Only they are not the rules that the Administration has written down and they are not rules that any administration could openly admit to.

Basically, the United States will use drones in any of the areas where we would use any kind of military force to advance our interests outside of war. E.g., countries (or subareas of countries) that satisfy two conditions:

1. They are outside the reach of a legitimate, democratic and effective government;
2. The open use of American force would not embarrass a government we like or damage other American interests.

E.g., the U.S. will use drones to kill people in the world’s ungoverned spaces, just like it will use the Marines or the Army or any other element of national military force. But we will not use them to kill people in Canada and we will not use them in Colombia, albeit for different reasons.

These unwritten rules, I think, are why liberals massively support the use of drones to kill Al-Qaeda members in Yemen. I was surprised to discover that self-selected viewers of the Ed Show are okay with this policy. The support is there despite the risk to foreign civilians and even when the alleged terrorists are American.

The legality is strange (in essence, even American citizens in ungoverned spaces have no rights) but not, I do not think, new.

In practical terms, the difference between drones and F-16s or cruise missiles is one of cost. They can linger for more time than most manned vehicles and with no risk of losing the pilot. And they are more accurate than cruise missiles. That makes them easier to use. But it is not like the U.S. refrained from firing cruise missiles at Afghanistan or Sudan. Or, for that matter, sending helicopters full of Naval special forces into Pakistan.

None of this is to say that there is nothing new under the sun. Surveillance technology is different: ultra-high resolution photographs and bird or bug-sized flying spybots are in fact new things that need new rules. But those truly new things have not yet entered the public debate.

Drones as they currently exist are a matter of a change in scale but not a change in kind. The fundamental issues are no different and the unwritten rules are no different. If we are honest with ourselves, we know the rules and we know the limits. We just cannot say them ... and perhaps do not wish to admit them. After all, they amount to a declaration of sovereignty over much of the planet, within which the Constitution does not apply.

But once you realize that the limits are there, the lack of debate makes sense.

The flowback from fracking, European edition

Gavin Wright is one of the best economic historians of the United States. In a seminal article, he advanced two findings. First, early American industrial success was due to access to cheap abundant natural resources. Second, there was nothing special about America’s geological endowment that caused it to enjoy cheaper and more abundant natural resources. Rather, Americans were particularly innovative in figuring out ways to turn their geological endowments into usable economic resources. In a 1995 paper with Paul David, the authors cheekily called American resource abundance “socially constructed.”

American industrial dominance faded as the technologies developed in the United States spread to other places. (Lower transportation costs helped: cheap Australian iron could power Japanese industrial exports, for example.) Over time, some countries also developed the ability to indigenously develop new natural resources (an article by Wright and Jesse Czelusta mentions various South American nations, in addition to Australia, Canada and Norway) but it really was not until the second half of the 20th century.

History is repeating itself. The technologies allowing for the development of shale gas and tight oil have originated in the United States. (There has got to be a paper in why.) But there is nothing particularly special about America’s geology. There is likely a lot of shale gas in Europe, among other places.

The question is how fast can the technologies invented in the United States be deployed overseas? The Economist points out that even if you can get past the political barriers, it will still likely take a decade for exploration and development. I am not so sure that it has to take that long, but there is a very serious obstacle to developing European shale ... the flowback.

Basically, when you dig a shale well it produces a lot of wastewater: the flowback (e.g., the fluid that you pumped down there to fracture the rock) and other water liberated during the drilling. That water is nasty stuff, regardless of what you pumped down there in the first place. It contains heavy metals, icky long-chain hydrocarbons, and is slightly radioactive. (The link goes to a USGS report.) In most U.S. plays, you get about 600,000 gallons of flowback and other water in the first ten days. You then get another 200 to 1,000 gallons per thousand cubic feet (MCF) of natural gas. (An EPA study is here.)

So what do you do with the toxic and salty and mildly radioactive flowback? Well, in the United States we pump it into Class II disposal wells: lightly regulated abandoned old wells, mostly owned and run by small mom-and-pop operations. (And I do mean lightly regulated. Click the link and be horrified.) We truck the stuff thousands of miles (in an exercise with some of my students, we estimated a minimum flowback disposal cost of 25¢ per MCF) or recycle it for use in other fracks. Chesapeake, for example, reuses about 6% of its water and aims to up that to 20% in some plays. But that will still leave 80% of the sludgy briny glowing water to be dumped somewhere.

And most of Europe does not have a century of oil and gas drilling behind it. The U.S. has literally hundreds of thousands of Class II wells lying around. Britain and Poland do not. So where are they going to dump the wastewater?

I would go so far as to call this a dealbreaker for most European countries (Ukraine excepted) save for one caveat: there is a huge opportunity for companies that can invent ways to better reuse the flowback. The DOE has already put some (rather small) monies towards this purpose. But this is a place where the case for subsidies is weak. There are huge incentives for anyone who can figure out a way to substantially cut the amount of flowback from fracking to make a lot of money.

In fact, some have started. So get moving! Europe awaits.

Why we fight

 This story comes from Business Insider, a serious website. In it, they say that a drill sergeant asked his recruits to provide him with a written explanation of why they joined the Army.

Well done, soldier! (And intel, too! Word.)

By the way, here is the original Reddit thread. If you have ever been in basic training of any sort with any service, you gotta read it. Heck, even if you haven’t. Especially this subthread. (I am still laughing.) Note that Looney82 is in fact the drill sergeant in question.

The Alaskan way in Venezuela?

 The great state of Alaska has a fairly unique way of handling hydrocarbon revenues. According to Article 9, Section 15 of the constitution of Alaska, “at least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments.” In 1980, the legislature set the actual pay-in requirement at 50% of the above revenues.

The Alaska Permanent Fund Corporation (APFC) then invests the proceeds. For reference, in 2012 the Fund received $915 million from the state, up $28 million from 2011. (APFC annual reports can be found here.) The APFC is more-or-less free to do what it wants; it is fairly conservative but not as much as some other sovereign wealth funds.

Roughly 53% of the investment income earned by the APFC is then paid out in dividends (calculated here) to citizens of Alaska, i.e., any U.S. citizen resident for at least six months. (Alaskan law previously favored longstanding residents, but the U.S. Supreme Court threw that out in 1982.) Dividends are based on a five-year rolling average, so it is unlikely that a crash (like, say, 2008) would axe dividends although. That said, it is possible. Last year the APFC transferred over $605 million; in 2011 it transferred $801 million. (The link will take you to the web page of the organization that distributes the dividends, called the Permanent Fund Dividend Division; that is different from the APFC.) Historical data on dividends can be found here.  

You got it: every man, woman, and child in the State of Alaska gets a check ($1,174 in 2011) cut to them by the state government from the proceeds derived from the state’s titular ownership of all subsoil resources. Which is why, obviously, Alaskans hate socialism. 

Could this system work in Venezuela? Pedro Rodríguez, José Morales, and Francisco Monaldi suggest that the answer is yes. Oil has been a net benefit to Venezuela, but the country has clearly wasted most of the income; giving cash to citizens could solve that issue. Still, there are a couple of rubs. They address all of them in their paper, but not in sufficient detail:

1. How much is needed to keep the Venezuelan state running? Alaska set up the Permanent Fund fairly close to the beginning of the oil boom. Venezuela, on the other hand, will be doing so after a decade of high oil rents and almost a century of oil dependence. The authors are probably correct to argue that a new government could shut down most of the “misiones” without too much trouble. The authors are certainly correct to argue that the country would be better off getting rid of its idiotic fuel subsidies. It is less clear to me, however, that starving the rest of the bureaucracy would be wise, regardless of how bloated it may be. Venezuela right now suffers from too little governance in some very big fields (police, courts, schools and infrastructure, just for a start) and fixing the mess left over from President Chávez and his feckless Punto Fijo predecessors could easily require more money, not less;
2. How do you deal with disincentive effects? The amounts that would be distributed under the Venezuelan plan are a much larger share of income for the median (let alone poor) Venezuelan than for the median Alaskan. Alaska in 2011 had a median income of $67,825 per household, against an average APF check of ($1,174 × 2.65 people per household) $3,111. Call it 5% of per capita income. In Venezuela, though, similar numbers would have in 2008 represented “31% of per capita income for those at the bottom 25% of the income distribution, 15% for the next quartile and 8% and 3% for the top two quartiles respectively” at official exchange rates. Unofficial exchange rates could as much as triple those figures;
3. The volatility problem follows. Alaskans just have 5% of their income tied to swings in oil prices plus financial markets. (To be frank, the Alaskans have not solved that problem despite using the mechanisms proposed by the authors to do so.) In Venezuela, it will be much higher; 
4. How do you get past the unpopularity of the plan? The Venezuelan opposition proposed such a thing in 2006. The authors have evidence that a lot depends on how the proposal is phrased, but those results do not take into account the inevitable opposition campaign;
5. If you solve problems (1) and (2) by allocating only a relatively small percentage of the oil money, what exactly is it that you have solved? I am honestly unclear. Is it the management of the hydrocarbon sector? Well, lots of countries have more-or-less solved at problem in various ways: Brazil and Algeria come to mind. Is it to weaken political machines? OK, but populists could still play with payouts, no? Is it to insure that benefits flow to the poorest? I am with them on that one, but it might be hard to sell.

In short, the authors make a compelling case, but I think the devil really is in the details. I would like to see a more detailed proposal.

From space, everyone can see you flare

Bakken oil development requires a lot of use of trucks and railroads. A typical horizontal well in North Dakota requires 1,100 inbound truck trips. Then you gotta move the stuff out. It is possible to build gathering facilities, of course, but trucks remain viable for short hauls. Over longer distances, railroads can be competitive. In short, you can have fast oil development without making much investment in specialized infrastructure.

The above is not true for natural gas. For natural gas, pipelines are the only game in town. You build gathering pipelines and processing plants or you don’t produce. No one will build a gathering infrastructure, of course, until they have some idea of how much gas it will carry.

Tight oil wells in the Bakken also produce associated natural gas. The problem, of course, is that you cannot know how much associated gas will be produced from a group of wells until oil production starts. So you need to start oil production before a gas infrastructure is in place.

Of course, if you have wells producing oil, you still need to do something with the associated gas. You could just vent it, but methane is nasty stuff on both the local and global level. So you set it on fire. That gives you CO2 –fine locally, but bad globally, albeit less bad than just venting methane.

In short, there is a chicken-and-egg problem: in an oil play, you need to waste a lot of natural gas before anyone will build the infrastructure needed to use it. In Texas, there is a lot of new drilling, but it is in places that have been drilled before and where a gas infrastructure exists. Texan oil producers, therefore, flare only 0.5% of their associated gas. (It is, however, getting bad in the Eagle Ford.)

In North Dakota, they flare 32% of the gas. That is why it suddenly looks from space as if a major new megalopolis has sprouted in North Dakota.

How big a problem is this? In economic terms, not that much. Losses from Bakken flaring came to $196 million in 2011, or 1.4% of the value of production.(In Texas the economic losses are even less, although you can also see the flaring in that arc running along the south of Texas below the San Antonio-Austin double plex.)

The CO2 problem is more serious, but as you can see below, the Financial Times estimates that Bakken oil is no worse than oil imported from Saudi Arabia:

In short, the flaring problem looks more dramatic than it is, in both economic and environmental terms. That is not a brief for doing nothing, either by private industry or government regulation ... there is money being left around on the table and this is a source of CO2 that is easy to fix. It is a brief for stating that compared to the Canadian tar sands there is nothing to see here. Well, there is ... but only from space. From Washington, not so much.

Natural gas prices will rise and tight oil will not peak for decades

I tend to avoid blogging about the stuff that I teach about in my class. That is probably a mistake.

A recent presentation by J. David Hughes about shale gas and tight oil has gotten some recent attention. It makes two conclusions. First, the price of shale gas is going to go up. Second, the tight oil boom is a chimera.

The conclusion that the price of shale gas is going to rise is true. It is also not news. (Why was it treated as such?) For example, I made a presentation on October 4th, 2012, to the Business and Environment Initiative at HBS on fracking and shale gas. In that presentation, I pointed out three things:

1. If you assume land costs of $5000 per acre and opex of $1.50 per MMBTU, then the “point forward costs” (i.e., marginal costs including land acquisition) of shale gas are $8.31 in the Fayetteville shale and $8.75 in Haynesville;
2. ARC Financial estimates that $22 billion per quarter in capex is needed to maintain production, up from current expenditures of $12bn;
3. Shale gas drilling has gone off a cliff (rigs in operation have crashed from a little over 1500 at the beginning of 2008 to only 500) ... and given the well-known hyperbolic decline rates of shale wells that meant production would soon decline unless prices recovered. (I reference those hyperbolic declines in this January 2012 post on Argentina.)

In short, Hughes is correct (his back-of-the-envelop calculation of the needed capex is actually only half that calculated by ARC) but his conclusion is not news and should not be treated as such. There are industry professionals who claim that well costs will fall and that land costs are not sustainable, so the marginal cost data should not be taken as data from on high. (Chesapeake has said that its magic spot for the Marcellus shale is around $5.) That said, few believe that natural gas prices will remain below $4 per MMBTU for much longer ... but “much longer” probably means more than a year. I do not expect U.S. prices to suddenly jump.

What about tight oil? Well, we already know that the marginal cost of tight oil is at least $60. When you add in the realization spread (the difference between the companies’ realized revenue per barrel and some benchmark price, usually Brent) you get a marginal cost of at least $90.

Hughes goes on to argue that the Bakken will peak in 2017 and then decline, but that rests on some dicey assumptions. First, that the 2010 EIA estimate of 9,767 potential wells remaining is correct. It is probably not: it assumes spacing of 2 wells per square mile, when four is already occuring and eight is already feasible. Second, it includes only discovered reserves. Finally, it assumes that oil prices will not rise further. The first two are relatively improbable.

Moreover, the Bakken is only one of many plays in the United States. It will start to decline relatively soon, if not by 2017 ... but other plays are expected to increase. The EIA really does know what it is doing when it makes its projections.

In short, it is true that the Citigroup analysis seems breathlessly out to lunch and it is true that tight oil plays require high prices. But we are not facing peak-tight-oil anytime within the United States. And while natural gas prices are fated to rise, the rise is not immediate.

Chicago is not Ciudad Juárez and never will be

The answer to this question is no.

To be brutally frank, even raising the comparison destroys the author’s credibility. I understand the point that she is trying to raise. Comparing the two cities utterly obscures it.

A too-brief history of zoning

As most of you know, I am not a big fan of zoning. In fact, my wife and I recently made the mistake of attending a Cambridge zoning hearing. It does bad things to my blood pressure to hear people state with apparent sincerity that limiting buildings to three stories will keep rents lower.

Seriously, this building should be at least as tall as the 1970s-era one right next to it.

Here is a nice short economic history of zoning. The argument is that the streetcar first enabled the creation of informal residential districts. (Before that, you just could not cleanly separate residential and commercial functions, since city size was limited and commutes painful. Workplaces and residences had to be close.) Then the truck and bus came along and busted up the informal zoning that had emerged. Ergo, formal zoning.

I am only partially convinced. After all, it should not have been surprising to anyone that apartment buildings would follow townhomes along the streetcar lines. Why wait until cars and trucks came along? In addition, the explanations for the 1970s spread and tightening of zoning laws are ad hoc. I would like to know more.

One of the things that is wrong with America is ...

... that people can actually stop the construction of high density apartments in Little Havana in the name of historic preservation.

Preserving “historic residences, including bungalows and small apartment buildings”? In Little Havana?? Are you kidding me?? Words fail. Seriously, folks, if the market wants to tear this crap down and build anything else, especially high-rises, we should let it.

He would agree were he still with us. And that is actually Coral Gables, which would also be well-served by being rebuilt from scratch. The construction bubble in Miami did many things, but destroying stuff worth preserving was not one of them. People, there is no place in this city that would not be improved by plonking a 30-story high rise on top of it. Caray.

Matt Yglesias is wrong!

I like Matt’s work a lot, which is why I am getting frustrated at his continual repitition of the incorrect claim that energy independence is meaningless. This is just plain wrong.

First, he ignores natural gas completely. He needs to stop and state that he is talking about oil independence. Natural gas is extremely difficult to transport across continents, which is why it is so much cheaper in North America than elsewhere. We have already seen big and positive effects from energy independence in natural gas!

So let us focus on oil.

Oil is not some super-fungible instantaneously-transportable commodity. It is much more like lobsters than it is like ... uh ... well, the mythical conception of oil as some super-fungible instantaneously-transportable commodity. Oil prices vary by geography and by quality. There is something called the realization spread, which is the difference between the Brent benchmark oil price and the price actually received by oil producers. In 2011, it was $45 per barrel.

Infrastructure bottlenecks create all sorts of odd overland pricing differentials. (Ocean transport is different: the cost of shipping from Venezuela to China is not much more than shipping to the Gulf coast of the United States.) A Kinder-Morgan report, for example, estimates that if the Northern Gateway pipeline from Alberta to the west coast is built, then the price of crude oil in Canada will rise. (Canadian Western Special fetches a higher price in Asia than it does it North America, where it sells for about $20 less than West Texas Intermediate.) In total, the firm estimates that the pipeline will cost Canadian refiners $432 million a year. If the refiners pass that on to consumers, then it will raise prices by 6¢ per gallon. The converse, of course, is that preventing the pipeline will save Canadian consumers 6¢ a gallon. That is from one pipeline. One unpopular pipeline.

Third, it is completely legal for the United States to stop exports.

Now, in a perfect world, it is true that limiting oil exports would not make economic sense. Why not? Well, a government could limit exports, thereby lowering domestic prices ... or it could sell the stuff overseas and use the profits to subsidize domestic consumers. The problem is that the United States does not practice the sort of socialist resource nationalism that would make the second option feasible. The government does not own the subsoil rights, nor are confiscatory windfall taxes particularly likely. That leaves export restraints as the only way to transfer rents from producers to consumers.

Now if Matt wants to attack the idea that oil independence will do any good, he has many solid arguments:

1. North America (e.g., the U.S. and Canada) will never become oil independent;
2. North America might become oil independent but domestic production costs will be so high that it won’t mean anything;
3. North America might become oil independent but (2) will apply and domestic supply and demand shocks will produce significant price volatility;
4. North America might become oil independent but refiners will capture any and all benefits (there is some evidence that refiners are already capturing the benefits from the price differentials between the central United States and the coasts);
5. The idea that a U.S. administration will use its authority to limit exports is a political fantasy;
6. Limiting exports is a bad idea for other reasons. For example, high oil prices at home help phase out a fuel that is wrecking the planet, and it would be stupid to try to lower them.

In short, Matt Yglesias is wrong! Energy independence will have economic impacts: it already has in natural gas. Even oil independence will have economic impacts. It will (to a small extent) even if we do nothing because oil is not a free-to-transport completely-fungible product. But it will to a very large extent if we do what other oil-producing countries regularly do, which is restrict exports.

What he should do is rephrase . Right now, his arguments are akin to the Republicans who claim that Obamacare will raise the deficit, when what they really mean is that they do not believe that the Medicare reimbursement cuts will actually happen. He claims that energy independence is meaningless, when what he really means is that doing what you would need to do to make oil independence meaningful is a bad idea.

If that is his argument, then I wish he would make it. The conflation of oil and natural gas combined with the silly rhetorical flourish that energy independence is a myth strikes me as most unbecoming.

Don’t export energy!

The United States should not export hydrocarbons. Right now, there is a big wedge between the U.S. price of gas and the world price. That is a great thing for American consumers, especially industrial consumers, and it insures that the coal industry will die even more quickly than it would otherwise. The price is lower export revenues, but the benefit from those exports will be almost entirely captured by the producers of the hydrocarbons. Why not transfer that bounty to the American people? As an added bonus, without exports the U.S. market will remain disengaged from the world market, insulating us from foreign demand and supply shocks.

I have been saying this for a while. And now T. Boone Pickens agrees with me! And when North America achieves independence in crude oil, we should prevent exports of that too.

Bernard Guerrero asks the question: can we prevent exports? The answer: ¡Sí, se puede! And yes, it is constitutional.

At least four different statutes give the President the authority to restrict hydrocarbon exports. The first is the  Energy Policy and Conservation Act of 1975, which just flat-out says that the President may restrict exports of all hydrocarbons “under such conditions as he determines to be appropriate and necessary.”

The Export Administration Act of 1979 adds some details. (Ah, for the days when Congress gave laws nice simple titles.) Section 3, Article 2, of the Export Administration Act declares that the U.S. can “restrict the export of goods where necessary to protect the domestic economy from the excessive drain of scarce materials.”

Section 7 gives the details of how the power in Section 3 would be implemented. It gives the President the power to requireexport licenses within 15 days of the publication of the restrictions in the Federal Register by the Commerce Secretary. The President is required to “allocate a portion of export licenses on the basis of factors other than a prior history of exportation,” and is allowed to impose license fees. (I suspect that the Supreme Court would strike down the license fee bit, but even if they did, it would not affect the power to require the licenses and limit them to, well, zero.)

The Export Administration Act also automatically bans the export of oil and gas from Alaska without a presidential waiver, unless it goes to Canada or Mexico to be refined in exchange for an equal amount of their crude. (The Act does allow the U.S. to export an additional 50,000 bpd to Canada for its own consumption.) 

The Outer Continental Shelf Lands Act of 1978 bans the export of offshore oil and gas unless the President grants a waiver.

Finally, FERC has to approve all export terminals.

Add it up, and all the United States needs to do to keep natural gas prices low is make the decision that we want to do it.

Now, this is all for natural gas. Oil is different. In part that is because an oil export terminal is a lot easier to build ... but that does not matter. Not only do the above laws apply to oil, but the long-forgotten but-not-repealed Mineral Leasing Act of 1920 effectively bans oil exports without a presidential finding, as long as such oil passes through an interstate pipeline. (Strangely, oil moved by rail cars is not subject to the Act, although the President can of course use the Export Administration Act to restrict its exports.)

What is the problem with oil? Well, one word: Canada. Another post forthcoming.

Burying the lede

The New York Times had a story today about the changing geographic location of U.S. oil imports. We’re importing more oil from Saudi Arabia.

The problem with the story is that it began with an argument that makes no sense at all. “This reversal is driven in part by the battle over Iran’s nuclear program. The United States tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy, and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.”

Huh? The U.S. didn’t buy Iranian oil. So having Saudi make up for a boycott of Iranian oil shouldn’t increase U.S. imports from Saudi Arabia. That is just a seriously dumb pair of sentences.

Later on there is another nonsensical statement: “Domestic oil production has been surging the last three years and is up 10 percent this year. But most of the new production is coming from shale oil fields in North Dakota and Texas that produce high-quality sweet grades. Many of the refineries on the Gulf of Mexico coast are designed to refine the heavier oils that the United States has traditionally imported from Venezuela, Mexico and Canada.”

Uh ... nothing in that paragraph is false, but Saudi oil isn’t heavy either. Why then would refineries prefer Saudi crude over American? Surging production in the United States is not going to suddenly cause refineries to import oil from Saudi Arabia. That is another weird statement.

So if it isn’t the Iranian situation, and it isn’t surging U.S. production, why are we importing more Saudi oil? Well, the answer is buried down in the story: Mexican and Venezuelan exports are dropping, and the pipelines don’t exist to move U.S. and Canadian crude to the Gulf refineries. “Mexican and Venezuelan production has been sliding the last few years, and much of that oil has been replaced by Canadian oil from oil sands. While Canadian production has been increasing rapidly in recent years, there is not enough pipeline capacity.” (They didn’t mention U.S. crude, it’s true, but the point still holds.)

In fact, when you look at the numbers (which the article in fact does), it is entirely driven by a fall in imports from Mexico. Refineries are buying Saudi crude (over U.S. production in faraway North Dakota) to make up for Mexican shortfalls.

I am not sure that there is a big national security impact from this, given that as long as North America is a net importer, there is not a whole lot that will protect us from price fluctuations. But it does highlight Mexico’s problem.

Reforms are afoot ... but it is unclear if they will work. More on that eventually. The point for this post is that the Times buried the main part of the story in a fog of words.

In which I fail the cricket test

The cricket test was proof of two things. (1) The U.K. deserved to lose its empire; and (2) the country was going to have trouble with immigration. Basically, it said that if you were an immigrant and you rooted for your country-of-origin in a cricket match, then your loyalties were suspect.

That is as stupid as it sounds. I could understand a “Sign up if the Germans attack” test, or a “Don’t cheat on your taxes” test, but a cricket test? Come on, man. Tens of thousands of Americans have died for this country even though they would fail that. Not in cricket, we don’t play that in America. But other real sports.

Me, I just failed it. I am rooting for Laura Sánchez. You have a problem with that?

Olympic soccer, the Canadian part of America, and the fact that most inhabitants of this continent are not of Italian descent

I recently quit Facebook. I received two types of responses. First, “I will miss your sports updates!” Second, “Thank God you won’t be sports-posting anymore.”

Anyway, since baseball is no longer an Olympic sport, the only thing you had to fear was soccer. So I would like to extend my congratulations to the Canadian team. I love you all for defeating our former imperial overlords today. And I love you for being the part of America that doesn’t pay taxes to Washington. But you will go down on Monday.

Tancredi is a great player. I have to say that I am proud to have somebody with such a good American name is doing so well for America. Sorry, I mean Canada. You know, that really well-run well-organized beautiful wonderful not-united state up north of the Vermont border. I know, intellectually, that Tancredi is not an American name. But when I moved to California at age 18, I was stunned to discover that Italian-Americans did not make up 30% of the U.S. population. That is true, ask Dev Patnaik, a fellow New Yorker from Poughkeepsie. In late 1988, in California, he gently took aside this downstate boy and explained that most of America was not, in fact, Italian.

While I am here talking about nothing (and posting from a public terminal in an undisclosed location, before returning to the world tomorrow) does anyone know why the American team played in white shorts instead of navy-blue ones?

France number two! France number two!

I know. Most people who watch the Olympics focus on track and field. All else is particular. In my case, I follow track and field when one of my family members is running. That happened in 2008, but sadly not in 2012.

Which means that the Olympics for me is all women’s basketball and women’s soccer. (And men’s basketball, but only when Team America is doing badly. Otherwise, it ain’t that interesting.) In soccer, U-S-A! U-S-A!

But in women’s basketball, I’m all about the France. Sorry, Australia.

Don’t count on the end of Mexican emigration

A month back, we argued that the job and wage data in Mexico implied that when U.S. job growth picks back up, so will immigration from Mexico. Jobs are plentiful in Mexico these days, but wages are low: the reason for low emigration, in that view, is the lack of American demand rather a lack of Mexican supply.

It appears as though survey results from Pew are consistent with that view.

Keystone and U.S. oil markets

One new thing in oil markets is the persistant breach between the price of West Texas Intermediate (WTI) and Brent, ranging between $8 and $27. At the same time, the differential between Louisiana Light Sweet and Brent has remained under $3.

Why is that? Well, the answer is that American production has boomed in places like North Dakota. The price of WTI is actually set in Oklahoma (just to confuse you) and it is hard to get oil in large quantity from Oklahoma to the coast for export.Louisiana crude, on the other hand, is right there on the coast. As a result, the shale oil boom in the Dakotas (and to a lesser extent booming oil sand production from Alberta) causes crude to pile up in the Midwest, depressing prices relative to the coasts.

So who benefits? If the lower prices of Midwestern crude are passed on to Midwestern consumers, then they should oppose the Keystone pipeline. After all, Keystone will only make it easier to export oil to the coasts, where prices are higher. On the other hand, if the benefits of cheaper crude are not passed on, then consumers in the Midwest have few direct self-interested reasons to oppose it, at least in the short run. (They may, of course, have other valid reasons not to like the pipeline.)

Severin Borenstein of the Haas School of Business and Ryan Kellogg of the University of Michigan decided to take a look at this question. What did they find? Simply put: Midwestern refineries are running at capacity and can’t satisfy Midwestern demand. As a result, gasoline needs to be imported from the East Coast ... where crude is more expensive. Wholesale refined product prices, therefore, are not any cheaper in the Midwest.

There are three implications to this. The first is that in the short run, building Keystone will not drive up the prices faced by Midwestern consumers.

The second is that Midwestern refineries are significantly more profitable than refineries on the coasts.

The third is that if Keystone is not built, then refining capacity in the Midwest will rise, and eventually the Midwest will in fact enjoy cheaper gasoline than the rest of the country.

There are second-order implications about the desirability of whether U.S. oil exports should be allowed at all, but those will only be relevant when the U.S. achieves net crude oil balance. That is still some ways away, although it is now possible to imagine it happening with two decades ... perhaps much less.

Delta Airlines provides perspective on the CNOOC-Unocal controversy

 In 2005, the China National Offshore Oil Corporation (CNOOC, pronounced “See-knock” by Americans) made an offer for Unocal. The political reaction at home was ferocious. The opposition came from three sources:

1. Fear of technology transfer. CNOOC might be able to acquire new techniques and abilities from its subsidiary. This is a reasonable fear in general, but not in the specific. Unocal was not really on the technical frontier ... and even had it been, all the evidence is that in the oil industry the benefits of propietary technology flow to the shareholders, not the citizenry. In that sense, then, China might have done the U.S. a favor by liberating whatever technical secrets Unocal might have possessed;
2. Fear of foreign control over American assets. This objection never made much sense, as Bernard Guerrero pointed out here. CNOOC assets in the United States fall under the jurisdiction of the American government, and should the U.S. and China ever go to war (even a cold one) the U.S. government can and will easily do to Chinese assets what it did to German ones during World War One;
3. Fear of foreign control over foreign assets. This was Paul Krugman’s objection to the deal. His worry was that the Chinese government might choose to keep oil from, say, Central Asia off the world market. That would drive a wedge between Chinese oil prices and world prices, damaging the rest of the world. The incorrect objection to this reasoning involved putting words in Krugman’s mouth, and assuming that he was discussing only military confrontations. The correct objection to this reasoning was simple: the Chinese government would incur a large opportunity cost from such a policy. Rather than sending cheap oil home, China could sell it overseas and pocket the difference. So absent the ignition of Cold War Two, what would be the point?

That last counterargument was very convincing. You can follow a microcosm of the debate at Crooked Timber. There is a wrinkle involving pipeline construction (short version: U.S. consumers have an interest in preventing China from building pipelines into Central Asia, just as we have an interest in preventing Canada from building them to the Pacific) but it is both minor and irrelevant to the CNOOC-Unocal controversy, simply because China was going to build those pipelines regardless.

End of argument? I would have thought so, but today I read that Delta Airlines was doing something interesting:

Delta Air Lines said on Monday that it had agreed to buy a refinery near Philadelphia from ConocoPhillips to offset the risk of higher jet fuel prices ... Richard H. Anderson, Delta’s chief executive, said the investment was a modest one, equivalent to the list price of a new wide-body plane like a Boeing 777. The company estimated that it would reduce its annual fuel expense by $300 million, once the refinery was refurbished and operating again. To achieve similar fuel savings, Delta would have to buy 60 new-generation narrow-body planes like the Boeing 737, a capital investment that would total $2.5 billion.

Huh! It looks like Delta Airlines has decided to do exactly what the economic theory predicted that China would not do. After all, there is an opportunity cost to locking up refined products: instead of selling them cheap to itself, Delta could sell it expensive to others. Moreover, it turns out that Delta isn’t alone. BP is also involved. The reason is simply that refineries cannot product only one product: you always wind up with other byproducts. So Delta will need to swap those other products for jet fuel. It could, of course, sell them and buy jet fuel on the open market, but that’s not what Delta has chosen to do:

Delta said it had also struck a three-year agreement with BP to supply crude oil to the refinery. As part of the deal, the details of which were not released, Delta said it would exchange gasoline, diesel and other petroleum products produced at the refinery for jet fuel from other sources like BP and Phillips 66. Combined with the jet fuel produced at Trainer, Delta said these deals would provide 80 percent of its fuel needs in the United States.

Delta has decided that it makes more sense for it to buy a refinery and sell fuel to itself at less than the market price than it does for it to buy a refinery and sell fuel to other people for the market price, pocketing the returns. Similarly, if the above description is accurate, then BP has also decided that it makes more sense for it to swap jet fuel for other products at less than the relative price it could receive from making that swap on the open market.

This is, it would seem, to be exactly the sort of behavior that people are worried that the Chinese government might engage in on a much larger scale. Two questions, then. First, is Delta making a fundamental mistake? (Many analysts think so.) Second, if it is in fact good for Delta, why wouldn’t it be good for China?

The 1940 census and the old neighborhood, no. 2

 The Upper West Side of Manhattan, like East Harlem (and the upper reaches of what used to be called Yorkville) had become a slum by the 1970s. It never reached the abandoned gang-ridden depths of East Harlem, and parts remained nice … but in general it was crappy. The San Juan Hill area was cleared for Lincoln Center and the Amsterdam Houses. During the 1977 blackout, looting hit the entire area, but it was especially bad in Manhattan Valley and the side streets off Amsterdam Avenue in the eighties and nineties. Broadway in the seventies wasn’t burnt-out terrible, but it was far from today’s disneyground. Needle Park on 72nd Street was so named because of the used heroin needles that littered it, not its shape.

The area’s decline set in before World War Two, and that shows up in the census data. Two other things also show up. First, East Harlem’s fertility really was strange. Second, the rise of Adolf Hitler to power had a profound effect on this part of New York.

The first family listed at 317 West 77th are the Landers. Herman and Eve (49 and 35 years old) were both born in Russia. They both graduated high school. Herman’s profession is unclear — it’s listed as “propietor, furnished apartments,” with no wage income listed. He doesn’t own the building, though: the census has him down as a renter for $50 per month. (That’s $802 in 2011 dollars — half the market rate in the same building today, and for a place that was probably four times the size.) They lived with their daughters, Joy and Helene, 14 and 9 years old. They employed a live-in maid, Jennie Richardson, 20, a black woman born in New Jersey. Jennie had been living there for over five years, meaning that she worked for them as a teenager. Jennie didn’t graduate high school, but she is listed as having had three years. She earned $360 per year — $5,770 in 2011 dollars — for a 60-hour week. Room was probably worth another $420, judging from what lodgers in the building paid, but that’s still a remarkably low wage by modern standards.

The next family was a young couple, almost certainly refugees from the Nazis. Samuel and Mary Hirschaut were born in Germany and Russia, respectively, in 1914 and 1916. In 1935, Samuel lived in Germany and Mary was in Switzerland. Both graduated from high school; Samuel worked as a leather dealer on his own account — no wages were reported, but he is listed as having earned income from other sources. His wife modelled dresses for about $100 per year. Neither were working when the census was taken: Mary checked “yes” to seeking work, Samuel said “no” on account that he said “yes” to the question: “If not seeking work, did he have a job, business, etc.?”

The third couple are also German refugees: Solomon Frohwirth, aged 28, was born in Poland. His wife Lottie was born in Germany, and had the same age. Both had been living in Germany five years previously. Solomon was a fur dealer. Solomon had only a ninth-grade education, but his wife reported one year of college. Both the Frohwirths and the Hirschauts paid $35 a month in rent.

Next up were the Pustay brothers: Walter and Fred, aged 20 and 17, both from Connecticut by way of Hackensack, New Jersey. They worked as clerks, Walter for an oil company, Fred in “exporting,” for $910 and $256 per year. (In 2011 dollars, that’s a combined income of $18,700.) They supplemented their income by taking in three boarders. And by now the pattern in the building should be obvious: at least two of the boarders were refugees from Hitler. Max Weingarten, age 26, had one year of postgraduate education—it doesn’t say in what, but he worked as a motion picture importer. Max had been born in Poland ... but listed Austria as his place of residence in 1935. It isn’t hard to connect the dots. Ditto for the second housemate: Deron Wachenhum, a 48-year-old German man who had been living in France five years previously. He worked as a magazine reviewer for only $948 per year. (He was listed as having two years of college.) The odd-woman-out was Florence Black, a married 29-year-old Romanian woman who made hats for $1462 per year. She had been living in Manhattan in 1935, and so was not likely a refugee. There was no sign of her husband.

The Pustay brothers did pretty well off the lodging. Their rent was $45 per month, but each boarder paid $35 — a nice annual increment of $720. ($11,500 in 2011 dollars.) Plus ça change and all that.

Finally, we have the Gerschel family. Stanley (age 40) was from New Jersey and his wife Alice (age 31) came from Pennsylvania. Their monthly rent was $38. The couple had probably experienced recent downward-mobility: in 1935, they had lived in  Baldwin, Long Island. Baldwin had experienced explosive suburban growth in the 1920s, going from 5,000 to 12,000 over the decade. (That’s a lot: the town covers less than three square miles.) It seems likely that they had been a suburban couple in 1935, and lost their home in the 1937 recession. (Conversely, many families lost title during the 1929-33 collapse, but weren’t forced to leave for some time thereafter: the Gerschels might have also fallen into that category.) Stanley sold dresses for $2,000 per year. His wife was listed as a dental assistant and did not say that she was unemployed, but reported no income. I’m not sure what to make of that: volunteer work? (She had one year of college, and so some training.) Pride? They lived with their 8-year-old daughter, Patricia, and a lodger.

Nicholas Vasilieff was not a refugee from Hitler. (By this point, I was surprised to realize that.) He had been born in Russia in 1906, but listed San Francisco as his place of residence in 1935. He had been unemployed for 26 weeks as of the census (March 24-30), but listed his occupation as dancer and claimed to have worked for 30 weeks in the past year — the math does not quite add up — for $1200 in wages. The Gerschels charged him no rent, so I suspect that he was a family friend or a distant relative.

It turns out that Vasilieff actually was a dancer. He performed in Laugh, Town, Laugh! in 1942.  (Were dancers exempt from the draft?) He then moved back West to Portland, where he helped found first a dance school, and then in 1954 the Portland Ballet Society. He died in Portland in 1976. His son Nick Vasilieff currently lives in that city, as does his grandaughter Nikole.

When my father moved into 317 West 77th in 1982, it was divided into nine apartments: one on the first floor, and two on the four upper floors. In 1940 it only had five apartments: likely one on each floor. That would explain the boarders: the tiny one-bedrooms into which they been divided by 1982 could not have held five people in anything less than barracks-like conditions, which would not be consistent with charging $35 per month for the privilege, not given what you could rent for that money. (Rent control did not yet exist in New York City.)

The neighboring building to the east, 315 West 77th, had already been subdivided into 16 apartments. In some ways, it was more interesting than 317 West 77th. In fact, in some ways it seems like it could have been transported out of the 21st Century, except for the rents. The average rent was $28.16 — a astonishingly low $451 in today’s money, with none under $400 or over $584. (From here on, all figures will be in 2011 dollars — the 1940 number multiplied by 16.) The reason for the low rents, of course, was twofold: low incomes and few zoning restrictions.

First, it had no children in it. None at all. That shouldn’t be surprising. You wouldn’t be surprised at a Manhattan apartment building with no children in it today, when 18% of New York City’s population is under age 15. Well, in 1940 only 20% of the City’s population was under 15; not that different — and the birth rate today is higher.

Second, three units were occupied by divorced women. The first was Vada (sp?) Littlepage, a 35-year-old professional photographer from Forth Worth, Texas. The second was Ida Howe, a 48-year old nurse from England. The third unit was occupied by a mother-daughter team, both from Mexico, both divorced. The daughter worked as a manicurist for $260 per year — her mother was out of the labor force, but reported having nonlabor income. Mom was named Rebeca Sanders, while the daughter was named Amelia García, the implication being that mom had married an American, split from him, and then brought Amelia up when she split from her husband. Amelia, it should be noted, was 36, and both reported living in New York five years previously.

There were seven single never-married working women in the building. 25-year-old Geraldine Bordeaux, from Quebec (“Canada-French”), lived with her older brother Francino. Both were unemployed “artist models.” Dorothy Donnelly was from “Canada-English,” 26-years-old, and an unemployed saleswoman from a department store. 23-year-old Anne Allen was from New York (although she had been living in the apartment since she turned 18) and worked as a stenographer in a bank for $17,120 in today’s money. 26-year-old Evelyn Griffin from Illinois worked as a receptionist in a department store for $12,480. Nina Echeverría from Uruguay worked as a floorlady in a dress shop for $16,000 and 33-year-old Edna Dolan from Massachusetts — who reported living in Astoria, Queens, five years earlier — made $21,120 working in a key factory. 24-year-old Alice Maher, also from New York, earned $12,480 as a bakers’ assistant … but reported having dropped out of the labor force. I suspect that she had just gotten engaged, since the census-taker had written “M” under marital status before crossing it out and pencilling in “S.”

The four married couples consisted of a native New Yorker married to an Irishwoman (both age 36), two Irish immigrants (aged 41 and 38), a Spanish chef married to a Panamanian stenographer from Los Angeles (aged 37 and 31, and clearly married for less than five years, since they were in different states then), and a 30-year-old unemployed laborer from Massachusetts married to a 29-year woman from New Jersey.

Add in widowed Gertrude Weckler from Germany (a 66-year-old who fit corsets in a department store) and divorced George Pitscharer from Austria (a 50-old bartender) and you have the set of a modern sitcom.

A happier view of 1940 than the one from my building on 115th Street. Moreover, the view from 317 West 77th in 2005 was even more marvellous!

Next up ... well, I am not sure. Maybe the people who lived in the houses that were demolished to make way for 100 Ocean Parkway in Brooklyn?

The 1940 census and the old neighborhood, no. 1

 The United States recently released the 1940 census manuscripts. They are fascinating. I am sad and depressed to realize that right-wing craziness means that our grandchildren in 2080 will not see the like for 2010, where the census was pared down to ten incredibly-boring questions. Hopefully, that will change.

It isn’t that those people (or, God forbid, robots) won’t be able to call up information about their ancestors in 2010. I have no doubt that with a flick of the hand towards some sort of hyper-attuned artificial intelligence agent — or at least a verbal request delivered in natural English — they’ll be able to instantly recall all the information that exists about any one of us. No, it’s that they won’t be able to call up the same sort of information about the people who lived in same place they live in. Because, you see, we don’t record that stuff anymore. And it’s fascinating! Social change made real.

We moved around a lot when I was a kid, albeit always within the counties of New York, Kings, Nassau, and what is today called Miami-Dade. I don’t recall the exact address of the house in North Miami Beach or the one in Bayville or the apt on 93rd; and neither 1780 First Avenue nor 34 Vanderbilt Plaza nor 100 Ocean Parkway existed in 1940. But 414 East 115th Street, 317 West 77th Street, and 416 East 71st Street were there!

East Harlem is today becoming a Mexican neighborhood, filled with young children and struggling parents, with lots of green-white-and-red alongside Old Glory. In 1940, it looked about the same, just without the eagle.

414 East 115th Street then, like now, had five families in it. The first listed is the Squittieri clan. Dominick and Geneviene had been born in Italy in 1888 and 1890 respectively. Dominick ran a grocery store and worked a 60-hour week to earn $1300 per year — $20,800 in 2011 dollars. They rented for $35 a month, or $561 in 2011 dollars. Dominick was listed as having had two years of schooling; his wife had never been to school at all. They lived with their ten children: Carmine, 24; Alphonse, 23; James, 22; Helen, 20; Yolanda, 18; John, 17; Mary, 16; Domenick Jr., 15; Louise, 12; and Gilda, 10.

You can see the lingering effect of the Depression in the statistics. Carmine worked as a painter (a 48-hour work week) for $1190 a year — $19,100 in 2011 dollars. Alphonse was not in the labor force. It isn’t completely clear why: there is a squiggle that is probably an “H,” meaning he was doing “housework.” It could, however, be a “U,” which would indicate “unable,” meaning a disability. He was not a student. His sister, Helen, was also out of the labor force and clearly listed as doing “housework.”

James, Yolanda, and John were unemployed and looking for work. The enumerator put “new worker” as their profession. All three had been unemployed for over a year. Carmine, Alphonse, James, Helen and Yolanda had all dropped out of school in the eighth grade; John had finished one year of high school before dropping out. The four youngest children were all in school.

Of course, it was a different time. I do not know what happened to the Squittieri family, but I bet you they went on to economic success — something that a Mexican-American family with the same statistics today will probably not achieve. But I don’t know: in 2022, it might be possible to try to track them down in the 1950 census.

The Mango family looked a lot like the Squittieris. Anthony had been born in Italy in 1880. His wife Antonette, however, had been born in America in 1887. Still, being born in America hadn’t given her any more opportunities — like Geneviene Squittieri, she was listed as having no education. (Anthony had eight years of schooling.) Anthony worked as a pressman in a junk shop for $926 per year, no vacations, and a 54-hour work week. ($14,800 in today’s money.) They lived with their seven children: John, 27; Louie, 26; Theresa, 22; Josephine, 20; Mary, 18; Emily, 14; and James, 12. None of the adult males made it past the eighth grade; Josephine had one year of high school and Mary had two — Emily and James were in school.

The Mango children did a little better in the labor market. John worked as a “shearer,” which can’t mean what I think it means. (Where the hell would you find sheep in Manhattan?) He cleared $1480 ($23,700 today) working 35 weeks at 40 hours. Louie was a shipping clerk, earning $625 ($10,000 today) on a 40-hour week for a full year. Theresa did something I can’t make out—“Frlnger”?—also for $625 and the same terms. The total household income, therefore, was $58,500 in today’s dollars. Mary was unemployed and looking for work; Josephine was not, helping out around the house instead. They paid only $32 per month in rent, or $513 in today’s money. Still, remember, I lived in those apartments: they were about 600 square feet, plus change, and that rent is actually not that different in real terms from the 1970s and early 1980s. (Our toilet had a cable that you had to full down to flush, something I’m pretty sure had to have been installed before World War Two, so these families enjoyed private bathrooms along with central heat and electricity.)
  
The other families looked a little more modern. Angelina Lombardo was from Italy, eighty years old, and lived alone. Her rent was $7 per month. No wage income was listed, but average monthly social security benefits for widows in 1940 were $20.36, although the program had only just started and I do not know if she would have qualified. Hopefully, she had some savings or support from children.

The Caldarise family were New York-born, 33 and 32 years, old, with three children (Dorothy, Joseph, and Violet) aged 10, 8, and 6. They had started young, but appeared to have taken control of their fertility: Antonette Caldarise had not had any children since she was 27, as opposed to Antonette Mango, who had her last child at age 41 with no more than a four-year gap between them, let alone Geneviene Squittieri. Joseph Caldarise worked (I think) making chromium plates for $1352 ($21,700) per year and a reasonable 40-hour week. (No vacations, though.) They paid $19 ($305) per month in rent.

Finally, there are the Antonuccis. Michael Antonucci, New York born, was 44-years-old and unemployed. He had, however, only been unemployed for six weeks — he had previously worked as a “buyer” for $1040 per year. His wife was quite a bit younger: Millie Antonucci, also New York-born was only 28. Neither had more than an eighth-grade education. They had only one child, baby Virginia, aged nine months. Rent? Twenty dollars.

Now for something important: language. The census did not ask every person about the language spoken at home. Rather, each census manuscript page asked two randomly-selected people “Language spoken in home in earliest childhood.” On the two pages covered by 414 East 115th, all four people asked happened to have been born in America ... and three of them reported “Italian.” The only one to report English was little Violet Caldarise, who had two young New York-born parents.

For those of you who know the statistics, this is not surprising: Mexican-Americans are learning English (and losing Spanish) quite a bit more rapidly than their Italian predecessors. But it is, I think, worth repeating.

Next up: 317 West 77th Street.

America has been at war for a long long time

 Rachel Maddow has a new book, Drift. I’ve skimmed it; it isn’t bad. In it, her contention is that for a variety of institutional reasons, it has since the 1980s become far too easy for America to go to war. 

The book started a debate between Kevin Drum and Jonathan Bernstein. Bernstein suggested, “U.S.-sponsored interventions of one form or another are hardly unusual, even before Maddow’s apparent jumping off point in the Reagan Administration. Perhaps the idea is that there was a golden age of sorts after Vietnam, but if so it lasted less than a decade. I’m not really sure it’s become easier to deploy troops for controversial missions or to begin interventions in other nations.”

Bernstein was supported by Armando at TalkLeft, who wrote, “That is not historically accurate in my view. The times getting into war was not easy was after wars that had been very costly and not particularly successful from the US point of view. Think World War I and Vietnam. Otherwise, going to war has been one of the great American pasttimes. I’m all for making going to war hard, but the history does not demonstrate that, except for isolated periods, that was ever really the case in the United States.”

Drum conceded the point, but suggested that there was still a difference between then and now: “So what’s different? I’d say this: it’s one thing to periodically wage brief, smallish military actions. The Dominican Republic occupation of 1965 falls into that category. So do Grenada and Panama ... the last couple of decades seem quite different. The Gulf War, followed by Somalia, followed by Haiti, followed by Kosovo, followed by Afghanistan, followed by Iraq, followed by Libya and Yemen, and all against a background of drone warfare that now seems all but perpetual, feels very different. It feels like we’re simply in a constant state of military action. In the last 20 years, there have only been three or four in which the U.S. military wasn’t at war.” Matt Yglesias supported Drum, adding that there might be an economic element: technology has made it cheaper and easier to project conventional military force, and therefore we do it more.

Bernstein is right. Everyone else, including Armando, is wrong. And none of it relevant to the argument in Drift.

In 1898, the United States went to war with Spain. Between 1898 and 1902, American troops battled Philippine insurgents. Peace came to Luzon in 1901-02, but fighting continued on Mindanao until 1912. In 1904, the U.S. navy bombarded rebel positions in the Dominican Republic; eventually U.S. Marines wound up (with the permission of the local government) occupying the customhouses. In 1906-09, we occupied Cuba, although there was (to be fair) not much fighting. In 1907 and 1911, we deployed to Honduras to halt Nicaraguan invasions. Between 1912 and 1925, U.S. Marines actively hunted insurgents (the original Sandinistas) in Nicaragua. In 1914, we once again bombarded Dominican rebels; we also occupied Veracruz to prevent arms from getting to the government. Between 1914 and 1934, we occupied Haiti: unlike Cuba in 1906-09, that one did involve quite a bit of fighting. We did the same on the other side of Hispaniola in 1916-24. In 1916-17, we invaded northern Mexico after Pancho Villa attacked Columbus.

Then there was World War 1. After which ... 

In 1917-19, U.S. troops again garrisoned Cuba. In 1919, we landed in Honduras to protect a neutral zone during a civil war. Between 1918 and 1920, American forces blundered pointlessly around Siberia doing something or other, and sustaining a lot of casualties. For a few days in Guatemala, Marines saw combat during a civil war in that country. In 1925, we invaded both Honduras and Panama during periods of unrest.  In 1933 and 1934, we waved gunboats around Cuba, but no war was necessary, since we succeeded in overthrowing the government by what would today be called covert action.

And then, peace until 1941.

Counting ... between 1898 and 1934, the United States was at peace for all of ... well, never, actually.

It is true that only the Philippine War rivalled the Iraq conflict in terms of intensity. (World War One, obviously, was hugely worse.) U.S. force levels rapidly grew from 12,000 in 1899 to 70,000 in 1900, by which point U.S. combat deaths approached two soldiers every day. By most metrics, the war (fought by a small all-volunteer army) was as intense as the Iraq War — proportional to the U.S. population, the peak force of 70,000 represented a per-capita commitment twice as large as the peak Iraq deployments in 2008. 

Because the Philippine War lasted 28 months, as opposed to the 102 months of the Iraq War, the total proportion of Americans who served in the conflict was about a third of the recent level. The 126,000 soldiers who served in  the Philippines over the entire course of combat operations amounted to 0.2% of the U.S. population, compared to the roughly 0.6% of the U.S. population who served at least one tour of duty in Iraq between March 20, 2003, and the official end of combat operations on August 31, 2010. The combat casualty rate, meanwhile (excluding deaths from disease) ran at 596 per 100,000 troops in 1900, almost exactly matching the 2004-07 rate of 608 in Iraq. (Iraq casualty rates per 100,000 ran at 718 in 2003, 650 in 2004, 588 in 2005, 583 in 2006, and 610 in 2007. They then plunged to 199 in 2008, 135 in 2009, and 121 in 2010.)

But ... that is fine. The Drum argument does not hinge on the big wars of the past decade; rather it hinges on the continual small wars since 1989. In that respect, 1989-2012 looks pretty much the same as 1898-34: lots of small wars punctuated by two big ones. Nor does Armando’s argument hold up. World War 1 had little effect on the American government’s propensity for military intervention. It is true that the U.S. avoided a potential big war during the Mexican Revolution, but that decision was made before we entered WW1; before, in fact, it was clear that we would.

The history is both worse and better for Matt Yglesias’s argument, depending on how you interpret it. In the Dominican Republic, for example, early insurgencies depended upon the seizure of customshouses to gain resources: naval bombardment, therefore, presented a cheap means of intervention. In general, I would venture to say that Yglesias’s hypothesis is correct: cheaper war probably means more war. (Someone should test that!) What the history does not support, however, is the rather specifc hypothesis that military intervention is cheaper today than it was in 1898-1934.

Let me add that this has little bearing on Rachel Maddow’s overall argument. She wants to explain why the post-Vietnam reforms designed to make intervention difficult failed. She does not claim that 1989-2012 (actually, 1983-2012 for her purposes) is unprecedented or novel. Other readers in the blogosphere have extended her argument, however, and I think it is probably worth adding a little historical corrective.

The empire strikes back, weakly, and after long delay

 “With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest.”

—Senator Barack Obama, on the campaign trail in 2008

The Argentine decision to avoid paying ICSID expropriation judgments is finally coming back to haunt it. A few weeks ago, the Obama administration announced that it would begin to vote against credits for Argentina from multilateral lending organizations. A few days ago, the administration announced that Argentina will no longer be eligible for duty-free access to the U.S. market under the Generalized System of Preferences (GSP).

Argentina exported $477 million to the U.S. under the GSP in 2011, mostly cheeses, candy, leather, strawberries, wine, and lithium. Removing GSP will cost Argentina $17 million per year, assuming, of course, that it continues to export the same amount.

The Presidential authority comes from the Trade Act of 1974, so named at a time when Congress did not give legislation stupidly cutesy names but called laws what they were. Subchapter V mandates that a country which “has nationalized, expropriated, or otherwise seized ownership or control of [American-owned] property” and “fails to act in good faith in recognizing as binding or in enforcing arbitral awards in favor of United States citizens or a corporation” will not qualify for the GSP unless ...

1. “Prompt, adequate, and effective compensation has been or is being made to the citizen, corporation, partnership, or association”;
2. “Good faith negotiations to provide prompt, adequate, and effective compensation under the applicable provisions of international law are in progress”;
3. “A dispute involving such citizen, corporation, partnership, or association over compensation for such a seizure has been submitted to arbitration under the provisions of the Convention for the Settlement of Investment Disputes, or in another mutually agreed upon forum.”

No country has ever been punished for expropriation under the Trade Act. That may be because no country before now has ignored ICSID rulings. In 2005, CMS Gas received $133.2 million. In 2006, Azurix received $165.2 million. (The awards will accrue interest as long as they are unpaid.) In September 2007, Argentina lost its petition to annul the award against CMS. In May 2008, CMS sold its claim to Bank of America. (More accurately, it sold the claim to a subsidiary of BofA called Blue Ridge Investments.) By then, the $133 million award had grown to $180 million, counting interest. (That is a lot of interest!)

We don’t know how much Blue Ridge paid , but the State Department estimated that it paid around $54 million for the claim and CMS’s 23% stake in the TGN pipeline company. Blue Ridge’s original plan was to flip the claim as quickly as possible. (The Wikileaks cable is fascinating in that regard: Blue Ridge wanted to threaten Argentina with the possibility of selling its claim to a vulture fund that would take them to court in the United States; Argentina apparently planned to use its control over pipeline rates to force Blue Ridge to sell its claim to a government crony.)

About 16 months later, the Azurix case reached the end of the line when an ICSID appeals panel refused to annul the judgment against Argentina. Soon after, in September 2009, Azurix filed a petition to suspend Argentina’s GSP preferences. Blue Ridge signed on. The petition then ground its way through the USTR bureaucracy ... and finally, now,  Argentina is facing sanctions.

There are two points to make about Argentina’s recalcitrance. First, the country has done remarkably well at ICSID. Several decisions have been annuled by ICSID review panels. In at least one case, against a British company, the D.C. Circuit Court ruled that since the contract specified that the company had to first exhaust all local remedies, their decision to go direct to arbitration vacated a $185 million award. Second, in terms of justice, pretty much all the companies going up against Argentina are in the wrong. But that’s a subject for a different post ... as is the question of whether President Obama is living up to the position stated in the epigraph of this post. (He is.)

Do the companies have options other than getting the U.S. government to go to bat for them? If they were natural resource exporters, then the legal remedies would be fairly powerful: ultimately, Argentina would lose the ability to sell production from the expropriated assets. These are service companies, however. It isn’t clear that the courts will rule their way, and it isn’t clear that Argentine has many assets that the courts can seize. (Short version: since the Argentine central bank was not using its New York funds for commercial purposes, creditors could not go after them. I am not a lawyer and cannot say if that would apply in an expropriation case, but I suspect that it would.) Getting the U.S. government involved in muscling Argentina may be their best way forward.

But it is a sign that the arbitration system may crack when used for cases other than natural resource companies. Back to the 1970s!

The market for stolen oil

 “In a reversal of the classic Western movie, Mexican criminals have sought refuge with their ill-gotten gains by crossing the Rio Grande to the North, where the Mexican government has no authority to follow.”

—Pemex, in a suit before the U.S. District Court for the Southern District of Texas

So, stolen oil from Pemex makes its way to the United States. How, you ask? It’s a reasonable question. Oil has a high value-to-weight ratio, but cocaine it isn’t. You can’t smuggle economically-viable quantities in jerrycans. Plus, if you’re moving crude oil or natural gas condensate, you can’t then flog it on a streetcorner. You need to sell it to a refinery.

The answer: give the refineries plausible deniability. Fake paperwork to get it over the border, then sell it to a reputable middleman. How did this work?

On May 29, 2011, we got the answer, when Pemex filed a federal lawsuit in the southern district of Texas against a group of American refineries for knowingly buying stolen natural gas condensate.

Here’s the value chain. The condensate is produced in Mexico’s Burgos gas field, located near the U.S. border across the northern stretch of Tamaulipas, Nuevo León, and a little bit of Coahuila. Pemex produces gas from 2,827 wells in the field. It then pumps the gas to 150 collection stations. Pipelines then transport the gas and condensate (the liquid byproduct from gas production, which can be used in oil refineries) from these 150 collection stations to 52 transfer and delivery systems, which are basically small pipeline networks. After collection at the transfer systems, Pemex transports the condensate by pipeline or tanker truck to a storage facility near Reynosa, Tamaulipas. From there, the condensate goes by pipeline to the Burgos gas processing center or tanker truck to a refinery in Cadereyta, Nuevo León.

The Zetas intercept the oil in one of three ways. The major one is to simply tap into the transfer and delivery systems. (To do this, the Zetas needed to build their own pipelines, a pretty impressive accomplishment.) The secondary one is to hold-up the tanker trucks on their way to Reynosa. The final one is to kidnap Pemex officials and force them to divert condensate.

Now, the Zetas can easily fence refined products inside Mexico, but they can’t sell condensate: Pemex operates the only refineries! So they have to move it to the U.S. According to the lawsuit, the stolen condensate was moved by tanker truck (think about that for a moment) to the border. Before crossing, however, the Zetas transferred the stuff to newer trucks that meet U.S. regulations. The drivers then presented forged export documents, sometimes mischaracterizing the condensate as naphtha. They would then sell the stuff to the U.S. defendants.

Big Star and F&M Transportation bought the oil from Ygriega Energy Corporation of Edinburg, Texas, whose owner, Arnaldo Maldonado, has already pled guilty to felony conspiracy to receive and sell stolen goods. F&M transported the condensate, in addition to buying it. Superior Crude also transported stolen condensate, and brokered sales of the stuff. (Pemex fingered Superior because a man named Donald Schroeder coordinated the shipments ... who has also pleaded guilty to felony conspiracy to receive and sell stolen property, specifically Mexican condensate, in his role as president of a company called Trammo Petroleum.) Finally, TransMontaigne operated the storage facilities in Brownsville which the stolen condensate passed through on its way to the final buyers. Finally, Western Refining bought condensate from companies like Continental Fuels, whose president confessed to trafficking in stolen goods.

In other words, according to Pemex, Big Star, Superior Crude and F&M “actively and knowingly participated in a conspiracy to import and market the stolen condensate in the United States.” TransMontaigne, meanwhile, stands accused of negligent participation, since Pemex claims that they should have realized that the goods passing through their hands were illegitimate. Western Refining is accused of no wrongdoing, but Pemex says that it is liable for all its transactions involving Mexican condensate. Recently the company has moved to add subsidiaries of ConocoPhillips and Shell to the lawsuit.

Now here’s the good news: on the U.S. side of the border, several people are going to jail and the rest of the companies involved in buying the stuff are facing a serious civil suit. In short, it is likely that the United States legal system will soon enough shut down the export of stolen Mexican crude and condensate.

But there’s also bad news: there is money to made in stealing refined products and selling them inside Mexico. Lots of money. In fact, as Patrick Corcoran has pointed out, the fact that pipeline-siphoning is shifting to Sinaloa (where the lines carry refined products) is a sign that other groups besides the Zetas are getting into the act. (In this case, likely El Chapo’s people.) The U.S. government can and will help. But it can’t change the fact that Mexico is now a lucrative market for its own petroleum production. Keeping organized crime from taking more of that market is something that Mexico will have to solve on its own.

David Shields got the solution to the problem of internal oil theft right when he wrote:

“It’s very easy to solve this. Total control over the tanker trucks. Total control over every liter of gasoline from the refinery to the gasoline station. That’s the way it was 15 years ago. You move the army in and take control over all the distributors by making sure they have a contract for every single movement of gasoline around the country.”

Where I would disagree with Mr. Shields is that the solution he proposes is far from easy.

New York the way that 40-something white (and Puerto Rican) people see it

 So before I left for Mexico, I was talking with my old friends Guy and Omar and Carlo, and we all agreed that those of us with some connection to the borough of Brooklyn are less likely to bring it up than we used to be. Why? Well, simply put, the hipsters. “Brooklyn” does not mean what it used to. In my case, this is not a bad ting thing, since I have a better claim on Manhattan, including parts that only recently became nice. But for most of us, it kind of sucks. Who are these people? What have they brought, besides the thoroughly awesome Barcade?

Seriously. Go to Barcade. A little while after taking the below photo, I played Asteroids until the muscles on my right hand started to scream. If you are of a certain age, you will be able to find your poison, and without that ever-present fear of violence that hung over actual arcades in the 1980s. Plus, beer!

Upshot: these two videos made me laugh.

and (watch for the hipster bemoaning, even though they have not got to Bay Ridge, AFAIK):

Learn. In the second video, watch the pizza thing at 2:05. That is where I must say that East Harlem beats Brooklyn. (My wife is my witness!) And should you tell me that the whole shit-people-say meme is over, well, then I can respond that the best thing about deactivating my Facebook page is that I do not have to care. 

How energy independence could undo globalization

 North America is on the verge of finally achieving the much-vaunted goal of energy independence. In fact, the continent has already achieved that for everything save petroleum, but now the latter is in sight. A combination of increased oil sand production in Canada, shale oil discoveries in the United States, and tightened CAFE standards have certainly made it plausible to believe that North American net energy imports will drop to zero by 2020, if not sooner. In fact, it is possible to imagine a situation where the United States alone achieves energy independence by that date.

But does it matter? Assuming no political reaction, no, it probably doesn’t. North America will still be vulnerable to supply shocks from the rest of the world. If the demand for petroleum rises elsewhere, then domestic prices will rise in line. That said, infrastructural bottlenecks can produce lasting price differentials — it doesn’t matter how much demand rises elsewhere if you can’t ship the stuff to those places — but if North American oil production rises enough, then one can assume infrastructure will be repurposed or built.

Wait ... can no political reaction really be assumed? Consider Argentina. The Argentine government imposes high export taxes on oil. Those taxes partially insulate Argentines from price increases elsewhere. High retail taxes keep consumer prices up, but that is a good thing: policy does not subsidize consumption, but the government captures rents that would have otherwise gone to producers. (The retail gasoline tax runs at 70% of value, with a floor of 53.75 centavos per liter, or 46.9¢ U.S. per gallon. The 21% VAT and 2% provincial tax is then imposed on top.)

Now, the U.S. constitution forbids export taxes. But it does not forbid blocks on export infrastructure. And that is just what you are already seeing in the natural gas space! Last month, the Energy Information Administration reported that LNG exports could raise U.S. prices as much as 54%. Representative Ed Markey (D-Massachusetts) immediately responded: he demanded that the federal government should refuse to certify export projects “before all impacts on American families and businesses are considered,” and stated that he will introduce legislation “that would keep more American-made natural gas in America.”

The same pressures apply to oil, although it will be harder (but not impossible) to stop oil export projects. And while the constitution is crystal clear on export taxes, “No tax or duty shall be laid on articles exported from any state,” it is unclear as to whether the export of a product could simply be banned altogether, under either the necessary and proper clause or as a national security measure.

If the growth of world oil supplies fails to outpace demand, then the result is not likely to be smoothly escalating prices. Rather, the result is going to be ever-increasing volatility in the oil market. Small shocks in either direction will lead to huge price swings. In that environment, export bans would be clearly attractive to consumers ... and some producers might also welcome the market stability that they would bring.

In which case we are back to the pre-1970 world. And let me be clear: I do not think that would be a bad thing. The Persian Gulf would lose its economic significance (at least for North America) even if it continued to grow wealthy from the black gold. The U.S. economy would be insulated from price shocks elsewhere. If imports shrank to a small level (and net imports disappeared) might even be able to get a winning coalition around imposing import duties on oil, which would have all sorts of good effects if the U.S. then again lost self-sufficiency.

If that happens, then the economics and geopolitics of oil will be transformed. The analogy of a big world pool of oil, into which production is poured and out of which consumption is sucked, will no longer hold. A lot of the old-fashioned verities about control of supply will start again to make sense. There is a risk, of course, that as nice as it would be for the United States to insulate itself from foreign shocks, the result might be increased instability and resource conflicts in the rest of the world.

Finally, there is an implication for Canada-U.S. relations: the United States has a vested interest in preventing Canada from building more pipelines to the West Coast. Inasmuch as North American self-sufficiency applies to North America and not just the United States, then the U.S. will only be able to insulate itself from swings in the world oil market if Canada has no other place to send its oil, at least not at a reasonable price and in large quantities. (Oil can be shipped by railroad, but there are bottlenecks, since the number of tanker cars is limited.) Of course, should oil prices become sufficiently volatile, it is possible that Canadian producers would approve of export restraints, in return for steadier prices. But it is just as likely that they will ignore American entreaties and send their oil where it will fetch the highest price. Unless, of course, they can’t.

In short, energy independence does matter, but only in conjunction with political steps that amount to the end of an integrated world market in crude oil.

Not worried about the Straits of Hormuz

 A number of people have been asking about the risk that Iran will shut down the Strait of Hormuz. The short answer is: we’re not worried about it. But it’s worth running down why.

The ostensible reason why the Iranian government might want to shut down the strait is retaliation against a Western oil embargo. Sanctions are already causing Iran pain;  there is little doubt that such an embargo could be devastating. The European Union purchases 18% of Iranian production; Japan and South Korea take another 27%. China absorbs 22%, and could take more, but probably won’t for two reasons. First, after China’s recent self-imposed foreign policy disasters, the People’s Republic seems to have little appetite for antagonizing the West. Second, China and Iran are right now embroiled in a pricing dispute that could cut Iran’s exports by 40%. The truth is that God only knows if the European Union will get its act together, but let’s say that they do. 

Would Iran respond militarily? Military actions against commerce will, of course, provoke a response by the United States Navy. The ensuing naval war has two outcomes:

(1)  Iran loses. That would be a bad result. The best-case loss for Iran is something like the 1988 battle. (This was called Operation Praying Mantis back in the day when the Defense Department chose names for reasons other than propaganda.) The worst case loss is a wrecked export infrastructure, no naval capacity, and airstrikes against the nuclear facilities. All that, and you get blamed as the aggressor in the court of world opinion.

(2)  Iran wins. Is that possible? Probably not. But … back in 2002 the United States held a wargame called Millennium Challenge 2002. The results were rather interesting.  

Red, commanded by retired Marine Corps Lt. General Paul K. Van Riper, used old methods to evade Blue’s sophisticated electronic surveillance network. Van Riper used motorcycle messengers to transmit orders to front-line troops and World War II lighting signals to get airplanes off the runways without using radio communication.

Red received an ultimatum from Blue that was essentially a surrender document that Red must respond to within 24 hours. Given that Red knew that Blue was coming, by the second day of the exercise Red used a fleet of small boats to determine the position of Blue’s fleet. In a preemptive strike, Red launched a massive salvo of cruise missiles, overwhelming the Blue forces’ electronic sensors, destroying sixteen warships. This includes one aircraft carrier, ten cruisers and five out of the six amphibious ships. The equivalent of this success in a real conflict would have resulted in the death of over 20,000 service personnel. Soon after the cruise missile offensive, another significant portion of Blue’s navy was “sunk” by an armada of small Red boats carrying out both conventional and suicide attacks, able to engage Blue forces due to Blue’s inability to detect them as well as expected.

At this point, the exercise was suspended and Blue’s ships were “re-floated” and changes were made to the rules of engagement; later this was justified by General Peter Pace as: “You kill me in the first day and I sit there for the next 13 days doing nothing, or you put me back to life and you get 13 more days’ worth of experiment out of me. Which is a better way to do it?” … Due to his concerns about the scripted nature of the new exercise, Van Riper resigned his position in the midst of the war game. Van Riper later expressed concern that the wargame’s purpose had shifted to reinforce existing doctrine and notions of infallibility within the U.S. military rather than serve as a learning experience.

Iran has invested heavily in mine technology, which suggests they are at least committed to making a plausible threat. Their mines would be a lot better — more destructive, smarter/more selective, and harder to detect — than they were in 1988. They’re believed to have several thousand, and could plausibly get hundreds of them in the water on short (less than 48 hours) notice. Iran has also invested in cheap, dumb anti-ship missiles: in increasing order of size and scariness, the Kosar, Noor, and Raad. That last is a 3-ton subsonic shore-to-ship cruise missile with a payload that could probably disable a warship with a clean hit. The Kosar and Noor are smaller and shorter-range but can be mounted on small boats — these are the missiles modeled in Millennium Challenge. The U.S. counter-campaign would not be as simple as just sailing in and claiming naval control of the Straits; a sensible admiral will want to see missile launch, radar and airbase sites suppressed first.

Since a spike in energy prices will hurt almost everyone, world opinion would set firmly against Iran pretty quickly. Notable exceptions would likely include Venezuela and Russia, with the latter being important for its Security Council veto. So, military counteraction won’t have the benefit of a U.N. resolution. Another interesting legal aspect is flagging. Under international law an attack on a flagged ship can be treated as an attack on the flag nation, so if a Panamanian-flagged tanker hits an Iranian mine, Panama has a formal casus belli. Mines have gotten a lot smarter, but not yet so smart they can detect a flag. Moreover, the GCC will firmly line up against Tehran. The U.K. will almost certainly back military action, and France is even more likely to act. (France has a small military base in Abu Dhabi.) In other words, the lack of a UNSC resolution will probably do little to slow Western action.

Let’s say, then, that Iran could win the opening battles of a naval war in the Persian Gulf. Then what? The U.S. and E.U. won’t lift sanctions. The world’s largest navy will regroup and counterattack. There will be a period of prolonged high oil prices, but that won’t make the West (or the GCC) more willing to back down.

The nature of a counterattack would be open to considerable debate. Attacking the oil export facilities, for instance, could cripple Iran’s economy — but would also ensure that oil prices would stay high, as Iranian production would be offline for a long period of time. Nonetheless, even limited American action will destoy a great deal of Iran’s export capability along the way. Attacking the nuclear facilities would mean a dramatic expansion of war aims. It would probably be expensive, too — those facilities are far inland, dispersed, and well protected. Still, Iran will run a high risk that the U.S. will take the opportunity to attack the nuclear program: after all, Iran will have already used the biggest arrow in its quiver, and a counter-campaign will have to involve prolonged airstrikes on Iranian coastal defenses. 

In theory, of course, Iran could escalate further. Iran could launch missile attacks against GCC targets, but the U.S. and its Arab allies would respond with strategic attacks of their own — e.g., the destruction of Iran’s export capability. Iran could intervene in Iraq, but the U.S. no longer has combat troops in that country. A year ago, Iran could possibly call on Syrian support, but nowadays Syria has other problems. Finally, Iran could attempt to mobilize Hezbollah, but launching a Third Lebanon War isn’t in Hezbollah’s interests at the present time. Moreover, Hezbollah can do nothing to dissuade the United States.

In other words, if Iran loses the naval war, then it loses. If Iran wins the naval war, then it loses, possibly worse. There is no obvious endgame that ends with Iran ahead.

If a war starts by Iranian action, it won’t be because there is an international payoff. The reasons would be domestic. Some elements in Iran might consider a conflict with the U.S. worthwhile, even if Iran clearly comes off the worse, as long as critical regime assets are not endangered. There’s nothing like a foreign war for rallying popular support, after all. The most likely scenario would involve an actor or actors rather than the central government as such — the Revolutionary Guards, or some other group, taking an action that pulls Iran out on a limb. Nonetheless, that seems unlikely. 

Therefore, we will be greatly surprised if Iran mines Hormuz or otherwise attacks shipping, except in retaliation for an American (or Israeli) air raid. It simply has nothing to gain.

A one-sentence counterargument below the fold.

The Bush administration really was as bad as you think it was, but ...

 ... things have not gotten any better since he left office.

Under President Bush, federal prosecutions for financial crimes dropped precipitously. That is, perhaps, what you might expect. Bush the Younger was widely believed to be a “captured” administration, in the sense that the regulatees had taken over from the regulators. Moreover, we were in the middle of a bubblicious boom: wrongdoing was taking place, but the happy noises coming from the financial and housing markets covered that up.

That said, the scale of the change under Bush II is quite remarkable. His administration really was different from its predecessors.

Of course, you would expect that to all change in January 2009, after President Obama took office. The onset of the Great Recession had unmasked the malfeasance of the financial sector, public opinion had swung against them, and the new administration was free of the encumbrances of the old one.

Only it didn’t. Prosecutions have kept falling. Why?

The war that did not happen

 In an earlier post, I discussed the strategic nuclear balance on the eve of the Cuban Missile Crisis. The chief takeaway was that the Soviet Union possessed very little ability to threaten the United States in 1962. President John Kennedy was a hero not because he saved the United States, but because he took seriously the lives of the Russians and Europeans who would perish.

Here I want to draw attention to how lucky the world really was. A nuclear war that “spared” the United States (at least outside the southeastern cities within range of Cuba-based rockets) would nonetheless have been a horrifying event without parallel. Below is a BBC documentary from 1965 that gives a horrifyingly unvarnished view of what such a war (even had it occurred in 1962) would have entailed.

The movie has other virtues. The preacher around minute 27 explains why I strongly believe that conscription is a moral imperative for anyone who is not a pacifist. And it puts our modern fears in perspective. It is worth watching. (Credit to Charlie Stross.)

Thoughts?

Whose empire is this, anyway?

 A little while back, I argued that information that China may have received oil from Venezuela for $5 a barrel does not represent growing Chinese influence in Latin America, but rather lousy negotiating tactics on the part of PDVSA officials. Lifted from comments (with minor edits), Setty argues that the sales likely represent (if they even happened) corruption inside Venezuela:

I hope you’ve now seen the unredacted text of that embassy memo.

In it, you can see that the embassy itself had doubts about PDVSA board member Fadi Kabboul, its source for this $5 a barrel information. The embassy people’s experience with him was identical to mine. He offers meetings and information and never comes through. He revises history. We don’t know anything about his motives.

Hence, I am loath to trust him on that $5 a barrel figure. Especially since there is evidence contradicting the $5 a barrel figure — it’s pretty clear from the contracts that China was supposed to pay more than that.

It is possible that PDVSA received only $5 a barrel for some shipments. But if that happened, I would bet that the gap between market price and $5 a barrel ended up in someone’s pocket. I think it’s a very long stretch to say that this price shows China has an imperial subject in South America.

Indeed, the most telling item in that memo is the hearsay about George Kabboul. George was at the time head of the shipping department of Venezuela’s state oil company. Previously, he headed its food division, an agency called PDVAL. A 2009 U.S. federal lawsuit named him as having demanded a $2 million bribe to let a ship land and deliver perishable food. Around the same time, pro-Chavez Venezuelans also denounced him for corruption. I don’t have independent information about him, and he isn’t here to defend himself, so please take all this with a grain of salt.

Which is why it’s amusing to read that when the U.S. invited him to come and chat with their information-gathering team, he was worried that he might be “in trouble.” Would any Venezuelan worry that the Chinese embassy had called him in because he was “in trouble”?

Whose empire is this, anyway?

I love that last line! Same as it ever was, perhaps.

Perhaps the strangest thing about the Bolivarian Revolution is how it has mishandled PDVSA, which is, after all, the ultimate source of the regime’s resources. Above is a time series of our best estimates of Venezuelan crude production. New estimates from the International Energy Agency show that the country’s oil production has recovered from the 2002 strike ... but even so, the company has done little other than tread water. To be fair, the company’s 2001 goal of increasing oil production to 5.5 million barrels per day (bpd) by 2006 never looked particularly realistic, at least not in that time frame, but it should be doing much better than it is.

There is, of course, a debate about exactly how much PDVSA produces, and how big its decline has been. A good overview of the state of the debate can be found here. Everything, however, points in the direction of decline: the question is about how much.

In fact, there is indirect evidence from the company that it is in trouble. PDVSA recently cut its 2015 production goal from 4.46 million bpd to 4.0 million. The company regularly abandons its production targets. As Setty said on his blog: we may as well autoprogram the headline “PDVSA cuts production goals” to reappear around this time every year.

In short, China has no influence in Venezuela, the U.S. does, and PDVSA is a wreck all on its own.

Pay no attention to the FBI cloud; solar has a sunny future

 The FBI just raided Solyndra, the bankrupt solar-cell company. What’s that about, and what does the bankruptcy and raid say about the future of solar power?

The answer: not very much, and not very much. The FBI is probing the company because it went bankrupt. Why, you ask? Well, Solyndra received a pledge of $535 million in loans from federal government. (The contract can be found here.) The company actually took out $527.8 million from the feds, and an additional $256 million from private creditors, including a $69.3 million loan from Argonaut Capital that had a higher priority than the federal loans. (See here for the details. The bankruptcy filing itself is here.) I should note here that Solyndra received its loan under a long-standing program that far predated the Recovery Act.) On paper the company has more than enough assets to make creditors whole; in reality, most of that consists of specialized capital goods designed to make cylindrical rooftop arrays. Since there isn’t a big market for cylindrical rooftop array-making machinery, the stuff is going to sell at a hefty discount.

Why did it go bankrupt? Well, solar modules have fallen 70% in price over the last few years. Solyndra targeted a cost of $2 per watt ... when prices already hit $1.50. That’s great for the industry (it’s even good for the American industry) but not-so-great for Solyndra’s risky gamble on cylindrical modules. The company turned out to need some incremental capital, and when it went to the markets said capital was not available. Bankruptcy resulted.

Here is the company’s statement. Note the bullshit about “regulatory uncertainty.” Why is it bullshit? It’s complete egregious embarrassing bullshit because the same sentence blames excess capacity and FALLING PRICES on regulatory uncertainty. Real regulatory uncertainty holds back investment, thereby reducing capacity, which reduces supply, and drives up prices. Sometimes, CEOs can really embarrass themselves, but I suppose it is an attempt at dog-whistling that the company likes the GOP too.

The new GOP-controlled Congress then went on a fishing expedition to look for wrongdoing with which they could embarrass the Obama administration. (In this particular case, I don’t blame them at all. If I were a congressperson of either stripe, I’d also want to investigate.) The FBI has gotten involved because Congress has accused Solyndra’s CEO, Brian Harrison, of failing to mention the company’s precarious state when he went for the funding. In fact, Harrison told reporters in March 2011 that the company would need no new financing, but that isn’t actionable.

Since this blog likes predictions, we predict that nothing will come of the criminal charges. Loan guarantees have a long history, start-ups have a long history of going bankrupt, and entrepreneurs have a long record of starry-eyed optimism until the very end. (Or even beyond.) The biggest risk is that other ventures will shun federal loans or loan guarantees out of fear of politicized criminal probes: in fact, Solar Millenium has already turned down a $2.1 billion guarantee.

What does the Solyndra collapse say about the future of the solar power industry? Nothing! First, the U.S. is a massive net exporter of solar power systems. In 2010, we had a net surplus of $1.8 billion in the sector, up from $723 million in 2009. We even retained a $539 million surplus with China. Basically, what we lose on the modules we make on module-making machinery and, surprisingly, ancilliary equipment. (E.g., everything from switches to water tanks.) The sector is growing fast, and I hate to say it, but federal financing has helped, what with the private capital markets still broken.

Solar power does face three problems. First and foremost, the weather. (And the fact that the Earth, you know, rotates.) This limits its use, unless somebody cracks the cheap storage problem. Second, NIMBY. They drive me nuts. Maybe the Californians can be justified — my co-blogger makes a case in comments — but not the people in New Jersey. Finally, Chinese subsidies. So far we’re hanging on, and China’s costs are increasing. But wow, they subsidize a lot. 

 

In the presence of increasing returns, those subsidies could have long-term welfare impacts: good in China, bad in the United States. It’s something to think about, and something to which this blog will likely return.

But right now, solar is doing fine, and Solyndra is interesting only in-and-of itself. Move along, nothing to see here.

Miscellaneous Saturday links

 Comin’ atcha from the Westside ... Medical Center in the very-creepily-named Plantation, Florida:

Department of Denominators: Really, the graph needs one, like, say, real tax revenue. I expect better.

Department of Thanks: “I want to express my sincere gratitude for your thoughtful discussion of the issues,” wrote Colonel Qaddafi in a letter to Congress. “We are confident that history will see the wisdom of your country in debating these issues. We are counting on the United States Congress to its continued investigation of military activities of NATO and its allies to confirm what we believe is a clear violation of U.N. Security Council Resolution 1973.”

Department of Trouble: Doug Muir made the good point that there must be reasons for the Anglo-French defense posture, since both countries spend significant amounts on their militaries. I would like to see this discussed seriously, for the simple reason that I do not discount the possibility that there is no plan, and NATO defense budgets are set simply out of a combination of momentum and interest group politics. Moreover, what’s the counterfactual? What would an alternate European defense posture look like?

Department of Panaceas: We’ll see if ending gerrymandering has an effect on California’s political woes. I doubt that it will, but I would also like to be wrong.

Department of Crime: There is less of it, and nobody really knows why.

Department of Bahrain: Things are very bad.

The Cuban missile crisis

 I am reading The Icarus Syndrome, by Peter Beinart. It’s a good book. Unfortunately, it gives a misleading impression of the strategic situation during the Cuban missile crisis. Moreover, the misleading impression is unnecessary for Beinart’s overall argument.

The Icarus Syndrome is about hubris and American foreign policy. Beinart argues that hubris (from different sources at different times) caused foreign policy overreach, first in World War 1, then in Vietnam, and then in Iraq. In the case of the Cuban missile crisis, he wants to fit it into a seamless narrative connecting Cold War “toughness” with the debacle in Indochina. Therefore, Beinart wants to imply that the Cuban confrontation of October 1961 was about toughness and signalling, rather than actual concrete strategic threats.

On page 155, Beinart writes:

At first Kennedy was not sure why the Cuban missiles posed such a grave threat. (“What difference does it make?” he mused. “They’ve got enough to blow us up now anyway.”) But when he met with his advisers, a consensus quickly formed that the missile were intolerable. Whether or not the actually threatened America, Kennedy later explained, they “would have appeared to, and appearances contribute to reality.”

This description gives a misleading view of President Kennedy’s actual thinking. The first quote comes from page 72 of James Hershberg’s piece on the Cuban missile crisis in the Cambridge History of the Cold War. The quote is from a months before the U.S. detected Soviet missiles in Cuba, and appears to have been an offhand comment taken from a tape recording. As I will explain in a moment, Soviet missiles in Cuba did in fact give the USSR an offensive capability that it otherwise lacked, something that JFK knew quite well.

The second quote comes from pp. 174-75 of Melvyn Leffler’s For the Soul of Mankind: the United States, the Soviet Union, and the Cold War, and Leffler’s paragraph is worth quoting in full:

Kennedy acknowledged that Khrushchev did not want to use the missiles in Cuba to attack the United States. But their presence in the Caribbean “would have politically changed the [world] balance of power. It would have appeared to, and appearances contribute to reality.” The Soviet leader had demonstrated again that he could not be trusted. Through guile and through daring, the Soviets ceaselessy sought to create “a monolithic communist world.”

In context (and Leffler is a very good historian) is clear that Kennedy’s comment referred to Soviet intentions, whereas Beinart makes it seem that it applied to Soviet capabilities. To analogize, Leffler recounts the fact that Kennedy stated that Khrushchev had loaded a gun and pointed it at the U.S., although he knew full that Khrushchev had no intention of pulling the trigger. Beinart, however, gives the impression that Kennedy was saying that the gun wasn’t loaded. (More accurately, he gives the impression that the Soviet leader was merely pointing a handgun at the U.S., when he already carried an assault rifle.)

In 1962, the Soviet Union possessed very little ability to threaten the continental United States with nuclear weapons. Let me repeat that. This is not something that was publicly known at the time, but it was something that was known by the President of the United States. In 1961, President Kennedy received a report indicating that the USSR possessed only four ICBMs, all at a test site in Plesetsk. In November 1961, the President received a dissenting CIA report that included the following table:

In other words, even the dissenters believed that the Russians likely had only 10 (or 25 on the outside) missiles, all of which were vulnerable to U.S. attack. We now know from Soviet sources that the low estimate was spot-on: the Strategic Rocket Forces had only 10 operational intercontinental ballistic missiles at the beginning of 1962, whose reliability the commanders did not trust. Soviet missiles at the time relied on radio guidance, which in turn depended on installations that were not likely to survive a war, given the American ability to quickly detect Soviet launches. 

As for bombers, here is Anthony Cordesman: “Soviet long range bomber forces consisted only of 100 Tu-Bears and 35 May Bison, whose range and flight characteristics forced them to fly at medium and high altitudes, and which made them extremely vulnerable to U.S. fighters and surface-to-air missiles.” What Cordesman doesn’t mention is that U.S. surface-to-air missiles at the time were armed with nuclear warheads, which made them extremely effective at destroying incoming aircraft.

In short, placing Soviet nuclear missiles in Cuba substantially changed the strategic balance. Moreover, in hanging tough, President Kennedy took less of a risk with American lives than is commonly perceived. The missiles in Cuba held the possibility of devastating wide swathes of the southeastern United States (and Western Europe would have been destroyed) but the sort of civilization-destroying attack that was very real by 1973 was not on the table in 1962. Of course, the logic also applies in the converse: by refusing calls to attack the missile sites in Cuba, the President was showing much greater restraint than he is commonly credited.

It is true, of course, that the Soviet buildup was so quick that within a decade any missiles in Cuba truly would have been superfluous. Moreover, as indicated, Kennedy did not believe that Moscow intended a first strike. (The fact that Moscow could not have pulled one off explains the President’s certainty, of course.) Restraint was of course an option. The point, however, is that there were solid strategic reasons to resist the placement of nuclear missiles in Cuba. It was not just about signalling and toughness and (by implication) pointless machismo. 

None of this alters Beinart’s overall point. He makes an excellent argument about hubris, the cult of toughness, and the descent into Vietnam. The problem is that he wanted to make the Cuban confrontation a seamless part of that narrative, but it just doesn’t easily fit.

The Sicilianization of Mexico; this time it’s personal

 With the events in the Middle East and North Africa, let’s not forget about northern Mexico and its problems with organized crime. It is no longer just about drug trafficking. My friend Gancho reports both a study from Cancintra, Mexico’s most important business federation, and a personal experience:

An influential Mexican business group says that 10,000 businesses closed last year because of security problems. This is a pretty good reflection of the pernicious developments in the Mexican underworld over the past five years, even beyond the rise in the murder rates. It's not the spike in killings that made these businesses close, but, the group says, kidnappings and extortion. This is, in that sense, a qualitatively different challenge.

This also doesn't measure the businesses that never opened because of security concerns. I actually had an idea for a street-side food-stand during my last six months in Torreón that would have surely made a killing, and in the process also given me the incredible pleasure of telling my horrid boss that I was quitting due to a more compelling opportunity to sell sandwiches on the side of the road. The plan was taking shape. I talked to other people who'd done similar stuff, started to build a client base through friends and acquaintances, put together the figures giving me a rough idea of what my profit margins would be, designed the portable grill set-up I needed and talked to a guy who could build it for me, and scoped out the space where I was going to set up shop. In short, I was ready to go. This close. Then, the daughter of a successful restaurant-owner a couple blocks from me was kidnapped and murdered by an organized crime group and the Oxxo that was to let me use the parking lot for my cash cow was held up at gunpoint. Suddenly, being out on the street every night with lots of cash seemed less attractive, so I reluctantly deferred the idea to a later date.

For a time, it seemed as though the criminals had a modus vivendi with big business. A few months ago, a principal at a major security firm in Mexico assured me that was true, as did the head of a major business group. But the truth is that Mexico’s economic future lies as much with its small and medium businesses as it does with its major companies. So the costs of extortion are serious, even if they don’t affect large companies. Moreover, it’s only a matter of time before the extortion spreads ... if it hasn’t already.

While I’m here, let me add that the people who told me about corruption in Immigration and Customs Enforcement (ICE) and along the border were recently indicted for running guns into Mexico. The irony? Here’s what they told me (more or less, I paraphrase) when I wondered why corruption wasn’t a problem on the U.S. side: “The difference is that while you get a lot of corruption on the American side, it’s all at the individual level. Once you get two officials conspiring, you’ve got two officials who are going to be caught.”

In a bit of good news for Americans worried that the disorder might cross the border, it looks as though they were right!

War versus non-war

 Americans have a problem with the word “war.” In the dictionary, war is an armed conflict between organized groups for political objectives. In the U.S., however, the word took has the connotation of absolute war, an interstate conflict aimed at the unconditional surrender of the other side.

To some extent this has always been true. Three of our five declared wars — the War of 1812, the Mexican-American War, and the Spanish-American War — weren’t aimed at unconditional surrender, but they were aimed at the territorial dismemberment of our opponent. Moreover, in all three cases, the declaration of war rapidly led to an escalation of American aims. The War of 1812 immediately became a war to drive Britain out of North America. The Mexican-American War started over Texas and ended in an American occupation — and were it not for Nicholas Trist the southern boundary of the United States would be several hundred miles further south. The Spanish-American War started with a very 21st-century “authorization to use force,” but Congress declared war after Spain declared it on us ... and soon enough the U.S. was in possession of Puerto Rico, Guam, and the Philippines.

What does this have to do with Libya? Well, Libya is a massive food importer. In a total war, even a casualty-averse total war, his enemies could starve him out. But we are not fighting a total war, and we obviously should not be fighting a total war. Since Libya imports about 75% of its food needs, this means that the U.N. is soon going to have to organize relief efforts at the same time that NATO is blockading his ports.

It will get stranger.

So tell me, how should the U.S. force Bahrain to compromise?

 Every so often, I get annoyed with people I generally respect. Today Matt Yglesias annoyed me, although, to be fair, it was part of a sullen-but-sensible post about Libya. He began, “So I guess I agree with Jon Chait that the fact that the U.S. isn’t using its influence over the Saudi or Bahraini governments to halt the killing of non-violent protestors there isn’t a reason to decline to intervene in Libya.”

Hmm. More and more observers are noting that Saudi Arabia has openly split with the United States and no longers considers itself a client state. We also know that President Obama effectively ordered the Bahrainis to stop shooting protestors the first time out, and that Secretary Gates told them that they would have to give parliament real power. Bahrain seemed to be following our lead until recently, when with Saudi support they reversed direction and cracked down.

Yesterday, the U.S. openly told both the Bahraini and Saudi governments that they are “on the wrong track. There is no security answer to this.” Presumably right now, a few days into the crackdown, the U.S. is considering out a menu of carrots and sticks to lay before the government in Manama. And normally we would have a lot of leverage. The problem is, with the Saudis against us, it hard to see what levers would be effective ... and it is easy to see some that would be downright counterproductive.

Obviously, he must think that there is something else besides diplomatic pressure that we can do right now that would be neither ineffective nor counterproductive. But what could that be? Honest question: from where I sit, it looks like our imperial contr ... er, influence has ebbed considerably. If that’s correct, then our best hope is to (correctly!) persuade the Bahraini monarchy that the crackdown is against their own best interest.

This sort of sullen refusal to admit the limits of American power bugs me. Matt Yglesias generally does a great job of puncturing American myths about our good-will and omnipotence. Here, though, he seems to be buying into them, but that may just be because I am missing the lever that Washington should be pulling.

Any ideas?

Department of calm down, state defense force edition

 So, I’ve gotten some hyperventilating emails about the fact that Arizona is looking to establish a State Guard independent of the National Guard. “Facism, racism, separatism, end of the Republic, yadda.” Oh, gosh. This is monumentally stupid, what Glen Beck would talk about if he shared my political beliefs. There is absolutely nothing odd or sinister in the Arizona bill.

Back in the day, I (like anyone who was ever in the NYARNG) routinely ran into people from the New York Guard. What’s the New York Guard? It’s a state defense force, authorized by a 1955 act of Congress. State defense force members do not receive federal military training (National Guard members undergo the same training as members of the regular armed services) and therefore cannot be federalized. Back then, their uniforms were almost indistinguishable from regular NYARNG (IIRC); today it seems they wear standard Army ACUs with a funny black cap and brightly-colored state flag.

It turns out that twenty-two states have state defense forces, although Massachusetts’ is no longer active. New Hampshire seems to want one.

Establishing a state defense force seems like a silly idea: if New York didn’t have its Guard (which has trouble meeting its 1,700-person authorized strength, what with the low pay and benefits) it isn’t clear why you’d want to invent it. But the Arizona bill isn’t a threat to the Republic, and it pains me when American liberals start to travel down paranoid rabbit holes the way too many of their conservative brethern have recently. In short, calm down, there really is nothing to see here.

The mystery of rising nuclear costs

 What’s the biggest obstacle to greater use of nuclear power? In some countries, like Germany, it’s public opinion. (The German reaction to the disaster in Japan does not make sense to me, but I’m the sort of person who finds these facts about radiation poisoning to be reassuring.) As the Japanese situation continues to unfold, that may re-emerge as a problem elsewhere.

But in most of the Americas and in Asia, though, the problem is that the cost is too damn high. In fact, the cost is high and rising. Here are estimates for American plants from Koomey and Hultman, in thousands of 2009 dollars per installed kilowatt by date of completion:

But this is not true everywhere. Below is a preliminary estimate for France, made along the same lines, and calculated by myself and Carlos Yu. It includes interest costs and decommissioning expenditures. The French data are such that it is not possible to break out the cost of every individual plant, but it is possible to break out the cost for plants of a particular vintage. The dots show the cost per kilowatt in 1000s of dollars on the right axis; the vertical bars represent the number of plants under construction in a given year: 

The overall picture is not all that different from the United States. At first, there are some diseconomies of scale as construction ramps up to an astonishing peak of 37 reactors. Costs then stabilize until 1987, when they begin a relentless march upwards, save for the final plant opened at Civeaux in 1999. New plants aren’t getting any cheaper: the gold triangle is where the Flamanville plant was supposed to clock in; the circle off to the right is where it is going to come in.

While preliminary and subject to change, our estimates are not wildly out of line with these two.

What happened? At first, it looks like diseconomies of scale as the number of plants under construction reaches an astonishing 37 per year, after which things stabilize until 1987, when they begin a relentless climb. What’s the reason? I don’t know, but a highly-placed EDF official pinned it on safety requirements. Another possibility is that the country lost its chance at keeping scale economies when it rolled out the P4 and N4 reactor designs instead of continuing to churn out the old 900-MW plants. The truth is that I have no idea.

What I do know is that the barrier to greater use of nuclear power has been and remains its cost. Safety is a secondary issue, except inasmuch as safety requirement directly drive up the cost. I have trouble believing, however, that investment in actual safety equipment is wasted the way the time spent getting permits is wasted. So if it is safety that is driving up nuclear costs, then nuclear power is not going to be competitive for a long time to come, regardless of the political reaction to the ongoing disaster in Japan.

Robert Moses and solar power in California

 Americans of a certain age and predilection often like to say things just to be provocative. I am about to say something provocative, and I want to reassure you that it is not because I am trying to be provocative. It is because I am, at the end of the day, very old-fashioned.

So here it is: I love Robert Moses. I think neighborhoods like the one above, the ones he got built, are awesome. I know, I grew up in ‘em. It was a muscly ambitious society what threw up these buildings 5 years before I was born. It is a sad thing for the environment that we no longer build stuff like this.

Robert Moses, he got stuff built.

Which brings us to California and the future of the planet. The great state of California recently approved no less than nine solar-thermal power plants. They would produce collectively 4.2 gigawatts of power, or 4% of the state’s total generating capacity. Keep that up for twenty years, in a place that gets as much sun as regularly as the Mohave desert, and you could shove aside a big chunk of natural gas. I am a fan of natural gas when the alternative is coal or freezing in the dark; in the Golden State, the alternative is sunpower. The Schwarzenegger Administration set the stage with its energy laws, and the Bush Administration helped the goal along when it opened federal lands to development on 2006. (When the opposition does good things, I give credit, and the energy policy of the second Bush Administration was nothing less than a big improvement on the status quo.)

But ... now come the lawsuits. Protection of protected species. “Impacts to Native American culture.” The Sierra Club and the Cuña de Aztlán Sacred Sites Protection Circle Advisory Committee united with the Tea Party people to keep pumping CO2 into the atmosphere. The Sierra Club worries about Calico project and the desert tortoise. La Cuña de Aztlán fears for the impact of the Imperial Valley project on the Quechan tribe’s origin story. The Tea Party all the projects because they hate subsidies. There are reasonable worries over the Genesis Project’s diversion of Colorado River water ... or they would be reasonable if the way we currently use the river made any damn sense.

I cannot sum up my hostile reaction to the anti-solar opposition inside the American political spectrum. Where is our Robert Moses? Anyway, attempts to talk me down would be very welcome. Tell me why I shouldn’t be angry at these people.

The United States and Bahrain: intro

 The big U.S. link with Bahrain is, simply, the Fifth Fleet. We station roughly 3,500 personnel and 16 vessels in Bahrain. My direct contact with the military presence there took place unexpectedly in a bar in the ground floor of a Best Western in Manama. The decor was country-and-western, the music was crunk, the males were mostly off-duty American sailors, and the women were disproportionately from Thailand. Yes, I left immediately; why do you ask?

Bahrain does not provide the use of their territory for free. We currently pay about $9.6m a year for the use of about 66 acres and 15 berths. But that isn’t all: in 2010, we also provided the Bahrain Defense Forces with $20.8 million in assistance; this year’s budget request is for $21.7 million. That comes to a little over $1,500 for every BDF effective; not a small chunk of change. The U.S. presence is governed by a 1992 treaty (T.I.A.S. 12236) ... most of which is classified.

OK. Do we get anything else for our protection? Well, Bahrain has sent troops to Afghanistan: about 125 Bahrainis guard Marine encampments in Helmand. (If you divide all our military aid by 125, you get about $173,600 per Bahraini; a bargain compared to Blackwater.) We signed a free trade agreement in 2006. That agreement (building on an earlier 2001 treaty) included provisions protecting U.S. investments from expropriation. That, plus our help in resolving a border dispute with Qatar, got Occidental a 48% stake in a field that will eventually produce 100,000 barrels per day of oil and 2.5 million tcf of natural gas. Even with a 46% tax rate on oil companies, that will be a lot of revenue. Oxy expects to invest about $1.5 billion in the field. Under reasonable assumptions (say a 10% cost of capital and an $80 oil price), that investment could clear over $830 million a year, which ain’t bad. Try doing that in Ecuador! And since Oxy does in fact pay income taxes to the U.S. federal government, the gain to Americans could come to, uh, about a dollar a year per person.

In addition, to Oxy, ChevronTexaco got an exploration concession in the formerly-disputed area with Qatar in 2001. (Strangely, so did Petronas, from Malaysia, and some goobers from Calgary. I think we could have complained about that ... except eventually they all pulled out in favor of a Thai outfit. The link has a pretty good rundown of the state of play in Bahraini hydrocarbons.) 

In short, the U.S. gets a base that helps us keep the oil lanes open and contain Iran; in return we get some useful soldiers and some oil concessions, guaranteed by the specter of ICSID. Not too shabby. Viva el imperio; maybe Randy McDonald was right.

What about other parts of the relationship? Well, Wikileaks tells us that the Bahraini government likes to claim that the periodic unrest in the Kingdom is due to Iranian and Syrian machinations, but the State Department isn’t buying it. In 2008, they reported, “Small but violent bands of Shia underclass youth, frustrated with persistent discrimination and what they perceive as too gradual a pace of reform, clash with police nearly every week. The Sunni minority, which rules the country and controls all security forces, has generally acted with restraint, but it takes only one mistake to provoke a potentially disastrous escalation.”

In short, if Bahrain does go up (and it is not clear that it will) the United States will not have been surprised.

Saudi and America part ways over Egypt

 Well, yesterday some news broke that was so predictable that I am embarrassed at not predicting it. It turns out that the Saudi government is unhappy with the U.S. decision to use our aid as a lever to prevent the Egyptian army from shooting protestors. It is even less happy that we might now use same to convince the Egyptian army to pack Mubarak off into (not very) early retirement. Dissatisfied with the way that we are running things, the Saudis threatened to replace our support dollar-for-dollar.

Saudi Arabia has deep links with the United States. The above picture was taken in an Aramco compound in the country; it is no coincidence that it bears a frightening resemblance to the view from my brother’s backyard in Coral Springs, Florida. The nationalization of Aramco was uncontentious, favorable to the companies, and served American goals. Only twice have Saudi and American interests substantially diverged: briefly in 1973 when the Saudis embargoed oil shipments, a stand they rapidly reversed; and substantively in the past two decades with Saudi financing for Islamic radical movements. And to be fair, the Saudis have been increasingly helpful in combatting terrorist finance, although their best is not always that good. “We are trying, but if money wants to go it will go,” said Prince Mohammed bin Nayef in May 2009.

The break over Egypt, though, portends a deeper split. The U.S. has decided that it really does not get much from keeping Mubarak in power. The alternative is not really that scary, and might even be better. Riyadh has decided something different. Now, I do not think that Riyadh is going to get what it wants here, but if you want to look for signs of the American empire cracking at the seams, this is a pretty good one.

A second takeaway is that Saudi Arabia doesn’t really care about Islamic extremism. Of course, we knew that already.

How much has the U.S. given to Mubarak over the years?

 So asks my old high school buddy, Omar Wasow. Below, in millions of constant 2009 dollars, is the answer.

The U.S. strategy in Egypt, then, is obvious. It is hard to force a government to resign, no matter how much money we give it. That is why the U.S. didn’t bother to threaten the Micheletti coup government in Honduras. The general lesson should be obvious. (“Stop receiving our money or we’ll stop giving you money!”) But it is not as hard to change the behavior of actors within the government. In that vein, the Obama Administration informed the Egyptian military that they will lose the gravy train and go down with the rest of the ship if they fire on the protesters.

There are rumors that we are now taking a harder line with Mubarak. That would also make sense, but it is not something a weak and weakening imperial government wants to try with an autonomous satrapy unless it was sure that the satrap had lost support of key actors within his or her own government. (Personally, I would be reluctant to do it: people often dig in their heels when they feel like they are being threatented.) Not that I’m suggesting that the United States is an empire, let alone a weak and weakening one, or that Mubarak is an American satrap ...

Is the U.S. exceptional in its policy towards Arab oil?

 I am a bit confused about what Prof. Quiggin is trying to say here:

The point applies most obviously in relation to oil. The idea that the US can legitimately use its military power to ensure continued access to oil resources rests, in large measure, on the (not entirely unfounded) assumption that those controlling the resources are a bunch of sheikhs and military adventurers who happened to be in the right place, with guns, at the right time. Without the Arab exception, the idea of oil as a special case, not subject to the ordinary assumption that resources are the property of the people in whose country they are found, will also be hard to sustain.

Prof. Quiggin is a very smart guy, and when I say I’m confused, I mean that honestly. The governments of Arab oil-producing states keep almost all of the rents from the oil extracted on their territory; this is just as true of Abu Dhabi, which works with the majors, as it is of Saudi Arabia, where state-owned Saudi Aramco monopolizes production. Moreover, only 9% of the oil produced in and around the Arabian peninsula goes to the United States. Put another way, the U.S. only gets 10% of its oil from the Arab countries of the Gulf. The U.S. gets no oil from North Africa. The U.S. does, of course, use its military power to insure that the oil keeps flowing. But I don’t see that as much different from what the U.S. does with other strategic raw materials, or in regions outside the Arab world.

Matt Yglesias got me even more confused:“Certainly if you were just to look at things in coldly rational terms, the resource-rich country the US should be seeking to dominate militarily is Canada, located conveniently next door. And, indeed, in the first half of the nineteenth century that’s how hawkish American politicians saw things. But it would be politically unacceptable in a modern context to try to bully Canada or Norway into coughing up oil.”

Except ... uh ... how is U.S. policy towards those countries different from our policy towards Saudi Arabia? Canada is not about to embargo U.S. oil; Soviet fleets are not about to blockade Norway. American policy would be rather different if either were true. (And policy was different, when the latter was a real threat.) The oil does belong to the provinces in Canada and the national government in Norway; but ditto in Kuwait and Saudi Arabia and Iraq. What does Matt mean when he implies that the U.S. uses military force to make the Arab countries “cough up oil”?

Quiggin’s main point is about overall U.S. policy towards the Middle East, but I honestly do not what he’s trying to say about oil. Nor do I understand Yglesias’s. Can someone explain?

Pants on the ground! Pants on the ground!

 It has been a little harder to keep up the blog than I had thought. Work is quite pressing. But every so often, something comes up that the rest of the internets seem to be ignoring. So, in the interest of showing how Boston is changing, I would like to mention that Sunday was the fourth annual “No Pants Subway Ride,” in which people ride the T without any pants.

Of course, as you might expect, the “No Pants Subway Ride” didn’t start in Boston in 2007. It started in New York in 2002, and has since gone international. An example of the influence of the internet! I can hear some of you shouting. Well ... probably not. I mean, I’m sure that this idea in particular spread via the internets, but anyone familiar with the 1960s will find lots of similar events, and let’s not mention the decade after that one. Moreover, the participants physically rally before removing their pants. So please no conclusionamating about the awesome marveliciousness of our new interlinkeded planet. 

It isn’t really a surprise to find that it’s spread to Boston ... Boston has a giant 250,000 person college town laid atop the real city of 1.7 million. While Boston itself is not the sort of place that would smile upon pantless T-riding, the college town appended onto it certainly would. So no surprise there. And it has also spread to such unsurprising places as Philly. After all, the city that celebrates Mummer’s Day is not going to have a problem with pants-removing on the Orange Line. 

I have to admit that it was a bit more unexpected to find that it had spread to the Mexico City. But when you think about it, that reaction makes no sense. The D.F. long ago left behind its cultural conservatism. 

My excuse is that the rapidity of the cultural changes in Mexico between 1990 and today have left me reeling. Still, the United States changed even more between 1960 and 1980. So it is far from unprecendented. And why wouldn’t the chilangos take advantage of the opportunity to ride the subway without any pants?

My worry that it presages the end of Mexico’s unofficial ban on shorts.

Here is a much better photo of the Mexico City event, courtesy of El Pinche Holandés:

 

Race, roads, or regulation? Canadian and American cities

 When asked why Canadian cities are so built-up compared to American ones, Martin Wisse of the Netherlands suggests, “No white flight.” It’s an appealing answer, given America’s massive urban ghettoes, but it’s almost certainly wrong.

 

Consider the differences between Seattle and Vancouver. For an American city, Seattle is very white and disproportionately childless. The city, however, splatters across the horizon, with few high-rises outside the central business district, while Vancouver is relatively compact and its proliferating residential towers reach to the sky. All this despite geography in Seattle that should encourage density!

The Seattle-Vancouver comparison alone should make you doubt the validity of the “white flight” hypothesis. There are other reasons, however, to reject it. Until 1990 none of Canada’s metropolitan areas declined in population — the country didn’t see shifts in economic geography like what turned cities like Buffalo, Detroit, New Orleans, Flint, Akron, Pittsburgh, Dayton, and Syracuse into what they are today. (The 1990s recession changed that, but the places that shrank tended to small, and located in Atlantic Canada or northern Ontario and Quebec.)

More importantly, white flight can’t explain why the nonblack sections of American cities look rather different from their Canadian counterparts. Nor can white flight (by itself) explain why American suburbs strongly resist residential high-rises, whereas Canadian ones (Montreal excepted) take to them with relative zeal. For example, Chicago’s North Side does not look like Toronto, save for a belt along the lake. Nor does Boston’s central and northern urban area — Back Bay, South End, North End, Southie, Brookline, Allston, Brighton, Cambridge, Somerville, Chelsea, Watertown, Arlington, Belmont, Charlestown, and East Boston — look much like East York or Scarborough. It is true, of course, that the great American ghetto is an American phenomenon, created by America’s strange racial caste system, but racial tensions don’t explain why Houston looks very different from Calgary.

So if isn’t race, then what is it? Another possible culprit is roads. American cities have a lot more freeway-miles per capita than their Canadian counterparts. The logic is not that freeways destroyed the neighborhoods that they cut through. I’m sorry, but speaking as someone who grew up in neighborhoods that had roads driven through or beside them, that argument is just stupid. (Yes, this applies to Toronto.) The plausible logic, rather, is that inner city neighborhoods were always relatively undesirable, but without subsidized freeways it would have harder to leave them for lower-density suburbs.

I am sympathetic to this argument, but I have some doubts. (Not least that my wife and I prefer dense inner city neighborhoods to the suburbs.) It is almost certainly true that American-style sprawl requires massive investment in freeways. Fewer freeways, more density. More density, more high-rises. The problem? If density the key, why does Los Angeles look so different from Toronto despite being denser? The 11.8 million people who live in Los Angeles’s urbanized area (that is, the area defined by the lights visible from space at night, minus fringe areas with a population density below 1,000 people per mile) are packed in at 7,068 per square mile, whereas their 4.6 million Torontonian counterparts live at 6,835 per square mile. Perhaps it is the freeway net that allows Los Angeles to splatter its density more uniformly than Toronto, but that feels ad hoc as an explanation, especially since Toronto’s suburbs are actually very densely-populated compared to Boston, Chicago, or New York.

The other possible explanation is regulation. In this view, roads may have contributed to American sprawl, but zoning is what really keeps it in place. For this view to be correct, Canadian zoning has to be less strict than American zoning. Are Canadian cities more likely to approve density, allow smaller lots and narrower streets, require fewer parking spaces, and permit higher buildings? This is not hard to believe, considering the far greater control that provincial governments exercise over municipalities in Canada, but I do not know the answer.

 

In point of fact, the “roads” and “regulations” hypotheses may be hard to disentangle. If a lack of roads drives up land values (by limiting the effective supply of land), then there will be more political pressure to allow dense development. After all, people need places to live. On the other hand, if it is easy to get out to the burbs (via all those freeways) then there will be less political pressure on inner-city areas to permit taller buildings. Cambridge, for example, saw a high-rise boom in the 1970s, which the city deliberately stepped on. As a result, the Central Square subway stop (where we live) is stupidly surrounded by two-story buildings instead of 20-story towers. Our building was built in the early 1990s, and was effectively capped at five floors. Without Boston’s two ring roads (I-95 aka “Route 128” and I-495), the pressure to build up in places like Cambridge would have been harder to resist.

 

In fact, however, it is possible to disentangle between “roads” and “regulations,” by testing for the effect of zoning changes on land values. Of course, it’s never that easy — endogeneity is always a problem. Ed Glaeser has a paper suggesting that zoning is determinative in shaping American cities in California and the East Coast north of Virginia. He has a particularly-detailed study of Boston that supports the zoning hypothesis: market forces (given the existing road net) would make Greater Boston rather denser were the regulations less restrictive. (Newton would look like Brookline; Brookline would look like Brooklyn; and Boston itself would be filled with high-rise towers.) On the other hand, his same work implies that in most of America it is the road net what produced sprawl, and not race or land-use regulation.

In short, most American cities sprawl because the federal government built roads out to the horizon. The exceptions are along the coasts, where U.S. cities would look more like Canadian ones in the absence of tight zoning laws. The increasing segregation of immigrants appears to be an effect of the above, rather than a cause. Of course, the great American ghetto is a striking and horrible thing, but we would have had them with or without freeways and zoning.

Invade Mexico?

 I’ve heard second and third-generation Mexican-Americans in Manhattan and El Paso call in frustration for the United States to invade northern Mexico. I did not expect to hear it from the Governor of Texas. (Hat tip: Gancho.) This is the same guy who has called for secession, and in the linked interview he doesn’t, well, come across all that well. “Shermanesque? Help me on that one,” said Governor Perry. When told that it meant that if nominated he wouldn't run, and if elected he wouldn't serve, he came back with, “How about Perryesque?”

 

But Governor Perry’s record of odd statements doesn’t make the idea less worth debunking. First, the U.S. is not menaced by what’s happening across the border. Second, while the U.S. Army is increasingly designed around counterinsurgency, that is not quite the same thing as policing, and it is hard to see what the soldiers would actually do. Conduct investigations? Arrest malefactors? Patrol streets? I’d favor allowing U.S. law enforcement personnel to operate in Mexico, but when Perry says “Any means we can to run these people off our border and to save Americans’ lives, we have to be engaged in,” you get the impression that he means something more expansive. Like a free-fire zone? It isn’t clear. Finally, well, Perry didn’t call for American troops to help reduce violence; he called on them to “defeat” the cartels. What does that mean? The complete disappearance of organized crime in northern Mexico? Well, by that yardstick, organized crime is undefeated in Texas.

In short, a non-threat, fought with unclear tactics, for a vague goal.

Border effects

 From Gancho, more evidence of the Sicilianization of northern Mexico. “In the face of the wave of violence afflicting the nation, bishops from various parts of the country, principally the north, have asked the Catholic hierarchy to avoid public religious ceremonies at night, in order to avoid putting worshippers at risk.” The article quoted one priest: “They [organized crime] use all sorts of ruses to extract money and extort from priests. When extorsion takes place, the bishops don’t admit it. There haven’t been kidnappings, but there is a lot of extortion. Only we don’t have any written documentation, each parish keeps its own records, but they talk about it.” Nuevo León, meanwhile, has created yet another police force to fight organized crime. It has more guns, but as Gancho points out, there is no evidence that they are going to be any more immune from corruption. Finally, in addition to yet another narcobloqueo in Monterrey, we’ve seen the second car bomb in the cartel war, this time in Ciudad Victoria. Nobody seems to have been hurt.

I want to repeat that there is no sign of the violence spreading across the U.S. border. The New York Times publishes articles under the series name, “War Without Borders” ... but when you read the articles, they say the exact opposition of the implicit argument in the series name. Consider this story. A violent Mexican drug fued in San Diego! Oh my God!! Except, well ... the SDPD pretty well wrapped up the oddly-named “Toothpicks,” who only managed to last as long as they did by not going after anyone who wasn’t neck-deep in crime themselves. Or consider this one. Corruption in the ICE! Except, once again, the corruption has a long history with no ill effects. “I do think that the public, for a while at least, needs to be assured that who we have at the border are 100 percent individuals of integrity,” said the judge in the corruption case highlighted in the story. Maybe the public does, but those who work in law enforcement do not.

There is a long economic literature on border effects. National borders seem to matter a lot, even when you might not think so, such as inside the Eurozone. (Catalonia, frex, trades a lot more with the rest of Spain than with France or Italy. The single market and EMU reduced but did not eliminate the effect.) Not only do borders retain their economic significance, even when governments try to open them, they retain an even larger political significance. Strong governments in Syria, Jordan, Saudi Arabia and Kuwait have kept a lid on the absolute chaos in Iraq. The U.S. has a stronger state than any of those countries, and the Mexican crime syndicates have far fewer incentives to extend the violence than did the Iraqi insurgents.

In short, there are many reasons for Americans to worry and worry greatly about the Sicilianization of Mexico. The fear of car bombs and hit squads in American cities is not one of them.