June 8th, 2010

worst case

I shall contemplate the word "worst": most severe, most inferior, unfavorable.

There are people out there trying to get a handle on the "worst case" scenario for BP. Which is interesting, because the worst thing that can happen to a corporate entity would appear to be the end of its existence -- and that's not nearly as bad as what has already happened to a lot of other people. But as long as there's so much focus on money, what _might_ BP wind up forking out?

Clearly, back in April was not a good time to go on record with an estimate:

http://www.bloomberg.com/apps/news?sid=a9Vy2SP9bRVs&pid=20601087

$8 billion seems way cheap now, doesn't it?

Here are a few assumptions I am not seeing anyone making. For spill rate:

http://www.sciencenews.org/view/generic/id/59381/title/BP%E2%80%99s_estimate_of_spill_rate_is_way_low,_engineer_suggests

100K barrels (not gallons) sounds pretty good).

When will it be capped? Not before August, and lucky if we get it soon anyway; let's go with the Ixtoc 10 months and round up to a year.

Cost? Let's just use the max fine through the Clean Water act which has been batted around: $4300/barrel of oil.

100000 * 365 * 4300 = 156,950,000,000

Call it $160 billion. For the fine.

[ETA: This analysis is pretty flawed. To get to $4300, you have to have "gross negligence". I suspect that might involve a judge. $1100 without gross negligence, bringing us back down to just over $40 billion.]

I think that hundreds of billions of dollars is approximately the right order of magnitude for the dollar cost of the impact of the oil spill. In the first year. If there is a substantial and ongoing impact on wetlands, fishing and tourism in the gulf for over a decade (tourism never recovers, hurricanes are much more damaging because of the loss of salt marsh, the fish and shellfish have so many tumors or missing pincers or whatever that you can't sell them to anyone), a trillion dollars seems inevitable.

I know oil companies make a lot of money, but just the EPA fine could be 3 years worth of _operating_ profit for BP. This is why Obama is incensed about BP paying dividends -- BP is trying to support its stock price, the exact same way GM and a host of other poorly run, bloated, evil companies have in their last days, with money that will be needed to pay the externalized costs of something they haven't even stopped doing.

I've been amazed a the reluctance of media to accept this reality; no wonder BP is still in denial. Here's Sorkin's take on it (reminding me once again why I am so utterly underwhelmed by Sorkin):

http://dealbook.blogs.nytimes.com/2010/06/08/sorkin-imagining-the-worst-in-bps-future/

And he assumes that to get to hundreds of billions you'd need a jury verdict, something that would be years in the future, highly negotiable and potentially knock-downable for a decade or more to come. I don't think it would. I think you could get to the second hundred billion with a fine.

Here's what everyone _ought_ to be thinking about. If we get through the end of this, fine BP out of existence (or forced into a merger with some other big oil company, or into some BK restructuring to make all their other creditors wait until they make enough payments on the fine or whatever), and create some insurance scheme to make sure this gets paid for if/when it happens again (to go with the regulatory apparatus, of course) -- you know, like making banks pay into FDIC in case they go under. How much will every oil company be paying to come up with enough money to make that viable? That's going to get passed along (_as it should_), and hopefully one of the effects of that would be to encourage a lot of conservation on the part of end users and foster a market for entrepreneurs to come up with new ways to conserve that maintain our current quality of life.

We have a lot of paths going forward. We could just never do any more drilling anywhere near our shores again (altho today's second spill may have happened in the context of capping a well that would no longer be producing -- so just halting all activity is not totally risk free, either), exporting the problem to some other part of the world. We like that whole export the nasty stuff. Sort of like a North American NIMBY. There are some risks -- those other people might be reluctant to sell us stuff, or they might jack the price or whatever. We could continue to drill, and raise the price by insisting it be done safely (or more safely, in any event), and look over the private companies shoulders and try to convince them through safety inspections and rules to actually behave -- increasing our cost to govern and their cost to deal with governance, but always at risk that one day the regulators will be told to ignore problems (we saw how that went under That Asshole), or just won't anticipate something, leaving who knows to pay for goddess help us all. We could do as I suggest above: require industry to participate in funding pre-emptively cleanup (including research in how to do cleanup better).

Everything raises our costs. Everything. The whole point of this increase production thing is in obedience to supply and demand: if there is more demand, increase the supply to keep prices stable. But as long as oil and gas are predictably available and stably priced in the right zone, it's hard to do the difficult work of switching over to a different energy regime.

So what _is_ the worst case? I think the worst outcome here would be if BP figures out a way to get this thing capped quickly, and the little microbes out there ramp up beautifully and eat up all the oil, and the dispersant doesn't do too much damage, and the bird and fish and whatever populations start to look more normal and recover numbers, say, 2-4 years out. If all that happens, and we pass a bunch of laws about how to prevent future accidents, and we figure out a funding mechanism, and the oil companies all cooperate and stay profitable enough to stay in business and the oil keeps flowing and we keep doing what we do. And we all pat ourselves on the back and say, wow, that turned out okay.

That'd be pretty bad. Because if any of those prevention strategies failed, we might be back doing this all over again. Without an idiot like Tony Hayward to abuse as an easy target. We'd only have ourselves to blame.

explain this without using the words stupid or hypocrite

p 182 _Married to the Mouse_"

"An opponent of raising the legal minimum wage, [president of the Orlando Chamber of Commerce Jacob] Stuart nevertheless thinks $10 an hour is the minimum acceptable wage in Orlando. "Anything less and we're paying it anyway in subsidies for health, transportation, housing, and food stampes," Stuart says."

Citation is an author (Richard E. Foglesong) interview September 1, 1999.

How can Stuart simultaneously believe that you shouldn't raise the legal minimum wage, but you should still have a minimum wage higher than the legal minimum wage? Without being a stupid hypocrite, that is.

_Married to the Mouse_, Richard Foglesong

I bought this in February 2007. That is, before R. bought me a kindle that Christmas, after it was released in November. So I don't feel too bad that my copy is a very nice used copy, instead of the kindle version which is now available. That kindle version startled me: the publisher is Yale University Press and this really is an academic book. OTOH, it's about Disney; these things probably move pretty good as academic works go.

I bought this around the time we took a very long trip to Disneyland (yes, the one in California). I was buying a whole bunch of Disney Studies books, some of which I tried to read, and some of those I finished and loved (notably, _Tinker Belles and Evil Queens_, a fantastic and wonderful book in every way). This one I tracked down based on a sort-of recommendation from R. (he couldn't remember the details, so I only believe I found the one he was thinking of, which he had not read, but had heard author interviews around the time it came out, IIRC).

_Married to the Mouse_ is written by a professor of politics (that's what the blurb says) at Rollins College, which is located in Winter Park, Florida, a small town very, very close to Orlando with a very, very different set of ideas on how to manage growth. It shows. Foglesong is using the arrival of Disney and the development of the World in Orlando/Orange County/Osceola County as a case study in whether politics is driven by ideas/impersonal influence or more path dependent based on individual action. This would make more sense to someone who has more of a clue about political science ideas than I do. The title refers to the central conceit of the book: the relationship between the World and the Real World is like a marriage; the chapter titles start with "Serendipity", "Seduction" and include "Marriage", "Abuse", "Therapy" among others. Basically, central Florida was appealing to Disney because it had cheap land in all directions and was on the East Coast and Orlando specifically was great because a major N/S route and a major E/W route went through it, and it had good access to some other major feeders from the north as well. But Disney had other options at that point; Florida did a lot of what Disney wanted (to guarantee near total autonomy for the foreseeable future) in order to get Disney at all. The question Foglesong is exploring is why government in the area has been unable to level the playing field in the decades since then.

Foglesong is an advocate. He makes a very good case that the tax structure in the area is inadequate to mitigate the problems associated with the kind of growth that Disney brought -- and that the weak government of the area means that what tax money is in the area tends to get captured by Disney (and Universal, eventually) disproportionately for their own benefit. The problems in question (competition with Orlando's downtown, a very low wage population, huge traffic and other impact caused by the theme parks that aren't adequately balanced by revenues from the tax structure) are serious and long-standing. But the solutions he proposes are far from compelling, either from a is-that-likely perspective or from a would-that-even-be-a-good-idea perspective.

So there are problems: a weird central structure (the marriage analogy), a very political-sciency thesis (path-dependent or not) somewhat at odds with the overall thrust of the book (that the local governments are Doing It Wrong and Should Change and Here's How). But it is really an interesting book and this guy did some great research. As people writing about Disney, he's pretty balanced.

I posted earlier about a possible mag-lev from MCO to Epcot, and prior to that a Magical Express Monorail ditched because it was too slow. I didn't get into the political debates described by Foglesong in the Eisner-era and later, in which Disney's desire to get people on property and Never Let Them Leave interfered with public policy in a variety of ways; this is some of the best analysis in the book and worth thinking about, and thinking about whether similar things make it hard to develop public transit or public/private partnerships to develop transit in other areas as well.

Another tidbit: Florida subdivision developers in the 1970s would often develop a minimalist water/sewer package plant. It was beyond capacity and failing by the time all the houses were sold and they turned the plant over to the county, which was then stuck spending a lot of money to provide those services, often discontinuous with the rest of development. They knew they wanted compact development; they had inadequate governance to make it happen.

Amazingly stupid quotes: I already mentioned the minimum wage comment. On p. 105-6, "Said Aaron Dowling, assistant executive director of the East Central Florida Regional Planning Council, in 1983: "A dozen years ago, we thought growth was good because it produced new taxes. We didn't consider the cost of the services that went along with it.""

Tantalizing side commentary: p 192, "in Orlando's branch plant economy [!!!], in which the newspaper, major banks, and largest employer (Disney) were all externally owned and controlled". Associated with that is the observation that the World is a huge chunk of Disney's money -- but that money isn't staying in the state.

In the back of my head, I couldn't help but think that if I lived in a part of the world where I had the choice of (say) working for Wal-mart or working for Disney, judging from what I've read from people who have held those jobs, Disney sounds like a better deal. And that may fundamentally be one of the toughest problems Florida is up against. As long as what Disney is offering is better than other regionally available choices, it is going to have a lot of defenders.

the World and urban design and planning

Foglesong spends some time on the little film showing Walt and the little model of the planned community that was EPCOT but that Epcot bore no obvious relationship to. Foglesong does a fantastic job of laying out how that film got shown over and over and over again to convince Florida to create Reedy Creek and two cities with virtually no population that would be totally controlled by Disney in a highly undemocratic manner -- and how most of the powers involved already existed in Florida law long before Disney came along; they just hadn't been assembled in that particular way.

I had not previously seen this analysis or anything quite like it (I have high confidence that it is accurate) and it explains a lot. Among other things, it helps explain the bizarre dissonance between what analysts said about the World when it first opened (a new kind of town! we should Learn How to Fix Our Cities from Disney!) and the reality (no one lived there. Okay, slightly fewer than 4 dozen people live there. Not much of a town when no one lives there.). The absolute importance (legally) to Disney of maintaining its autonomy by having no (other than the trusted 43) voting residents also sheds an interesting light on DVC -- which is a way to have a substantial population that lives there without having a legal residence there. And Disney is _damn_ careful to make sure you can't start living in your not-really-a-timeshare: they limit the number of points you can buy in one resort, they further limit the number of points you can buy through the club, and the paperwork you sign makes you promise this isn't going to be your legal residence. If you lived there, you could vote. If more than 43 people did that, they could vote in a new government in Reedy Creek/whatever those two towns are. And all of a sudden, Disney wouldn't be running it any more.

A lot of Disney's vision was changed over the decades: there's alcohol in the parks now (altho not MK) and there are way more hotels. Foglesong points to the hotels as creating a lot of conflict with the Real World in the surrounding area, because it so thoroughly encouraged Disney to try to lock down their guests and not let them leave the place to eat/shop/be entertained elsewhere. But while Eisner implemented it, the desire to do this was always implicit in Disney v. 2. They hated not controlling everything in Disneyland; this was their chance to really go for it.

Foglesong thinks that an effort should be made to collect more impact fees from Disney, and to make some changes to the tourist tax so it isn't so readily captured by low-wage-job generating entities like Disney and Universal, and to push for more employer assistance on housing costs. He'd also like a living wage law, and to quit subsidizing the theme parks at the expense of downtown (there's a classic: this is every city's Suburban Mall V. Downtown problem of the last fifty years. Writ Really Really Large). While I don't necessarily think those are bad ideas, he's made a very compelling case that central Florida governance is not very likely to step up and actually do it. Which raises a host of interesting questions that Foglesong doesn't go anywhere near.

Like: cars are really expensive. They are expensive to cities, who have to build roads, and may supply parking. They are expensive to people, who need to buy, maintain and store them. They are expensive to businesses, who have to supply parking. If you have an entire population (and Foglesong makes a solid case that the population of the Orlando area is Working Poor, on average -- to the point of collecting housing assistance and/or food stamps even while fully employed) that can't afford a conventional US lifestyle, getting rid of the car is one of the major ways to make ends meet. There's some evidence that the tri-county area has been trying to make it possible for the Working Poor to not have a car/use their cars less/whatever by providing bus service to the low wage jobs created by the theme parks and along I-Drive. Along with a large chunk of the rest of the country, they're also putting together commuter rail on existing freight lines and creating intermodal stations. They're making at least a minimal effort to support downtown entertainment with a Church Street station for SunRail.

Not very exciting, providing buses. But given how excited I got about the actuality of a motor coach in 2010 (vs. the hypothetical of a mag-lev in 1989), maybe buses are a pretty good thing. If only political science people gave them a little more respect. (Or, for that matter, guidebooks.)

For all the bumbling incompetence in negotiating with Disney that Foglesong documents in _Married_, Orlando Housing Authority would appear to be doing about as good a job at providing public or section 8 housing as anyone else, perhaps much better -- it's tough to say from a surface check on the web from a long ways away. There would appear to be a lot of income restricted buildings in areas where the schools seem to be okay and the crime rates don't look ridiculous -- if the whole area is working poor, it's hard to imagine being one of the many would be particularly stigmatized.

One of the problems with working (and perhaps living) as a professor in Winter Park and writing about the rest of the Orlando area is the Standard Issue Middle Class Bias: living in a house you own, having a job with benefits, having an advanced degree, blah, blah, bleeping, blah. There are perfectly nice, wonderful people who have fulfilling lives while living in an apartment you rent, having a job with not as great benefits, not having a college degree, blah, blah, bleeping, blah. I'm okay with advocating for better things all around, but if you don't even bother to think about the mechanics of how these two different life trajectories work, you're going to suggest solutions that are unlikely to work.

Also, you produce things like this:

http://orlando.bizjournals.com/orlando/stories/2010/04/19/daily16.html

There's nothing particularly ridiculous about this compared to any number of other stories that take statistical data about income and housing prices and produce medians across very large metropolitan areas around the country and then compare them. They're _all_ ridiculous, because they treat a city like Buffalo or Rochester (wonder what fraction of the population of either rents an apartment) to cities like Orlando (wonder what fraction of the population of Orlando rents an apartment?). A city in which everyone buys must necessarily have a low ratio of income to single-family home purchase price. A city in which most people rent will similarly almost inevitably have a high ratio of income to purchase price. Standard Issue Middle Class Bias suggests that the problem is the relationship of income to purchase price (raise income, lower purchase price, reduce interest costs, provide downpayment assistance, reduce requirements on mortgages, blah, blah, bleeping, blah). It would be more useful to know what the people renting are paying and how _that_ relates to their income. Because _that_ is what they care about. Today, and tomorrow, and for the foreseeable future. If that rent is too high to support a safe life in which they can get their kids educated, they for damn sure won't be saving money for a downpayment. More importantly, they might be unsafe, their kids might not get a good enough education, and they might be skimping on things like health care.

If you read all that (wow! Thanks!) and think the subject line is wrong, I'd just note that a whole lot of urban design and planning people would agree with you. And _that_ is a pity.