Russell's Blog

I propose a ballot initiative to amend California's constitution to end ballot initiatives. Who's with me?

I like the idea of a little direct democracy, but it if I'm going to be expected to cast votes on these damn things all the time, then I want my damn legislator's salary. The initiative process should be reserved for extremely serious problems, like succeeding from the union if the Republic gets overthrown by evil blob aliens, or whatever.

What should be proposed, exactly? What if initiatives needed to pass at 66 percent? Or maybe if we required that a third of all California voters sign the petition to get it certified? How do we get rid of these damn things?

Continuing on yesterday's theme, here is another thing that is stupid: Tax cuts. Now, I don't especially like paying taxes, but if given the choice, I'd take a raise over a tax cut any day. A pay raise for me means that not only am I wealthier, but everyone is wealthier. A tax cut means I'm getting a little wealthier at the expense of others.

But that's just my personal preference. Others may feel differently. However, there is another very simple economic reason why tax breaks are a stupid way of encouraging businesses, especially new industries. As Todd Woody writes, if you give a generous tax break to a small company, it often doesn't have the income to take advantage of the incentive. So, it has to form a tax equity partnership with another company that can use the tax break. With the credit markets screwed up, and Wall Street burning equity like books at Bebelplatz, it's gotten pretty damn hard to put together tax equity partnerships. Not to mention that if you are big company taking large losses, your writeoffs probably provide all the tax relief you need.

Under good conditions, the senior partner in the tax equity partnership often stands to gain a lot more than the junior partner, and the incentives end up helping the wrong people. Under current conditions, few companies are lucky enough to actually need a tax equity partnership with a scrappy little solar company with big plans. End result: a lot of those tax breaks are worthless to the people they are intended to help. Worse still, the more urgently the help is needed (like when the economy stinks), the more useless the tax breaks become.

So, enough with the tax breaks. They are stupid. If the government wants to help establish a new industry, as it did with semiconductors, the internet, and electricity, there are much more sensible options. For example :

• Invest directly, especially in R&D.
• Establish public trust funds to take equity positions in promising companies.
• Agree to buy the product at a predictable price.

That last one is probably the most important right now. The federal government is huge. When it makes significant purchases, it is big enough to jumpstart whole industries. That is how the semiconductor industry got off the ground. If Congress wants to get the solar, wind and geothermal industries rolling, it should simply agree to buy all the electricity they can make, and to hell with tax incentives.

While I'm greatful that Peet's Coffee and Tea provides Wifi for people who buy coffee from them, I think their censorship software is very, very stupid. Take this salacious image, for example :

SonicWALL brilliantly flags this as 'Pornography.'

Seriously. This is a huge waste of everyone's time and money just to make sure nobody sees any boobies.

I was wondering how we'll know when the credit crisis is over, and I thought I'd share my gloomyness with you, dear readers.

The Big Money people invested vast amounts of capital in malls and condominiums, and now they have to come to terms with the fact that these things are not productive assets. All of that capital was blown on green lawns and shiny baubles, instead of invested in equipment and training. Now the capital is gone, with nothing to show for it but a bunch of luxury stucco boxes in the desert with no schools, no jobs and no water rights.

You'll know we're near the end of it when they start bulldozing abandoned subdivisions and planned communities. That's the reality of the situation; we built too much housing, we built housing of the wrong type, at the wrong size and scale, with the wrong materials and the wrong technologies, and we built it in the wrong places. Until Americans face that reality, the financial system will stay broken. But once the bulldozers get to work, you can be pretty sure that the reckoning is underway, and the stock prices you see are close to honest.

The metric for recovery that I'm keeping in my head is this; when it becomes profitable in Southern California to buy up a bunch of crappy houses, tear them down, plant some orange trees, and sell the oranges, then we're good.