American Elephants


The Interesting Relationship Between Online Business and American Retail Business. by The Elephant's Child

It’s pretty clear that online business is playing hob with retail in general. Retailers are hurting as consumers turn to online sources where they can get quick service, particularly from Amazon, and not have to go trailing through a mall to try to find what they need.

A story in the Wall Street Journal today exposes an uncomfortable relationship between the federal government and Amazon. “The U.S. Postal Service delivers Amazon’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.”

This arrangement is an underappreciated accident of history. The post office has long had a legal monopoly to deliver first-class mail, or nonurgent letters. The exclusivity comes with a universal-service obligation—to provide for all Americans at uniform price and quality. This communication service helps knit this vast country together, and it’s the why the Postal Service exists.

But people went online too, and first class mail is down some 40% from its peak. I contact many friends by email now, rather than writing a letter, and you probably do too. The post office still visits each mailbox each day, but there’s less traditional mail, so the service has filled its spare capacity by delivering more boxes. But when the post office delivers 10 letters and one box and a passel of junk mail to one mailbox how do they allocate the cost of the postal worker, the truck, and the network and systems that support the postal worker?

In 2007 the Postal Service and its regulator determined that, at a minimum, 5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.

Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors. My analysis of available data suggests that around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.

I don’t know which stores will be gone in a few years, or if they will survive. Right now, it’s clear that retail is hurting, and some retailers are in trouble. Will our malls survive? The federal government has”had its thumb on the competitive scale for far too long.” They need to stop picking winners and losers. I believe that the country will be better off if online and retail  compete and continue to survive.

I don’t know if the retail problems cover all kinds of goods or just some. Are Home Depot and Best Buy as much affected as say, Nordstrom and J.C. Penney? I need more evidence. Amazon just bought Whole Foods, in anticipation of making a big push for the grocery business, but Amazon is planning to build stores, where everything you select is tallied up automatically on your card as you take it off the shelf. We tried Amazon’s online groceries when too sick to get to the store, and it was prompt and  good service. Someone remarked that they saved money because they weren’t tempted with impulse items online. I prefer to go to the store.

The Government is subsidizing Elon Musk as he has fun with new engineering ideas, but Tesla is running into major problems, and solar is turning out to be a flop, just as his first experiments with this big vacuum tube thing for moving people has had it’s first success in a miniature version. All very interesting, but I don’t understand why he gets government subsidies. One might assume that we got an early lesson with Solyndra.

 



The Art of Getting Rich on the Taxpayer’s Dime by The Elephant's Child

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Big Solar developments depend on government subsidy, and if the subsidies end, the solar project usually ends as well. Greens deny that, but that’s the way it happens all over the world.

We are about to have proof once again:

Elon Musk’s SolarCity stated Wednesday it will immediately cease operations in Nevada after a state commission voted unanimously to repeal taxpayer support for the rooftop solar industry.

“If the Nevada Public Utilities Commission’s [PUC] proposed decision is accepted tomorrow it will destroy the rooftop solar industry in one of the states with the most sunshine. There is so much wrong with the decision, [sic] the only option for the PUC is to reject it,” Lyndon Rive, the CEO of SolarCity, writes in a Monday statement. “If the PUC approves this proposal, it will force SolarCity to cease sales and installation operations in Nevada.

Elon Musk received a $1.4 billion in taxpayer support from the state of Nevada to build a “gigafactory” for Tesla Motors. That must be a thrill for Nevada taxpayers to help out in producing the glamorous Tesla Roadster — prices start at $101,500 and options are extra.

But Solar City is a different operation. They also got a big incentive to move to Nevada. The commission’s decision will gradually reduce the subsidies over the next four years, so it is not abrupt, but a gradual reduction. But Solar City has a history of threatening to pull out of states who end their support. They play hardball.

Solar subsidies in the U.S. go to support a 30 percent tax credit for residential solar. Companies like Solar City install rooftop systems which usually cost a minimum of $10,000, at no cost to the consumer. This huge bargain is actually profitable because the subsidies from the state and federal government are so massive. A MIT study concluded that rooftop solar subsidies are inefficient and costly and the companies cannot compete without government support. Of course company profits are a cost of doing the subsidized business.

Would be fun to see your big ideas brought to fruition with the government financing the whole deal. Please explain how this is a good deal for the taxpayers who don’t get a choice about whether or not they want to pay for it. Solar power gets 326 times more subsidy than conventional energy producers. In 2013, only $1.7 billion went to support nuclear power. And the EPA went to work trying to end coal-fired power plants. For all that, solar power amounted to only 0.4 percent of the electricity generated in the country. Note that is not 4%, but 4 tenths of one percent!

Ideology may trump common sense if you are convinced that using “natural” energy is the only way to save the world from catastrophic climate change, rising seas, all that bit; but you have to be remarkably obtuse and weak in basic arithmetic to go for this kind of deal. No wonder Democrats want big unaccountable government. It’s how they all get rich. The feds gave the solar industry another five-year tax credit extension last week.

Solyndra, Ivanpah, SolarCity and lots of other scandals are mounting up. You’d think someone would notice and put a stop to it.




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