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9:45 am - Wed, Apr 16, 2014

Pop Quiz: Which Policy Is Worse?

Osage

If you are like most people, you probably spend a lot of time wondering, “What is the absolutely worst environmental policy on the planet?” And if you are like most people, you probably think it is America’s ethanol policy. So Virginia’s recent decision to subsidize what will be the largest ethanol plant on the East Coast might strike you as doubling down on the dubious.

Don’t be too hasty. We have some competition.

True, America’s policy of blending corn-based ethanol into gasoline is unbelievably awful. For decades, Congress lavished billions of dollars on fuel producers to encourage the practice. As a result, almost half the U.S. corn crop gets pumped into gasoline tanks. Owing in no small part to that, corn prices more than doubled from 2006 to 2011. This raised the price of food both for people and for animals that people eat, such as farm-raised pigs. As a result, notes Bloomberg Businessweek, “ethanol mandates have acted as an efficient way to funnel cash from the world’s disadvantaged to its agro industry conglomerates.”

So the mandate is bad for poor people. But at least it raises gasoline prices! For one thing, ethanol costs more to produce than gasoline. And when Washington replaced ethanol subsidies with a renewable-fuel standard, it set increasingly high – and increasingly unrealistic – targets for the amount of ethanol to be blended with gasoline. Since there is not enough ethanol to go around, some gasoline producers have to buy ethanol credits known as renewable identification numbers (RINs). The trading of RINs has driven their price sharply higher, which has raised prices at the pump.

(Bonus point: Federal rules are driving refiners up against a “blend wall” – the point at which the ethanol content in gasoline exceeds 10 percent. Using more than a 10 percent ethanol blend voids many car warranties.)

But ethanol is helping to stave off global warming, right? Wrong. Corn needs farming, and farming needs fertilizers and tractors and hauling and so on. In some cases ethanol production requires more energy than the fuel delivers to your engine. Analyses differ, but by some estimates ethanol actually raises carbon-dioxide emissions from the tailpipe 12 percent over non-ethanol blends. (Even the federal government – which imposes the mandate – concedes “the ethanol program has little effect on the environment.”)

Ethanol is therefore one of the few subjects on which all corners of the ideological map agree. U.S. ethanol mandates are “catastrophically idiotic” (Mother Jones); “costly and unnecessary” (the Heritage Foundation); and “blatant corporate welfare” (the Cato Institute). Aside from that, they’re great.

So naturally, last week Virginia Gov. Terry McAuliffe boasted that he had played “a significant role” in using state subsidies to revive a defunct ethanol plant in Hopewell, south of Richmond. Osage Bio Energy built the $200 million facility a few years ago in the hope of raking in federal incentives for turning barley into gas. That didn’t pan out, and the plant never even lit the boilers. Last year Vireol, a British firm, bought the plant, intending to disassemble it and ship it overseas.

But thanks to Riley Ingram, Hopewell’s representative in Virginia’s House of Delegates, the company is going to stay. He sponsored legislation ensuring that for the next three years it will get up to $1.5 million in state support to produce about 170 million gallons of ethanol. The company also will get a $250,000 state development grant, matching tax breaks from Hopewell, employee training incentives, and Enterprise Zone incentives. This is supposed to create jobs – if you don’t count the jobs that would otherwise be created if not for the economic inefficiency of all that government meddling.

Upshot? Virginia taxpayers will shell out millions to help make food and gasoline more expensive while making global warming worse. ’Twas a famous victory.

It’s hard to find a policy that makes less sense – but London’s Daily Mail has done so. According to a story it ran in March, vast swaths of North Carolina forest are being clear-cut to make wood pellets for use in Britain, which is supposed to almost triple its renewable-energy use in the next six years. Subjects of the British crown are paying hefty subsidies to underwrite the cost of shipping a million metric tons of wood pellets a year 3,800 miles across the ocean – the ships leave from Virginia ports – so they can be burned at the Drax power station in Yorkshire.

If you think that sounds incredibly inefficient, you’re right. It actually generates 20 percent more carbon dioxide than burning coal would – and twice as much as burning natural gas would. Meanwhile, the trees being mowed down to feed the insatiable Drax maw will take about a century to regrow. But since they do regrow, that technically makes wood pellets a “renewable” resource. (By that logic, so is coal.)

For this, British taxpayers shelled out more than 62 million pounds – about $100 million – in green-energy subsidies last year. Britain’s government also is going to make them pay 105 pounds ($176) per megawatt-hour for this “green” energy, which is seven times what they’ll pay for nuclear energy, which really does help reduce global warming.

Nigel Burdett, Drax’s environmental manager, explains why this is happening: “Our whole business case is built on [the] subsidy, like the rest of the renewable energy industry,” he told the Daily Mail. “We develop our business plan in light of what the government wants – not what might be nice.”

So back to the question at the start of this column: Which policy is worse? To answer that one, the judges might need to go to the videotape.

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12:54 pm - Wed, Apr 9, 2014

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3:07 pm - Thu, Mar 13, 2014

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10:16 am - Wed, Feb 19, 2014
And yet the Congressional Budget Office, now brimming with conservative credibility, has spent the last five years issuing report after report assailing the Republican position. Republicans weeping for the half-million or so jobs that would be destroyed by a higher minimum wage would be shocked to learn that, according to the CBO, they have destroyed 200,000 jobs by blocking the extension of emergency unemployment benefits (which lift the incomes of destitute workers, creating higher demand). Likewise, the budget sequestration they have embraced as their cherished second-term Obama trophy has destroyed 900,000 jobs. What’s more, the CBO has maintained all along that the hated stimulus saved millions of jobs.
Touche of the Day, from Jonathan Chait

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9:19 am
4 notes

Let’s Hear It for Price-Gouging

Snow, sleet, and freezing rain weren’t the only things to come down last week. So did a weather-related proclamation from Mark Herring. “Attorney General Herring Highlights Price Gouging Protections Ahead of Winter Storm,” it read. “Laws protect consumers from ‘unconscionable prices’ for ‘necessary goods and services’ during emergencies.”

Virginia’s Post-Disaster Anti-Price Gouging Act has now been on the books for 10 years — which is 10 years too long. The measure hasn’t been used often; Virginia last settled a case in early 2010, regarding an incident from Hurricane Ike in 2008. Still, every time the law is put to use — or even invoked — a few million brain cells die.

That’s because so-called price gouging during an emergency serves two very useful purposes: It keeps people from getting too greedy, and it makes strangers rush to help the stricken.

Take one of the price-gouging cases to arise from Hurricane Ike. Bill Stone, the owner of Bucko’s Pantry in Radford, Virginia, was accused of gouging customers because he briefly jacked up gasoline prices to as much as $5.99 a gallon. He did that because the supply he got from refueling trucks had dropped 70 percent, and demand was going through the roof.

“Area and state consumers were in what can only be described as panic buying,” ran a typical news report at the time. “The crunch at the Wal-Mart and some other local stations began Thursday night as motorists began topping off their tanks and filled cans of gasoline for their personal reserves.”

In fact, so many people in the region bought so much gasoline ahead of the storm that many stations ran dry. But Bucko’s didn’t run out, because during the short time its prices went way up, people bought much less gas there. Bucko’s high prices rationed gasoline in a highly efficient manner. If everyone had done the same thing, then consumers wouldn’t have hoarded fuel, and there would have been enough to go around for everyone.

Virginia passed its price-gouging law the year after another Hurricane — 2003’s Isabel, which slammed into the state hard and caused widespread power outages. Some people had generators, but many didn’t. So one enterprising Richmonder bought 18 generators in North Carolina to resell back home through the classified ads. Another man drove down from Buffalo, New York, to sell generators at more than twice their normal price. Jack and Kim Shepherdson drove up from Kentucky to sell generators and chain saws for which they could ask top dollar.

And it was a good thing they did — because many area hardware stores had sold out of generators even before Isabel roared through. The people who bought generators and other equipment from these “speculators” might have groused about gouging, but they still considered themselves better off after making the transaction than before. If they felt otherwise, then they wouldn’t buy. That’s why every such exchange is, to use a hoary business cliché, a win-win scenario.

Granted, charitable individuals and companies routinely rush supplies to disaster-stricken areas. Indeed, countless volunteer organizations exist for precisely such a purpose, and many more leap to lend aid in the most extreme instances. Such efforts rarely suffice to meet the aggregate need. Hence, high prices — price-gouging — act as a force multiplier by enlisting yet more help from people who are either unmoved by compassion or unable to give help for free. The high prices also give for-profit companies such as hardware stores an incentive to ship goods where they’re most needed.

This is Econ 101 for Dummies: Higher prices are a natural response to surging demand. They (a) impede consumption and (b) encourage resupply. Yet Virginia’s price-gouging act is written with the assumption that there is some magical line prices shouldn’t cross. Below the line, they are simply the result of regular market forces. Above the line, they are “unscrupulous,” “artificially inflated,” and “exploitative.”

Where is that imaginary line? Wherever politicians think it should be. And what makes them capable of making such a judgment? Well — nothing, really.

There’s another argument against price-gouging laws that has nothing to do with basic economics and everything to do with fundamental liberty: Government has no business dictating prices in the first place. A proprietor who wants to sell, say, AA batteries for five dollars apiece — or $50 apiece, for that matter — has every right in the world to do so. Just as customers have every right in the world to go someplace else.

Market transactions should be arrived at through mutual consent — not the threat of force. After all, if a proprietor has no right to set his own prices, then what possible right could some third party have to set them for him?

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2:28 pm - Wed, Feb 12, 2014
38 notes

The Lovecraftian World of Obamacare

Today’s column:

Obamacare’s conservative critics sure know how to make themselves look out of touch. From Sarah Palin’s 2009 warning about “death panels” to last week’s headlines that a new CBO report said the Affordable Care Act would kill more than 2 million jobs, the law’s critics keep telling whoppers.

Say this much for the critics, though: At least they’re just bungling the facts.

Facts are easy. You can check facts. What supporters of the law are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.

Christina and Timothy Sandefur offer a perfect example in the latest issue of Regulation magazine. The fine levied for failing to purchase insurance, they note, is a “penalty that’s a tax but doesn’t raise revenue.”

Cast your mind back to those halcyon days of yore, when the law was first being debated. Democrats were keen to insist, as President Obama did in an interview with George Stephanopoulous, that the penalty was “absolutely not a tax increase.” On the other hand, the law’s proponents worried the Supreme Court would not buy the line that Congress had the power to impose the levy under the Commerce Clause. (They were right about that.)

So they came up with the bright idea of calling the penalty an “excise tax on individuals without essential health benefits coverage.” That was pretty sketchy, since an excise tax applies to the purchase of goods, not to individuals who haven’t bought a good. But it worked: In 2012 the Supreme Court’s majority rescued Obamacare by agreeing to call the penalty a tax.

At the same time, the Court also insisted that the penalty was not a tax. This was the only way to get around the Anti-Injunction Act, which generally requires someone to pay a tax before he can challenge the collection of it. Since the mandate penalties originally did not kick in until 2014, that would have prevented the Court from ruling on the law’s merits until much later.

But wait, there’s more!

The Constitution says “all bills for raising revenue” must originate in the House of Representatives. But the ACA originated in the Senate, when Majority Leader Harry Reid took a House-passed measure, deleted its text, and substituted what became the Patient Protection and Affordable Care Act for the original bill.

The Pacific Legal Foundation is challenging the constitutionality of Obamacare on Origination-Clause grounds. In response, the Obama administration claims the ACA not only originated in the House, but also that it is — wait for it! — “not a ‘Bill for raising Revenue.’ ”

So is the penalty a tax or not? Answer: Pick a color between one and 10.

And this is only the beginning. Consider the ACA’s other controversial mandate — the contraception mandate, now being challenged by (among others) Hobby Lobby, a company called Conestoga Woods, and Little Sisters of the Poor, a Catholic charity. They do not want to be forced to provide or arrange for contraception, which violates their religious beliefs.

In response, Obamacare defenders could simply say that life is full of trade-offs, and ensuring access to free contraception is more important than religious liberty. Instead, they want to claim both sides of the argument by insisting that those who object to the mandate are the ones violating religious freedom. Not buying your employees contraception, their argument goes, violates the employees’ freedom of religion. How? Because, um … hey, look, a squirrel!

The other day The New York Times took this absurdity another step further. The paper argued — you might want to grab a chair — that not forcing companies to furnish contraceptives for their employees violates the Establishment Clause of the First Amendment.

Moving on: The Affordable Care Act says people who qualify can obtain subsidies to buy insurance through an exchange “established by the state.” Thirty-four states have no exchange of their own; they have exchanges established by Washington. This means the people of those states are ineligible for subsidies. According to the law’s defenders, though, the language of the law does not say what it says, because we all know what Congress really meant. Or something like that.

Which brings us to last week, and the CBO’s projection that Obamacare will induce more than 2 million people to quit working or cut back their hours to take advantage of the law’s subsidies. Conservatives initially misread this as saying the law would destroy 2 million jobs, which was wrong of them; employers will not lay off 2 million people.

But if conservatives were too quick on the trigger, what excuse do liberals have? Not content to point out the truth, they have tried to spin the news as good: Isn’t it wonderful that those who could work will choose not to so they can reap benefits from the shrinking cohort of the employed? Obamacare is liberating people from the tyranny of gainful employment! What could be better?

Answer: “a comprehensive national health care system and a guaranteed basic income,” according to Alex Pareene of Salon, because “people should be free from [lousy] jobs.” If they were, then they could “spend more time with their families,” enrich themselves, get educated, “and even just … [fool] around a little more.” (No word on who, exactly, will be left to provide the income in this non-worker’s paradise.)

A world in which nobody has to do unpleasant work is a world in which you ride to the park on a unicorn. But that is a world many of Obamacare’s supporters inhabit: a place where the individual mandate is both a tax and not a tax; where the First Amendment’s Establishment Clause requires religious people to violate their faith; where “the state” means “the federal government”; where taking a job is wage slavery, but taking a handout is freedom.

Makes you wonder what color the sun is there, doesn’t it?

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10:15 am - Thu, Feb 6, 2014
1 note

Government Now ‘Fixing’ Job-Lock Problem Caused by … Government

Progressive defenders of Obamacare have responded to the latest CBO report by trying to paint lipstick on it: The fact that insurance subsidies will lead some people to forego work, they say, is really a good thing! Because, you see, it “liberates” them from “job lock” — it’s “Freeing Workers From the Insurance Trap,” as The New York Times put it.

And why do we ostensibly need a government policy to free workers from an insurance trap?

Because other government policies created that trap in the first place:

To understand why, go back to the early days of WWII. The federal government’s sudden need for war materiel created a surge in demand. This had a predictable effect: Prices spiked. But as Robert Higgs recounts in Crisis and Leviathan, paying market prices would have required “a tax program of fantastic proportions” (as one Roosevelt-era administrator put it), or ruinous levels of debt. Washington chose Door No. 3: price controls in key economic sectors. The Emergency Price Control Act of 1942 stipulated that its aim was “to assure that defense appropriations are not dissipated by excessive prices.”

Artificially low prices — along with forms of non-price allocation such as selling scarce items to friends first — caused shortages, resentments, and the political allocation of economic goods. The result was rationing. But powerful lobbying interests ensured some goods, notably agricultural, enjoyed partial or full exemption from the General Maximum Price Regulation. Inflation in some cases reached 3.5 percent a month. So workers agitated for higher wages. But industry could not afford to pay higher wages without recouping the cost by violating price controls.

So Washington froze wages, through the Economic Stabilization Act of 1942. In April 1943, Roosevelt followed that up by issuing a “hold-the-line” order. And for good measure, the War Manpower Commission was given the power to prevent a citizen from leaving one job to take another job that paid better.

Unable to compete for scarce labor by offering higher wages, industry hit on the idea of offering health insurance instead. The practice might not have long outlasted WWII, but for further mistakes by Washington. In 1949 the National Labor Relations Board decreed that insurance coverage counted as part of wages, making it subject to union contract negotiations. Five years later, the IRS perversely ruled that the very coverage the NLRB called wages was, in fact, not taxable income. Result: A powerful government incentive to favor more insurance over bigger paychecks — and nationwide entrenchment of the strange idea that your employer should buy medical care for you.

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10:58 am - Tue, Feb 4, 2014

The GOP vs. the Free Market

Mother Jones reports that Republican state lawmakers around the country are trying to prohibit insurance coverage of abortion — not just through government exchanges, but in every policy whatsoever.

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1:19 pm - Thu, Jan 30, 2014
106 notes
Do minimum wages cost jobs? You be the judge.*
Here are the details:

There are seven European Union (EU) countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%.

* (And if you answer “no,” then surely you agree a carbon tax will not reduce carbon consumption, either.)

Do minimum wages cost jobs? You be the judge.*

Here are the details:

There are seven European Union (EU) countries with no minimum wage (Austria, Cyprus, Denmark, Finland, Germany, Italy, and Sweden). If we compare the levels of unemployment in these countries with EU countries that impose a minimum wage, the results are clear – a minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%; whereas, the average unemployment rate in the seven nations without a minimum wage is about one third lower – at 7.9%.

* (And if you answer “no,” then surely you agree a carbon tax will not reduce carbon consumption, either.)

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12:56 pm - Tue, Jan 21, 2014
5 notes

And we don’t want to fall further behind those more enlightened nations, do we?

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12:26 pm - Wed, Jan 8, 2014
35 notes

The Centrality of Mutual Consent

laliberty:

Free Markets are about Cooperation

Here’s a lovely little experiment anyone can run to demonstrate how the cooperative, trading economy makes everyone better off.

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11:00 am
26 notes
Presented with a devilish grin:
Obamacare: Worse than Walmart?

Presented with a devilish grin:

Obamacare: Worse than Walmart?

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8:55 am
17 notes

The Great Inequality Debate

Writing in Commentary not long ago, Seth Mandel drew out a nice point about the resurgence of the Democratic left: “Complaints over the last few years about the GOP being pulled to the right by conservatives,” he wrote, “were not about liberals’ desire to meet in the middle and compromise, no matter how much they might decry the supposed extremist drift of the right. What they wanted was their very own Tea Party.”

The Occupy movement briefly seemed to provide one, but it lacked the Tea Party’s staying power. Still, the passions that animated the Occupiers have breathed new life into the left, from the East Coast — where Bill de Blasio won election as New York’s new mayor on a promise to end economic inequalities — to the West, where Kshama Sawant, a member of the Socialist Alternative Party, won a seat on the Seattle City Council by campaigning for a $15 minimum wage.

Victories like those have inspired imitation: Several candidates in the Northeast have expropriated de Blasio’s “tale of two cities” theme for their own campaigns, and President Obama ended 2012 with a speech calling economic inequality “the defining issue of our time.”

All of this has the liberal commentariat rapturous. The abstract notion of equality is the lodestar of the American left, just as the abstract notion of liberty is the lodestar of the right. Or at least some liberty: Most conservatives care greatly about the economic kind, and the sight of an entrepreneur caught up in red tape enrages them. But certain conservatives care less about other kinds of liberty, such as the freedom of gays and lesbians to pursue their own happiness as they define it, or the freedom of a young black male in a hoodie to walk down the street with a bag of Skittles unaccosted.

Likewise, the left is selective in its ardor for equality. It is stirred by the cause of social equality for minority groups, and by economic equality for all. Other kinds of equality matter less — e.g., to evangelicals, the belief that we are all equal in the eyes of God is an immensely important social leveler. To at least the secular left, this solidarity of faith seems not only insignificant but potentially malignant — an “opiate of the masses,” as Marx called religion generally.

Even on the question of economic inequality, many on the left tend to focus only on one dimension: the gap between the rich and poor. Conventional liberal opinion holds that the gap is bad not only because of its consequences, but inherently — and the bigger the gap, the worse things are.

But that doesn’t follow. As self-described “liberaltarian” Will Wilkinson noted in a 2009 paper, U.S. inequality as measured by the Gini Coefficient (the most common measure of such inequality) is about the same as in Ghana. But being poor in the U.S. is much better than being poor – or for that matter rich – in Ghana. This raises another point Wilkinson makes, about consumption: When you look at how people actually live, what they have in the bank matters much less than their daily experience.

The difference between having a car of any kind or none at all is vastly greater than the difference between having a used Chevy and a new Porsche. And while the rich in the U.S. have gotten richer, so have the poor: Since 1979 the income of the poorest 20 percent of Americans has almost doubled, and market economics has provided them with riches, such as cellphones, once available only to the most well-off. This helps explain why the difference in happiness among income groups in the U.S. is vastly smaller than the difference in wealth. Which of those measures should matter more?

Focusing only on inequalities of result also ignores another important dimension to the question. Again, Wilkinson: “It’s not enough to identify a mechanism of rising inequality. An additional argument is required to show that there is some kind of injustice or wrongdoing involved.”

It is possible that inequality is rising because the system has grown more rigged. But as Mickey Kaus pointed out recently, while you would expect inequality in a rigged system, you also should expect it in a fair one: “Once the meritocratic centrifuge has sorted everyone out, there won’t be that many talented people at the bottom to rise in heartening success stories.” Divining how much truth there is in these competing narratives is vastly more complex than ideologues of any stripe would like to think.

Correcting inequalities caused by system-rigging is desirable, but “correcting” (as opposed to merely alleviating) inequalities caused by merit-sorting would actually be unjust. It also would require creating an inequality of a different sort: the inequality of authority.

Perpetual market interventions in the name of economic equality require a perpetual class of interveners who have the power to overrule the free choices made by everyone else.

Naturally, those coercive interventions require handing the levers of coercion over to progressives — which explains why this sort of inequality never seems to bother them in the slightest.

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10:27 am - Tue, Jan 7, 2014
12 notes

A nice point. I’ll leave it to you to look up the relative price elasticity of labor vs. energy…

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10:50 am - Mon, Nov 11, 2013
5 notes

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