Posts tagged ‘cars’

Perfect Example of Blaming the Free Market for Government Interventions

Hillary Clinton, along with many politicians and most of the media, is arguing that the recent large price increase in Epipens is some sort of market failure requiring government intervention to solve.

Democratic presidential nominee Hillary Clinton jumped into the fray over rapid price increases for the EpiPen, a life-saving injection for people who are having severe allergic reactions.

Mrs. Clinton called the recent price hikes of the EpiPen “outrageous, and just the latest example of a company taking advantage of its consumers.”

In a written statement calling for Mylan to scale back EpiPen prices, Clinton added, “It’s wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.”

Why aren't similar government interventions required to curb greed in the pricing of paint, or tacos, or toilet paper?  Because the markets are allowed to operate and competitors know that if they raise prices too high, their existing competitors will take sales from them, and new competitors may enter the market.  The reason this is not happening with Epipens is that the Federal government blocks other companies from competing with Mylan for the Epipen business with a tortuous and expensive and pointless regulatory process (perhaps given even more teeth because Mylan's CEO has a lot of political pull).  The MSNBC article fails to even mention why Mylan has no competition, and in fact essentially assumes that Epipens are a natural monopoly and should be treated as such, despite the fact that there are 3 or 4 different companies that have tried (and failed) to clear the regulatory process over the last several years with competing products.  Perhaps these other companies would have been smarter to appoint a Senator's daughter to a senior management position.

Hillary Clinton is proposing a dumb government intervention to try to fix some of the symptoms of a previous dumb government intervention.  It would be far better to work the root cause instead.

Postscript:  Credit Vox with the stupid argument of the day:  

Other countries do this for drugs and medical care – but not other products, like phones or cars – because of something fundamentally unique about medication: If consumers can’t afford the product, they could have worse odds of living. In some cases, they face quite certain odds of dying. So most governments have decided that keeping these products affordable is a good reason to introduce more government regulation.

Hmm, let me pick a slightly different example -- food.  I will substitute that into the Vox comment.   I think it would be perfectly correct to say that there is not price regulation of food in the US, and that "If consumers can’t afford [food], they could have worse odds of living. In some cases, they face quite certain odds of dying."  In fact, the best place today to face high odds of dying due to lack of food is Venezuela, where the government heavily regulates food prices in the way Vox wished to regulate drugs prices.

The Terrible Idea That Won't Die: Solar Roads

From Engadget:

Solar Roadways' dreams of sunlight-gathering paths are one step closer to taking shape. Missouri's Department of Transportation is aiming to install a test version of the startup's solar road tiles in a sidewalk at the Historic Route 66 Welcome Center in Conway. Okay, it won't be on Route 66 just yet, but that's not the point -- the goal is to see whether or not the technology is viable enough that it could safely be used on regular streets. You should see it in action toward the end of the year.

The tiles will be familiar if you've followed Solar Roadways before. Each one combines a solar cell with LED lighting, a heating element and tempered glass that's strong enough to support the weight of a semi-trailer truck. If successful, the panels will feed the electrical grid (ideally paying for themselves) and make the roads safer by both lighting the way as well as keeping the roads free of rain and snow. They should be easier to repair than asphalt, too, since you don't need to take out whole patches of road to fix small cracks....

As the Transportation Department's Tom Blair observes, it would be odd to push self-driving cars in the state's Road to Tomorrow initiative when the streets aren't as smart as the vehicles using them.

This has so much stupid in it, I don't even know where to start.  First, solar roads are a terrible idea.  Even if they can be made to sort of work, the cost per KwH has to be higher than for solar panels in a more traditional installations -- the panels are more expensive because they have to be hardened for traffic, and their production will be lower due to dirt and shade and the fact that they can't be angled to the optimal pitch to catch the most sun.  Plus, because the whole road has to be blocked (creating traffic snafus) just to fix one panel, it is far more likely that dead panels will just be left in place rather than replaced.

And who in their right mind would ever accept the statement that the solar panel roads would be cheaper to fix than a roadway?  What agency anywhere takes out whole patches of road to fix small cracks?  Square foot for square foot a solar road would be orders of magnitude harder to fix than just patching a pothole somewhere.

I love the line about "ideally" paying for themselves.  I am sure this is their ideal, but what is the reality?  I will bet anyone a million dollars that if all installation and maintenance costs are included, these will not come close to paying for themselves.  The first rule of alternate energy in any news article is to give the installation cost or the energy output, but never both, so actual return on investment can't be calculated.  If they give neither, as in this case, it really sucks.

And finally, what is not to love about the last paragraph, which says effectively that roads should be as smart as the cars that drive on them.  I have toyed with the idea of creating a whole new blog category on things people say that get millennials excited but make absolutely no sense.  This would be a good example.  Embedding solar panels in a road when just about any other flat surface anywhere would be a better place to put them is not "smart", it is painfully stupid.  A smart road might embed guide wires or some other technology to aid self-driving cars, but nothing like this.

Tesla and SolarCity: Two Drunks Propping Each Other Up

This is honestly one of the weirdest acquisition proposals I have seen in a long time:  Elon Musk's Tesla offers to buy Elon Musk's Solar City.

This makes zero business sense to me.    This is from the press release:

We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.

I am sure there are probably some hippy-dippy green types that nod their head and say that this is an amazing idea, but any business person is going to say this is madness.  It makes no more sense than to say GM should buy an oil production company.  These companies reach customers through different channels, they have completely different sales models, and people buy their products at completely different times and have no need to integrate these two purchases.  It is possible there may be some overlap in customers (virtue-signalling rich people) but you could get at this by having some joint marketing agreements, you don't need an acquisition.  Besides, probably the last thing that people's solar panels will ever be used for is charging cars, since cars tend to charge in the garage at night when solar isn't producing.

One might argue that some of the technologies are the same, and I suppose some of the battery and electricity management tech overlaps.  But again, a simple sourcing agreement or a battery JV would likely be sufficient.

So what do these companies share?  I can think of three things.

The first is Elon Musk.   When one sees a deal like this, one is immediately suspicious that there is some kind of game going on where the owner combines holding A with holding B and somehow in the combination ends up with more wealth.  This is a game conglomerates played in the 1960's -- you could create a lot of (paper) value if you had a high PE (stock price to earnings ratio) company and went around buying low PE companies, instantly creating paper wealth if you could buy their earnings cheap and then have them suddenly valued at your higher PE.   Its hard to guess if this sort of game is going on here, as neither company has earnings (or rather both lose a lot of money).   Further, I have no read on Mr. Musk's personal ethics.  If this were Donald Trump, we would all immediately be suspicious such a game was at play.

The second thing these two companies share is that they have business models based on consuming massive amounts of government subsidies.  They get subsidies directly (each by selling various sorts of tax credits or fuel economy credits to power companies and auto makers), they have both gotten sweetheart deals from governments for production facilities, and their customers get subsidized as well in the purchase.  However, while there certainly are economies of scale for cronyism (large companies have the pull to get the loot), I shudder to think that there might be even more for these two companies to grab if they were larger.

The third thing these two companies share is that they both have huge financing needs, are losing lots of money, and are burning through tons of cash.   And here I think is the real heart of this deal, and if I am right, we may be able to answer the question on Elon Musk's ethics.  While both companies are burning through cash and are constantly going out to the market for more money, Tesla still has a (not totally justified in my mind) fabulous reputation with investors** and people seem to be falling over themselves to throw money at it.  With Apple languishing and Google old news, there is no hipper, trendier company out there.   On the other hand, SolarCity is starting to suck wind.  A few months back JP Morgan downgraded the stock:

SolarCity is having trouble attracting new investors, as the company has launched and canceled programs and altered its accounting methods, JPMorgan wrote in a note, according to MarketWatch.

Additionally, some of SolarCity's lower-income customers could be at risk of "slow-pay or default in the event of an economic downturn," the firm continued.

...SolarCity's weaknesses include its generally high debt management risk, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.

They are also seeing more competition from local contractors and, perhaps most worrisome for their business model, various government subsidies are being scaled back and many states are changing their power metering rules to pay customers only the wholesale rate, rather than the retail rate, for power they put back in the grid.  They have said in most of their annual reports as a risk that their business model likely would not be viable (if it could be called that even today) without current or higher levels of government subsidies.

I have no inside information here, but this is the best hypothesis I can put together for this deal.  SolarCity has huge cash needs to continue to grow at the same time its operating margins are shrinking (or getting more negative).  They are having trouble finding investors to provide the cash.  But hey!  Our Chairman Elon Musk is also Chairman of this other company called Tesla whom investors line up to invest in.  Maybe Tesla can be our investor!

The reason I call this two drunks propping each other up is that Tesla also is also burning cash like crazy.  It is OK for now as long as it has access to the capital markets, but if it suddenly lost that, Tesla would survive less than 6 months on what it has on hand.  Remember, SolarCity was a golden child just 3 years ago, just like Tesla is today.  Or if you really don't believe that high-flying companies that depend on access to the capital markets can go belly up in the snap of a finger when they lose their luster with investors, I have one word for you:  Enron.

There is a substantial minority of the investment community that thinks that Tesla's headed for chapter 11, even before taking on the SolarCity albatross.  Here is one academic paper.  Here is another such opinion.  Non-GAAP reporting has proliferated like a cancer among public companies, with so many creative non-GAAP numbers that I am not sure the Enron folks would go to jail nowadays.  Tesla is a master of this game.    Even if Tesla is not headed for chapter 11, the absolute last thing Tesla needs to be doing is taking on a new acquisition that burns a lot of cash, while simultaneously diluting their management focus.

When I watch SpaceX launches, I so want to love Elon Musk.  But I am increasingly convinced that this is a terrible deal, an insider game he is playing to try to keep one of his investments alive.  I am seldom a fan of most minority shareholder lawsuits, but if I were a minority shareholder of Tesla I would be suing to block this acquisition.

By the way, many investors must be reading this the same way, because SolarCity stock prices are up and Tesla stock prices are down (at lot) today.

Disclosure:  I have been short Tesla for a while.  I shorted SolarCity this morning when the acquisition was announced, after its price popped up.  I consider this merger announcement as the moral equivalent of announcing that SolarCity is in financial distress.  These investments are tiny, the equivalent of a bar bet rather than any substantial investment on my part.

**Footnote:  I have to say this every time -- The Model S is a great car.  I would love to have one, if Santa put it under the tree for me.  But just because they have one great product does not mean that the company will be a success or is a great investment or that it is worth massive amounts of my tax money in subsidies.

The US Has The Best Rail System in the World, and Matt Yglesias Actually Pointed Out the Reason

Yglesias has a very good article on why passenger rail is not a bigger deal in the US.   In it, he says this (emphasis added):

Instead the issue is that the dismal failure of US passenger rail is in large part the flip side of the success of US freight rail. America's railroads ship a dramatically larger share of total goods than their European peers. And this is no coincidence. Outside of the Northeast Corridor, the railroad infrastructure is generally owned by freight companies — Amtrak is just piggybacking on the spare capacity.

It is a short article, so it does not go into more depth than this, but I have actually gone further than this and argued that the US freight-dominated rail system is actually far greener and more sensible than the European passenger system.  As I wrote years ago at Forbes:

The US rail system, unlike nearly every other system in the world, was built (mostly) by private individuals with private capital.  It is operated privately, and runs without taxpayer subsidies.    And, it is by far the greatest rail system in the world.  It has by far the cheapest rates in the world (1/2 of China’s, 1/8 of Germany’s).  But here is the real key:  it is almost all freight.

As a percentage, far more freight moves in the US by rail (vs. truck) than almost any other country in the world.  Europe and Japan are not even close.  Specifically, about 40% of US freight moves by rail, vs. just 10% or so in Europe and less than 5% in Japan.   As a result, far more of European and Japanese freight jams up the highways in trucks than in the United States.  For example, the percentage of freight that hits the roads in Japan is nearly double that of the US.

You see, passenger rail is sexy and pretty and visible.  You can build grand stations and entertain visiting dignitaries on your high-speed trains.  This is why statist governments have invested so much in passenger rail — not to be more efficient, but to awe their citizens and foreign observers.

But there is little efficiency improvement in moving passengers by rail vs. other modes.   Most of the energy consumed goes into hauling not the passengers themselves, but the weight of increasingly plush rail cars.  Trains have to be really, really full all the time to make for a net energy savings for high-speed rail vs. cars or even planes, and they seldom are full.  I had a lovely trip on the high speed rail last summer between London and Paris and back through the Chunnel — especially nice because my son and I had the rail car entirely to ourselves both ways.

The real rail efficiency comes from moving freight.  As compared to passenger rail, more of the total energy budget is used moving the actual freight rather than the cars themselves.  Freight is far more efficient to move by rail than by road, but only the US moves a substantial amount of its freight by rail.    One reason for this is that freight and high-speed passenger traffic have a variety of problems sharing the same rails, so systems that are optimized for one tend to struggle serving the other.

Freight is boring and un-sexy.  Its not a government function in the US.  So intellectuals tend to ignore it, even though it is the far more important, from and energy and environmental standpoint, portion of transport to put on the rails. ....

I would argue that the US has the world’s largest commitment to rail where it really matters.  But that is what private actors do, make investments that actually make sense rather than just gain one prestige (anyone know the most recent company Warren Buffet has bought?)  The greens should be demanding that the world emulate us, rather than the other way around.  But the lure of shiny bullet trains and grand passenger concourses will always cause some intellectuals to swoon.

Which would you rather pounding down the highway, more people on vacation or more big trucks moving freight?  Without having made an explicit top-down choice at all, the US has taken the better approach.

Denying the Climate Catastrophe: 4b. Problems With The Surface Temperature Record

This is the part B of the fourth chapter of an ongoing series.  Other parts of the series are here:

  1. Introduction
  2. Greenhouse Gas Theory
  3. Feedbacks
  4.  A)  Actual Temperature Data;  B) Problems with the Surface Temperature Record (this article)
  5. Attribution of Past Warming;  A) Arguments for it being Man-Made; B) Natural Attribution
  6. Climate Models vs. Actual Temperatures
  7. Are We Already Seeing Climate Change
  8. The Lukewarmer Middle Ground
  9. A Low-Cost Insurance Policy

In part A of this chapter, we showed that the world had indeed warmed over the past 30-100 years, whether you looked at the surface temperature record or the satellite record.  Using either of these metrics, though, we did not see global warming accelerating, nor did we see warming rates that were faster than predicted.  In fact, we saw the opposite.

One story I left out of part A, because it did not affect the basic conclusions we drew, is the criticisms of the surface temperature record.  In this part B, we will discuss some of these criticisms, and see why many skeptics believe the 0.8C warming number for the past century is exaggerated.  We will also gain some insights as to why the satellite measured warming rates may be closer to the mark than rates determined by surface temperature stations.

Uncorrected Urban Biases

Years ago a guy named Steve McIntyre published a graphical portrayal of warming rates across the US.  This is a common chart nowadays. Anyway, this chart (almost 10 years old) drew from temperature measurement stations whose locations are shows with the crosses on the map:

usgrid80

I was living in Arizona at the time and I was interested to learn that the highest warming rate was being recorded at the USHCN station in Tucson (remember, just because Arizona is hot is no reason to necessarily expect it to have high warming rates, they are two different things).  At the time, Anthony Watt was just kicking off an initiative to develop quality control data for USHCN stations by having amateurs photograph the sites and upload them to a central data base.  I decided I would go down to the Tucson site to experience the highest warming rate myself.  This is what I found when I tracked down the station, and took this picture (which has been reproduced all over the place at this point):

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That is the temperature station, around that fenced in white box (the uproar over this picture eventually caused this location to be closed).  It was in the middle of a parking lot in the middle of a major university in the middle of a growing city.  100 years ago this temperature station was in the countryside, in essentially the open desert - no paving, no buildings, no cars.  So we are getting the highest warming rates in the country by comparing a temperature today in an asphalt parking lot in the middle of a city to a temperature a hundred years ago in the open desert.

The problem with this is what's called the urban heat island effect.   Buildings and concrete absorb heat from the sun during the day, more than would typically be absorbed by raw land in its natural state.  This heat is reradiated at night, causing nights to be warmer in cities than in the areas surrounding them.  If you live in a city, you will likely hear weather reports that predict colder temperatures in outlying areas, or warn of freezes in the countryside but not in the city itself.

It turns out that this urban heat island effect is easily measured -- it even makes a great science fair project!

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My son and I did this project years ago, attaching a small GPS and temperature probe to a car.  We then drove out of the city center into the country and back in the early evening, when the urban heat island effect should be largest.  We drove out and then back to average out any effects of overall cooling during our testing.  One of the trips is shown above, with around 6 degrees F of temperature change.  We, and most others who have done this in other cities, found between 5 and 10 degrees of warming as one drives into a city at night.

If this effect were constant over time, it would not pose too many problems for our purposes here, because we are looking at changes in average temperatures over time, not absolute values.  But the urban heat island warming of a city (and particular temperature stations) increases as the urban area grows larger.   Because this urban warming is many times the global warming signal we are trying to measure, and since most temperature stations are located near growing urban locations, it introduces an important potential bias into measurement.

A number of studies have found that, in fact, we do indeed see more warming historically in thermometers located in urban areas than in those located in rural areas.  Two studies in California have shown much lower warming rates at rural thermometers than at urban ones:

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Anthony Watt has been working for years to do this same analysis for the entire US.  In fact, the pictures taken above of the temperature station in Tucson were part of the first phase of his project to document each USHCN site used in the global warming statistics with pictures.  Once he had pictures, he compared the details of the siting with a classification system scientists use to measure the quality of a temperature sites, from the best (class 1) to the worst with the most biases (class 5).  He found that perhaps a third of the warming in the official NOAA numbers may come from the introduction of siting biases from bad sites.  Or put another way, the warming at well-sited temperature stations was only about 2/3 in the official metric.

Click to enlarge

By the way, this is one other reason why I tend to favor the satellite measurements.  Going back to the numbers we showed in part A, the satellite temperature metric had about 2/3 the trend of the surface temperature reading, or almost exactly what the surface readings would be if this siting bias were eliminated (the absolute values of the trends don't match, because they are for different time periods and different geographies).

Click to enlarge

There is one other aspect of this chart that might have caught your eye -- if some temperature stations are showing 2 degrees of warming and some 3.2 degrees of warming, why is the total 3.2 degrees of warming.  Shouldn't it be somewhere in the middle?

One explanation is that the NOAA and other bodies take the data from these stations and perform a number of data manipulation steps in addition to a straight spatial averaging.   One such step is that they will use a computer process to try to correct temperature stations based on the values from neighboring stations.  The folks that run these indices argue that this computational process overcomes the site bias problem.  Skeptics will argue that this approach is utter madness -- why work to correct a known bad temperature point, why not just eliminate it?  If you have a good compass and a bad compass, you don't somehow mathematically average the results to find north, you throw out the bad one and use the good one.  In short, skeptics argue that this approach does not eliminate the error, it just spreads the error around to all the good stations, smearing the error like peanut butter.  Here is an example from the GISS, using station data that has only been adjusted for Time of Observation changes (TOBS).
Grand_12

This is exactly what we might expect - little warming out in undeveloped nature in Grand Canyon National Park, lots of warming in a large and rapidly growing modern city (yes, the Tucson data is from our favorite temperature station we featured above).  Now, here is the same data after the GISS has adjusted it:

Grand_15

You can see that Tucson has been adjusted down a degree or two, but Grand Canyon has been adjusted up a degree or two (with the earlier mid-century spike adjusted down).  OK, so it makes sense that Tucson has been adjusted down, though there is a very good argument to be made that it should be been adjusted down more, say by at least 3 degrees.  But why does the Grand Canyon need to be adjusted up by about a degree and a half?  What is currently biasing it colder by 1.5 degrees, which is a lot?  One suspects the GISS is doing some sort of averaging, which is bringing the Grand Canyon and Tucson from each end closer to a mean -- they are not eliminating the urban bias from Tucson, they are just spreading it around to other stations in the region.

Temperature Adjustments and Signal-To-Noise Ratio

Nothing is less productive, to my mind, than when skeptics yell the word "fraud!" on the issue of temperature adjustments.  All temperature databases include manual adjustments, even the satellite indices that many skeptics favor.    As mentioned above, satellite measurements have to be adjusted for orbital decay of the satellites just as surface temperature measurements have to be adjusted for changes in the daily time of observation.  We may argue that adjustment methodologies are wrong (as we did above with urban biases).  We may argue that there are serious confirmation biases (nearly every single adjustment to every temperature and sea level and ocean heat database tends to cool the past and warm the present, perhaps reinforced by preconceived notions that we should be seeing a warming signal.)  But I find that charges of fraud just cheapen the debate.

Even if the adjustments are all made the the best of intentions, we are still left with an enormous problem of signal to noise ratio.  It turns out that the signal we are trying to measure -- warming over time -- is roughly equal to the magnitude of the manual adjustments.  In other words, the raw temperature data does not show warming, only the manually adjusted data show warming.  This does not mean the adjusted data is wrong, but it should make us substantially less confident that we are truly measuring the signal in all this noise of adjustment.  Here are two examples, for an individual temperature station and for the entire database as a whole:

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In this first example, we show the raw data (with Time of Observation adjustments only) in orange, and the final official adjusted version in blue.  The adjustments triple the warming rate for the last century.

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We can see something similar for the whole US, as raw temperature measurements (this time before time of observation adjustments) actually shows a declining temperature trend in the US.  In this case, the entirety of the global warming signal, and more, comes from the manual adjustments.  Do these adjustments (literally thousands and thousands of them) make sense when taken in whole?  Does it make sense that there was some sort of warming bias in the 1920's that does not exist today? This  is certainly an odd conclusion given that it implies a bias exactly opposite of the urban heat island effect.

We could go into much more detail, but this gives one an idea of why skeptics prefer the satellite measurements to the surface temperature record.  Rather than endlessly working to try to get these public agencies to release their adjustment details and methodology for third party validation to the public that pays them (an ongoing task that still has not been entirely successful), skeptics have simply moved on to a better approach where the adjustments (to a few satellites) are much easier to manage.

Ultimately, both approaches for seeking a global warming signal are a bit daft.  Why?  Because, according to the IPCC, of all the extra warming absorbed by the surface of the Earth from the greenhouse effect, only about 1% goes into the atmosphere:

 

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Basically, water has a MUCH higher heat carrying capacity than air, and over 90% of any warming should be going into oceans.  We are just starting to get some new tools for measuring the changes to ocean heat content, though the task is hard because we are talking about changes in the thousandths of a degree in the deep oceans.

After this brief digression into the surface temperature records, it is now time to get back to our main line of discussion.  In the next chapter, we will begin to address the all-important attribution question:  Of the warming we have seen in the past, how much is man-made?

Chapter 5, Part A on the question of attributing past warming to man is here.

I Would Really Like to Get Elizabeth Warren and Other Progressives On the Record Right Now About Sub-Prime Auto

To me, the sub-prime auto loan market looks exactly like the home mortgage market in about 2006.

Back before 2009, Progressives were pushing like crazy to get banks to write mortgages to low-income borrowers with bad credit.  Banks that refused to do so would face the wrath of the banking regulators and lawsuits over redlining and ever other thing the Left could think of.   Seriously, if you had tried to stop sub-prime lending in 2006 the Progressives would have excoriated you as being racist, hating the poor, etc.  When the whole mess inevitably collapsed, the Progressives suddenly were there blaming this lending to low income people on the banks, accusing them of predatory lending practices.

OK, so now it is 2006 in the consumer credit market, and specifically in auto loans.  Banks are making crap loans to no-credit individuals on cars and getting them off the books by securitization.   So let's get Elizabeth Warren on the record right now.  Should banks stop lending to these no-credit low-income people?  My bet is that she would support this lending, doubly so because the Obama Administration feels on the hook still for their GM and Chrysler bailouts and would rather not see these companies tank (which they would if sub-prime credit suddenly dried up).  So, before she can piously accuse banks of predatory practices 3 years hence when it all collapses, I want to know what Elizabeth Warren thinks of all this right now.

Update:  Well, good news and bad news.  Good news is that Elizabeth Warren has criticized sub-prime auto.  Bad news is she appears to be totally on the wrong track with causes, talking not about the fact the loans should not be written at all but about the fact that she thinks dealers are reaping huge profits marking up the loans.  It would be interesting to see what the Obama Administration would think about a clamp-down on sub-prime auto.  Methinks they might freak out at that, knowing sub-prime loans are all that is keeping US automakers out of a new recession.

Does Transit Save Energy?

This is one of those questions that seems like a no-brainer -- a bunch of people are sharing a ride, so they must be saving energy.  When asked this question, we all think of a full bus or train of people vs. the number of cars that would have carried the same people.

The key issue turns out to be occupancy -- how full is the train or bus.   And it turns out that occupancy is probably lower than most people think.  That is because everyone rides on buses or trains as they commute -- they are going in the direction of most people's travel at the time of day they travel, so the transit is totally full.  But no one thinks about those trains having to go back the other direction, usually mostly empty.   As a result, we get to this fact, from the National Transit Database as synthesized by Randal O'Toole.

2014 Energy Use per Passenger Mile

  • Transit:  3141 BTU
  • Driving:  3144 BTU

Valley Metro Rail here in Phoenix does better, at a reported 1885 BTU per passenger mile.   As reported many times here on this site, the cost of building this rail line, now well over one and a half billion dollars, would easily have bought every round trip rider a new Prius, with a lot of money left over.   This would have saved more energy as well.  Buses in Phoenix are averaging just over 6000 BTU per passenger mile.

 

A Keystone Hack

Well, we have reached another milestone in our permission-based economy with the Administration's rejection of the Keystone Pipeline.  We have zillions of miles of pipelines and are actually wasting energy and creating environmental messes moving the same oil by the inferior option of rail, but somehow this one pipeline had to be opposed.

Actually, the only reason this project is in front of the administration at all is because it crosses the Canadian border, which requires  State Department sign-off.  Which leads me to wonder if there is a hack.  Why not take the pipeline right up to the border from both sides and create a rail line across the border using a continuous loop of tank cars.  Its kludgy and inefficient, but probably less so than moving the oil long distance by rail.

I am reminded of this from a story long ago off Santa Barbara.  Exxon had gotten permission to drill in Federal waters, but local state/county folks wanted to find a way to stop the oil development.  Plans were (as is typical for any offshore oil) for a separation facility on shore that would separate oil, gas, and water from the mix that usually comes up out of the ground.    The state or local folks (can't remember which) refused to permit the separation facility, thinking that would kill the project.  But Exxon built what I believe was a unique separation facility on a boat and anchored the boat offshore.  No land permits necessary.

This is very similar, in my mind, to the pipeline decision.  California's attempt to block oil development altogether proved futile, just as Obama's decision will have little effect on long-term Canadian oil development.  But it did, in both cases, force a workaround (rail and the separator ship) that were almost certainly environmentally worse solutions than those that were halted.

Three Reasons It May Be Time To Short Automobile Stocks

As always, take this with a grain of salt given my past history of investment advice.  I am frequently correct on my calls to short something, but tend to be really early, such that a person (ie me) can likely be short-squeezed into oblivion before the fall takes place.

That being said, I think autos would be a good short.  Why?

  1. They are riding positive sentiment, based on a strong October.  But October was strong because it had 5 weekends rather than 4 and recent results reflect a lot of channel stuffing.   Shorting means finding the top, and this feels like the top
  2. I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.  **
  3. Apparently, the recent rebound in auto sales has been driven by a huge spurt of sub-prime lending that looks remarkably similar to the housing market 7 years ago:

This comes against a backdrop of rising US auto sales (see the numbers for October, out earlier today) and it's not difficult to explain the gains. Just take a look at the following data from Experian on the lunatic loan terms being extended to borrowers (from Q1):

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

** Postscript:  The biggest problem with the emission cheating is that it caused the world to under-estimate the cost of emissions mandates.  When performance of cars starts to drop noticeably when emissions cheating is fixed, it will be an eye-opener

Race and Petty Traffic Laws

When you hear that police pulled someone over for the totally BS charge of a "partially obscured license plate with only one light," can't you just assume the driver is probably black or Hispanic?

If I were a Mexican in Phoenix, I would do a full walk-around checking my vehicle before every trip.  A visiting friend once asked me if the fact that Hispanics all seem to drive so slow was a cultural thing and I said that more likely, they know they will get busted for going even a hair over the speed limit.

A few years ago I wrote vis a vis our infamous SB1070

When Kris Kobach says "In four different sections, the law [SB1070] reiterates that a law-enforcement official 'may not consider race, color, or national origin' in making any stops or determining an alien's immigration status," he is ignoring reality.  The law asks police to make a determination (e.g. probable cause that one is an illegal immigrant) that is impossible for actual human beings to make without such profiling.  It's like passing a law that says "police must drive their cars 30 miles a day but can't drive their cars to do so."  The reality on the ground here in Arizona is that, illegal or not, Sheriff Joe Arpaio has been using racial profiling to make arrest sweeps for years, and his officers have become masters at finding some pretext to pull over a Mexican they want to check out  (e.g. the broken tail light).   Words in this law about racial profiling are not going to change anything.

Update:  I forgot this story from 2008, which is a great example of what I am talking about here

Arrest records from crime sweeps conducted by the Maricopa County Sheriff's Office add substantial weight to claims that deputies usedracial profiling to pull Latino motorists over to search for illegal immigrants....

even when the patrols were held in mostly White areas such as Fountain Hills and Cave Creek, deputies arrested more Latinos than non-Latinos, the records show. In fact, deputies arrested among the highest percentage of Latinos when patrols were conducted in mostly White areas.

On the arrest records, deputies frequently cited minor traffic violations such as cracked windshields and non-working taillights as the reason to stop drivers.

"These are penny-ante offenses that (police) almost always ignore. This is telling you this is being used to get at something else, and I think that something else is immigration enforcement against Hispanic people," Harris said....

Phoenix Light Rail: We Spent $1.4 Billion (and Growing) To Subsidize ASU Students

The AZ Republic has some of the first information I have ever seen on the nature of Phoenix light rail ridership.  The first part confirms what I have always said, that light rail's primary appeal is to middle and upper class whites who don't want to ride on the bus with the plebes

Light rail has changed the demographics of overall transit users since the system opened in 2008, according to Valley Metro.

Passengers report higher incomes than bus riders, with more than a quarter living in households making more than $50,000 a year. Many riders have cars they could use.

The 20-mile system running through Phoenix, Tempe and Mesa recorded more than than 14 million boardings last year. Still, census data estimate less than one-third of 1 percent of Phoenix commuters — or about 2,000 people — use rail as their main transportation to work.

.0033% huh?  If we built similar facilities to serve everyone, it would only cost us about $420 billion at the rate of $1.4 billion per third of a percent.

But I thought this next bit was the most startling.  I always had a sneaking suspicion this was true but never have seen it in print before:

While the much larger bus system reaches most corners of the Valley, light rail connects specific destinations along a single line. Nearly half of light-rail riders are enrolled in college.

I must have missed this in the original sales pitch for the light rail line: "Let's pay $1.4 billion so ASU students can get to more distant bars."   Note that by these numbers, students likely outnumber commuters 10:1.  Doesn't bode well for light rail extensions that don't plow right through the middle of the most populous college campus in the country.

Postscript:  They don't break out people riding to get to sporting events downtown, but sporting events make up most of the largest traffic days on the system.  From my personal acquaintances, many people use light rail as a substitute for expensive downtown parking at sporting events, parking (often semi-illegally) near light rail stops and taking the train the rest of the way in.  On the whole, its not very compelling as a taxpayer to be helping to subsidize someone else's parking.  And from a municipal fiscal standpoint, it means that light rail fares may be cannibalizing (on a much greater ratio than 1:1 given the price differential) parking fees at municipal parking lots.

Globalization and Start-Ups

In a comment on this article about declining startup activity and the growing average size of businesses, a commenter wrote:

The high foreign trade deficit is also a barrier to the formation of small new companies. The annual trade deficit of the US is greater than the rate of GDP growth, which explains a lot of things. Probably more companies are being destroyed than created in the US. Legislate and reverse the foreign trade deficit and there will be a massive surge in small companies.

I wrote in return

As for wolf-dogs comment on the trade deficit, I think this is totally wrong. Most of the trade imbalance is with stuff like cars and steel which are unlikely startup businesses. The easy availability of Asian manufacturing sources for nearly anything you want to make or can dream up facilitates startups and entrepreneurship. My gut feel, just seeing what entrepreneurs around me are doing but not from any hard data, is that globalization and easy international sourcing is a net positive for small business formation.

I have never seen any data on this though.  Thoughts?

Me Then, Hillary Now: Progressives Are Too Conservative to Accept Capitalism

Coyote, in Forbes, December 2010 (excerpts):

My contention is that what drives most progressives, at a very fundamental level, is a deep conservatism.  Of course, most “progressives” would freak if they were called conservative, but what I mean by conservative in this context is not donate-to-Jesse-Helms capital-C Conservative but fearful of change and uncomfortable with uncertainty conservative.

Because capitalism is based so completely on individual decision-making, because its operation is inherently chaotic, and because its rewards can’t possibly be divided equally and still be “rewards”, progressives are hugely uncomfortable with it.  Ironically, though progressives want to posture at being “dynamic”, it turns out that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our notion of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it....

I am sure, if asked, most  progressives would profess to desire iPod’s and cures for cancer.  But they want these without the incentives that drive men to invent them, and the disruption to current markets and competitors and employees that their introduction entails.  They want to end poverty without wealth creation, they want jobs without employers, they want cars without unemployment for buggy whip makers.

Hillary Clinton in July, 2015:  via Instapundit

In her first major economic policy address of the 2016 campaign, Democratic presidential frontrunner Hillary Clinton raised questions about the effect that companies like Uber and Airbnb are having on American workers. . . .

Later in the speech, Clinton vowed to “crack down on bosses who exploit employees by misclassifying them as contractors” — a possible reference to something like the recent California Labor Commission decision that threatens to undermine Uber’s business model.

To be sure, Clinton does not want to destroy the sharing economy. She acknowledged that “these trends are real” and “none is going away.” But she may believe that, with the right application of political muscle, the new economy can be forced to conform with the antiquated blue social model — that is, the midcentury vision of steady, regulated, unionized employment with generous benefits.

As we have argued again and again, this notion is unrealistic. Like it or not, this 1950s model of economic organization is breaking down, and has been for several decades, thanks to globalization, demographic changes, technological innovation, and other trends that simply cannot be reversed. Measures like the California decision are futile and counterproductive. We should treat the emergence of a more entrepreneurial, dynamic landscape as an opportunity to be engaged with productively, not a danger to be henpecked by regulations better suited to the last century.

Even Vox Can't Make A Very Strong Case For Streetcars

A reader sent me a link to this Vox article on streetcars.  What I thought was interesting is just how weak the case for streetcars is, even when made by folks are are presumably sympathetic to them.  This page is entitled "Why do cities want streeetcars."  The arguments are:

  • Tourists like them, because you can't get lost like you can on buses.  My response is, "so what."  Unless you are one of a very few unique cities, tourists are a trivial percentage of transit riders anyway.  Why build a huge system just to serve out-of-town visitors?  I would add that many of these same cities (e.g. Las Vegas) considering streetcars are the same ones banning Uber, which tourists REALLY love.
  • Developers like them.  Ahh, now we are getting somewhere.  So they are corporate welfare?  But not so fast, they are not even very good corporate welfare.  Because most of the studies they cite are total BS, of the same quality as studies that say sports stadium construction spurs all sorts of business.  In fact, most cities have linked huge tax abatement and subsidy programs to their streetcars, such that the development you get with the subsidy and the streetcar is about what you would expect from the subsidies alone.  Reminds me of the old joke that mimicked cereal commercials: "As part of a breakfast with juice, toast, and milk, Trix cereal has all the nutrition of juice, toast, and milk."
  • Good for the environment.  But even Vox asks, "as compared to what."  Since they are generally an alternative buses, as compared to buses that have little environmental advantage and often are worse (they have a lot more weight to drag around when empty).
  • The Obama Administration likes them.  LOL, that's a recommendation?  When you read the text, what they actually say is that mayors like the fact that the Obama Administration likes them, for it means the Feds will throw lots of Federal money at these projects to help mayors look good using other peoples' money
  • Jobs.  This is hilarious Keynesianism, trying to make the fact that streetcars are 10-100x more expensive than buses some sort of positive.  Because they are more inefficient, they employ more people!  One could make the exact same argument for banning mechanical harvesters and going back to scythes.   Left unquestioned, as Bastiat would tell us, is how many people that money would have employed if it had not been seized by the government for streetcar use.
  • Je ne sais quoi.  I kid you not, that is their final argument, that streetcars add that special something to a neighborhood.  In my mind, this is Vox's way of saying the same thing I did the other day -- that the streetcar's appeal is primarily based on class, in that middle and upper class folks don't want to ride on a bus with the masses.   The streetcar feels more upscale than buses.   The poor of course, for whom public transit is most vital, don't want to pay 10 times more for sexiness.  Oh, and watch this video of Washington streetcars blocking traffic and crunching parked cars and tell me what it is adding to the neighborhood.

Every argument I have ever been in on streetcars always boils down to something like "well, all the cool kids like them."  Once, after defending the US approach to rail (vs. Europe and Japan) as (correctly) focusing on productivity vs. sexiness, having gone into a lot of detail on the economics of freight vs. passengers, I got a one sentence answer from Joel Epstein of the HuffPo:  “You should get out of the country more often.”  That was it -- the cool cosmopolitan kids who vacation in Gstaad but never would be caught dead driving across Nebraska were all against me.

Oceania, Arizona

My little town that in the Phoenix area is apparently setting up surveillance cameras all over town, hidden in fake cacti.   This never once was discussed in any public meeting, and residents only found out about it when the cameras starting going up.

Residents were alarmed to see the cactus cameras popping up throughout the town over the last few days with no indication of what they were being used for as city officials refused to explain their purpose until all the cameras were installed.

Town leaders initially declined to even talk to local station Fox 10 about the cameras, with Paradise Valley Police saying they were “not prepared to make a statement at this time.” The network was similarly rebuffed when they attempted to get answers on license plate scanners that were being installed in traffic lights back in February.

Fox 10’s Jill Monier was eventually able to speak to Town Manager Kevin Burke, who admitted that the cameras were being used to “run license plates of cars against a hotlist database.”

When asked why officials had been secretive about the cameras, which are being placed on the perimeter of the town, Burke asserted that there was “nothing to hide” and that the cameras wouldn’t be activated until privacy concerns had been addressed.

“Shouldn’t that have been vetted before they even went up?” asked Monier, to which Burke responded, “It probably is fair.”

This appears to be part of the on-again-pretend-to-be-off-again DHS program to set up nationwide tracking of license plates.  Ugh.  Really gives a creepy Owrellian vibe to our town name of "Paradise Valley".  More good news:

The American Civil Liberties Union subsequently revealed that the cameras were also using facial recognition technology to record who was traveling in the vehicle “as part of an official exercise to build a database on people’s lives,” reported the Guardian.

Why Can't [X] Be Free

In the Warren Meyer style guide, any phrase like this one -- Why Can't Public Transit Be Free? -- would be reworded "Why Can't Other People Pay For My Transit" so as to be more accurate.  Because it clearly can never be free (short of an Iain Banks post-scarcity future world).  An even more generic title for this would be "why can't non-users pay for users' services?"

One other thought -- since when did "getting people out of their cars" become the goal of public transit?  Is that really a goal worth spending money on?   I understand that many transit advocates have this goal nowadays, but in the new systems being built (outside of New York) there is little or no energy reduction in moving people by transit.   And the cost per passenger mile of these system is much higher than for building more roads for more cars.   And it is no longer about mobility for poorer folks -- new light rails systems cost a fortune, and are built to appeal to professionals and the middle class, while crowding (due to their huge costs) buses that are the traditional source of mobility for the poor.

I get the sense that the argument for transit nowadays is almost aesthetic -- people find cars and roads and suburbs aesthetically distasteful, and want to replace them.  That would explain the focus on insanely expensive light rail systems, that look cool, over buses that actually move people for a reasonable cost.  I saw a great quote the other day, I wish I can remember who said it.  Something like, "Progressives aren't trying to create a rational world, they are trying to create Portland."

update:  Thanks to a reader, here is the actual quote (and source):  "The goal of progressivism is not to make the world rational; it’s to make the world Portland."

Want to Increase Infrastructure Money for Highways Immediately by 31%? Stop Diverting Highway Money to Transit

This DOT table, pointed out to me by Randal O'Toole, shows that money spent on highways could be increased immediately by over 30% if highway money was not diverted to transit and other uses.  About 13% of state gas tax revenues meant for highways are diverted to non-highway transit projects (e.g. light rail boondoggles).  Another 9.4% are diverted to general funds, and may not be applied to transportation projects at all.   The same table shows that if all state MVD receipts were used to support investments for cars rather than transit and general spending, money available for roads would increase 45% from those funds.

Transit projects should be supported by their own riders.  This will never happen, because they are so egregiously expensive per passenger-mile that no one would ride them if their trip were not subsidized by the rest of us**.  And I am exhausted with having folks argue that highways are "subsidized" because they require tax money beyond the gas taxes (which are essentially a user fee) when these extra tax monies for highways would be largely unneeded if the highway funds were used for highways.  The diversion to general funds is particularly troubling, since sleazy government officials are obviously trying to piggy-back off the popularity of highway infrastructure investment to generate a slush fund for activities taxpayers are less likely to support.

And please do not tell me that as a highway driver, investments in transit are doing me a favor by getting cars off the road.  Transit investments are so expensive per passenger mile that the same money spent getting a few cars off the road via transit would substantially increase road and highway capacities.  A dollar of highway investment carries at least an order of magnitude more passenger miles than a dollar of transit spending.

** I am always amazed that supporters of such transit projects call light rail projects "sustainable".  Forget for a minute that they seldom use less energy per passenger mile than driving.   Think about all the resources that go into them.  This at first seems like a hard problem -- how do we account for all the resources that go into transit vs. go into driving.  But then we realize it is actually easy, because we have a simple tool for valuing resource inputs:  price.  Prices are a great miracle.  They provide us with a sort of weighted average of the value and scarcity of the resources (both hard, like titanium, and soft, like labor and innovation) that go into a product.  So if light rail costs 10x or more per passenger mile than driving, as it often does, this means that it uses ten times the value of resource inputs as driving.  This is sustainable?  I do not think that word means what you think it means.

Great Moments in Bad Economic Policy

This article on bad bipartisan energy laws and regulations from Master Resource brought back some old memories of the 1970s.

Folks who are at all economically literate understand the role that government price controls (specifically price caps) had on gasoline shortages in the 1970s.  When there was a supply shock via the Arab oil embargo, prices were not allowed to rise to match supply and demand.  As in the case of all such price control situations, shortages and queuing resulted.

It is too bad in a way that most folks today can't really remember the gas lines of 1973 and again in 1978.  It was my job in 1978 as the new driver in the family to go wait in line for gas for all the family cars.  I wasted hours and hours sitting in gas lines. I wonder if anyone has every computed the economic value of the time lost to Americans sitting in gas lines because politicians did not want the price to rise by 20 cents.

A number of my friends who knew my dad was an Exxon executive were surprised at my waiting in lines, and wondered why we didn't get some sort of secret access to gas.  But my family waited in lines like everything else.

Well, almost like everyone else.  Because of my dad's position, we did have a bit of information most people did not have, at least in the first shock of 1973.  It was not a secret, it was just totally unreported in the media.  The key was the knowledge of a piece of Congressional legislation called the Emergency Petroleum Allocation Act of 1973.  It had an enormous impact on exacerbating the urban gas lines, but either out of a general ignorance or else a media/academic desire not to make government regulation look bad, it is as unknown today as it was unreported in 1973.

What the law did was this -- it mandated that oil companies distribute gasoline geographically in the US in the same proportion that it was sold in the prior year.  So if they sold x% in area Y last year before the embargo, x% must be distributed to area Y this year after the embargo.  I can't remember the exact concern, but Congress had some fear that oil companies would somehow respond to price signals in a way that caused gasoline allocations to hose someone somewhere.

Anyway, the effect was devastating, probably even worse than the effect of price controls.  The reason was that while Congress forced gasoline supply distribution patterns to remain the same as the prior year (in classic directive 10-289 style), demand patterns had changed a lot.  Specifically, with the fear that gas might not be available over the road and looming economic problems, people cancelled their summer long-distance driving trips.

Everyone stayed home and didn't drive the Interstates cross-country.  So there was little demand for gas at the stations that served these routes.  But by law, oil companies had to keep delivering gasoline to these typically rural stations.  So as urban drivers fumed sitting in gas lines for hours and hours, many rural locations were awash in gas.  Populist Congressmen berated oil companies in the press for the urban gas shortages and lines, all while it was their stupid, ill-considered laws that created a lot of the problem.

So this was the fact that should have been public, but was not: That instead of sitting in urban gas lines for four hours, one could drive 30 minutes into the countryside and find it much easier.  Which is what we did, a number of times.

By the way, it was about this time that I read Hedrick Smith's great book "The Russians."  It was, for the time, a nearly unique look at the life of ordinary Russians under Soviet communism.  I wish the book were still in print (I would love to see one of the free market think tanks do a reissue, at least on Kindle).  Anyway, about 80% of the book seemed to be about how individual Russians dealt with constant shortages and ubiquitous queuing.  It seemed that a lot of the innovation in the general populace was channeled into just these concerns.  What a waste.  Dealing with the 1970s gas lines and shortages is about the closest I have ever come to the life described in that book.

An Example of Broken Discourse

Apparently there is a daily pill called Truvada that can help reduce (but apparently not prevent) the transmission of HIV through unprotected sex.   Many public health agencies are promoting its use.

Apparently there is also at least one skeptic, a man named Michael Weinstein, who fears the pill may not be as effective as advertised, but more importantly is concerned that the pill's existence will reduce the use of condoms among at-risk men.

As I read the article (and I know zero about it on my own)  the ranking in terms of effectiveness is:  condoms+Truvada > condoms > Truvada > nothing.

The amazing thing to me is how broken the dialog about these issues appears to be.  Truvada supporters claim that there is a consensus on Truvada and that Weinstein is alone in his criticism, and that he is as bad as a "climate-change denialist" (eek!)

Weinstein claims that many others believe as he does but have been silenced by intimidation by the Truvada supporters.  Further, he argues that public officials who support Truvada are all paid off by the drug makers in one way or another.

Jeez, this all sounds so familiar to this veteran of the climate wars that it is just amazing.  And the real tragedy of this broken discourse is that both sides have a totally valid argument.  I have no doubt that Truvada provides incremental protection (even Weinstein's clinic proscribes it).  On the other hand, it is fairly "settled science" in the safety world that an easier-to-use protection method can actually reduce total safety by undercutting a parallel protection mechanism -- the drop in seat belt use after air bags were added to cars is a classic example.    Weinstein argues that Truvada use will reduce use of condoms, and thus undermine safety.  Truvada supporters argue that condom use is so low already, even after 30 years of education efforts, that the drug is better.  Essentially, Weinstein sees the baseline as men who use condoms and worry about them getting worse.  The other side sees the baseline as men who don't use condoms and argues the drug makes things better.

It is a shame to see two groups of people who likely are motivated by good intentions devolve into name-calling and ad hominem attacks.   Just read the quotes in the article - no one in the debate seems to acknowledge that the other side includes people of good will who simply disagree.

If You Like Federal Curbs on School Bake Sales, You Are Going to Love the Results of Obamacare

From George Will, the logic behind what I call the health care Trojan Horse

Washington’s response to the menace of school bake sales illustrates progressivism’s ratchet: The federal government subsidizes school lunches, so it must control the lunches’ contents, which validates regulation of what it calls “competitive foods,” such as vending machine snacks. Hence the need to close the bake sale loophole, through which sugary cupcakes might sneak: Foods sold at fundraising bake sales must, with some exceptions, conform to federal standards.

So if school lunch programs are a platform for so much micro-regulation, how much regulation do you think the government takeover of healthcare will justify?  If government is paying most of the health care bills, then any activity that might affect your health is then logically subject to government regulation, if for no other reason than to protect against additional costs.  Motorcycle helmet laws have been justified for years on this logic that helmetless riders impose additional costs on government health programs.  Well, if that works for motorcycling, why shouldn't government be heavily regulating skiing?  Or for that matter, why should it allow people to drive cars at all?  Perhaps we should have to get government approval before every car trip to make sure it is not "frivolous" and creating future health care costs through accident risk.

Or how about that most costly-to-health-care activity of all: sex.  Sex spreads expensive diseases.  It can lead to expensive procedures like abortion.  And of course it can lead to costly pregnancies and, worst of all, new lives that have to be maintained for another 80 years by the government health care system.  If funding school lunch programs leads logically to banning cupcake sales at schools, why won't Obamacare lead logically to micro-regulation of our every activity?

Racial Profiling in Ferguson

The Washington Post has numbers on the much higher rate at which blacks are stopped and/or searched in Ferguson vs. whites.  By itself, while that is a useful pointer to a discrimination issue, someone might argue that blacks in the area commit more crimes per capita and thus warrant more stops.

There is one bit of data in the Post's numbers that can be used to partially address this.  The data says that blacks have their cars searched much more frequently than whites.   Blacks have their cars searched 12.13% of stops while whites have their cars searched only 6.85% of stops.  But this understates the disparity, since blacks are stopped at a higher rates than whites.    Taking the disparity in stops in to account, blacks are searched at a rate 6 times higher than for whites.

The interesting part is in the data on contraband hit rate, ie the rate that searches uncover something illicit.  The contraband hit rate for white car searches is 57% higher than for black car searches.  In other words, it is more likely searches of white cars will yield something illegal.  Which tends to undercut the argument that the greater rate of black car searches is somehow justified.

By the way, I want to highlight one other figure.  Black cars are stopped at about a 6x higher rate for "equipment" deficiencies than whites.  Nitpicky regulations on car conditions (in Arizona your licence plate frame cannot cover any part of the word "Arizona" on the licence plate) are the great bugaboo of the poor and a nearly unlimited warrant for the police to stop minorities.  Mexicans here in Phoenix will tell me "woe to the Mexican who drives around here with a broken tail light -- he will be pulled over 3 times a day to have his immigration status checked".  In Phoenix, at least, stops for equipment issues are roughly the equivalent of pulling someone over for "driving while brown."  Even beyond the open-ended warrant these silly violations give the police, the fines and court costs create meaningful indebtedness problems for the poor which are hard to overcome.

(As a mostly irrelevant aside, I worked essentially in one corner of Ferguson in the Emerson Electric headquarters for a couple of years.  Like many of the inner ring of suburbs in St Louis, this is not a wildly prosperous area but it also is not Somalia.  Driving at night I was much more nervous in the neighborhoods both due south and due East of Ferguson).

Update:  Via Zero Hedge

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Michael Munger: The "State" As A Unicorn

Michael Munger has one of the most useful articles I have read in a very long time.  As illustrated by the Venn diagram I posted a while back showing the heavy overlap between the Tea Party and Occupy Wall Street, we have much more concurrence in the diagnosis of problems than in the prescriptions for solutions.   Munger gets at the heart of why many people go wrong in these prescriptions

When I am discussing the state with my colleagues at Duke, it's not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA. 

But their solution is, without exception, to expand the power of "the State." That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least three hundred years....

He follows with this useful test

But they may not immediately see why "the State" that they can imagine is a unicorn. So, to help them, I propose what I (immodestly) call "the Munger test."  

  1. Go ahead, make your argument for what you want the State to do, and what you want the State to be in charge of.
  2. Then, go back and look at your statement. Everywhere you said "the State" delete that phrase and replace it with "politicians I actually know, running in electoral systems with voters and interest groups that actually exist."
  3. If you still believe your statement, then we have something to talk about.

This leads to loads of fun, believe me. When someone says, "The State should be in charge of hundreds of thousands of heavily armed troops, with the authority to use that coercive power," ask them to take out the unicorn ("The State") and replace it with George W. Bush. How do you like it now?

If someone says, "The State should be able to choose subsidies and taxes to change the incentives people face in deciding what energy sources to use," ask them to remove "The State" and replace it with "senators from states that rely on coal, oil, or corn ethanol for income." Still sound like a good idea?

How about, "The State should make rules for regulating sales of high performance electric cars." Now, the switch: "Representatives from Michigan and other states that produce parts for internal combustion engines should be in charge of regulating Tesla Motors."  Gosh, maybe not …

Hat tip:  Don Boudreaux

I spent most of the Bush years asking Conservatives a similar question -- you may be fine when "your guy" has this power, but would you be happy if Al Gore or Nancy Pelosi had it.  And of course I have spent most of the Obama years asking Liberals whether they would be comfortable if George Bush or Rick Perry had similar powers to what Obama has claimed for himself.  Because they will.

I said something similar here, though less elegantly.  I concluded in part:

Technocratic idealists ALWAYS lose control of the game.  It may feel good at first when the trains start running on time, but the technocrats are soon swept away by the thugs, and the patina of idealism is swept away, and only fascism is left.  Interestingly, the technocrats always cry "our only mistake was letting those other guys take control".  No, the mistake was accepting the right to use force on another man.  Everything after that was inevitable.

I am Pretty Sure Bastiat Figured This Out 150 Years Ago: Cash For Clunkers Even Worse Than First Thought

From the WSJ

In a National Bureau of Economic Research working paper this month, economists at Texas A&M return to Cash for Clunkers, the 2009 stimulus fillip that dispensed vouchers worth as much as $4,500 if people turned in their old cars for destruction and bought a new set of wheels. Mark Hoekstra, Steven Puller and Jeremy West report their "striking" finding that the $3 billion program's two-month run subtracted between $2.6 billion and $4 billion from the auto industry.

The irony is that the goals were to help Detroit through the recession by subsidizing sales and to please the green lobby by putting more fuel-efficient cars on the road. By pulling forward purchases that consumers would make later anyway, the Obama Administration also hoped to add to GDP. Christina Romer, then chair of the Council of Economic Advisers, called Cash for Clunkers "very nearly the best possible countercyclical fiscal policy in an economy suffering from temporarily low aggregate demand."

The A&M economists had the elegant idea of comparing the buying behavior of Texas drivers who owned cars that barely qualified for cash (those that got 18 miles per gallon of gas or less) and those that barely did not (19 mph). Using state DMV sales records, this counterfactual allowed them to isolate the effects of the Cash for Clunkers incentives and show what would have happened without the program.

The two groups were equally likely to purchase a new vehicle over the nine month period that started with Cash for Clunkers, so the subsidy did not create any extra auto business. But in order to meet the fuel efficiency mandate, consumers who got the subsidy were induced to purchase smaller vehicle models with less horsepower that cost on average $2,500 to $3,000 less than those bought by their ineligible peers. The clunkers bought more Corollas, and everybody else more Chevys.

Extrapolated nationally, auto revenues may have plunged by more than what the government spent. And any environmental benefits cannot be justified under the federal social cost of carbon estimate of $33 a ton. Prior research from 2009 and 2013 has shown that the program cost between $237 and $288 a carbon ton.

Courts Have Become the Temple of Junk Science

If the Left is really as passionate as they say they are about taking on people and institutions who are anti-science, then they should be dedicating themselves to rethinking the current tort system.  Toyota may be facing $5 billion in settlements due to a defect that government reports and independent studies say is not there.

And recall NHTSA's performance during the furor almost four years ago over alleged runaway Toyotas. Its then-overseer, Transportation Secretary Ray LaHood, happily participated in congressional hearings designed to flog for the benefit of trial lawyers the idea of a hidden bug in Toyota's electronic throttle control.

When the agency much more quietly came out with a report a year later debunking the idea of an electronic defect, notice how little good it did Toyota. The car maker still found it necessary to cough up $1.2 billion to satisfy owners who claimed their cars lost value in the media frenzy over a non-defect. Toyota has also seen the tide turning against it lately as it resists a deluge of accident claims.

At first, opposing lawyers were hesitant to emphasize an invisible defect that government research suggested didn't exist. That was a tactical error on their part. In an Oklahoma trial last month involving an 82-year-old woman driver, jurors awarded $3 million in compensatory damages and were ready to assign punitive damages in a complaint focused on a hypothetical bug when Toyota abruptly settled on undisclosed terms.

In another closely-watched trial set to begin in California in March, an 83-year-old female driver (who has since died from unrelated causes) testified in a deposition that she stepped on the brake instead of the gas. The judge has already ruled that if the jury decides to believe her testimony, it is entitled to infer the existence of a defect that nobody can find.

These cases, out of some 300 pending, were chosen for a reason. Study after study, including one last year by the University of North Carolina Highway Safety Research Center, finds that elderly female drivers are inordinately prone to "pedal misapplication." If Toyota can't prevail in these cases, the company might be wise to run up the white flag and seek a global settlement that some estimate at upwards of $5 billion—quite a sum for a non-defect.

@kdrum Missing the Point. Doctors May Control the Cartel, but Government Gives it Power.

The other day, Kevin Drum wrote a post wondering why we had so few doctors per capital in the United States and observing, reasonably, that this might be one reason to explain why physician compensation rates were higher here than in other countries.

He and Matt Yglesisus argued that this smaller number of doctors and higher compensation rates were due to a physician-operated cartel.  This is a proposition I and most libertarians would agree with.  In fact I, and many others apparently, wrote to him saying yes there is a cartel, but ironically it owed its existence to government interventionism in the economy and health care.  In a true free market, such a cartel would only have value so long as it added value to consumers.

Drum seems to have missed the point.  In this post, he reacts to themany commenters who said that government power was at the heart of the cartel by saying no, it's not the government because doctors control the nuts and bolts decisions of the cartel.  Look!  Doctors are in all the key positions in the key organizations that control the cartel!

Well, no sh*t.  Of course they are.   Just as lawyers occupy all the key slots in the ABA.  But neither the ABA nor these doctors cartels would have nearly the power that they have if it were not for government laws that give them that power (e.g. giving the ABA and AMA monopoly power over licensing and school credentialing).  I had never heard of the RUC before, which apparently controls internship slots, but its ability to exercise this control seems pretty tied to the billions in government money of which it controls the distribution.

Let's get out of medicine for a second.  I am sure Best Buy wishes it had some mechanism to control new entrants into its business.  Theoretically (and it may have even done this) it could form the Association of Bricks and Mortar Electronics Retailers (ABMER).  It could even stake a position that it did not think consumers should shop at upstarts who are not ABMER members.  Take that Amazon!  Of course, without any particular value proposition to do so, consumers are likely to ignore the ABMER and go buy at Amazon.com anyway.

Such cartel schemes are tried all the time, and generally fail (the one exception I wonder about is the Visa/Mastercard consortium, but that is for another post).  Anyway, the only way the ABMER would really work is if some sort of government licensing law were passed that required anyone selling consumer electronics to be ABMER members.  And my guess is that the ABMER might not invite Amazon.com to join.  All of a sudden, Amazon is out of the electronics business.  Or maybe it just gets forced to deliver all its product through Best Buy stores, for a fee of course.

Crazy stupid, huh?  The government would never write licensing laws to protect a small group of incumbent retailers, right?  Well, tell that to Elon Musk.  Tesla has been trying for years to bring its cars to consumers in innovative ways, but have time and again run up against state auto dealership laws that effectively force all cars to be sold through the state dealer cartel.  Or you can talk to California wine growers, who have tried for years to sell directly to consumers in other states but get forced into selling through the state liquor wholesaler cartels.

All these cartels are controlled and manned by the industry, but they are enforced -- they are given their teeth -- by the government.

Here are a few off-the-top-of-my-head examples of cartel actions in the medical field admittedly initiated and supported and administered by doctors, that are enforced by state and federal law:

  • Certificate of need laws prevent hospitals from expanding or adding new equipment without government permission.  The boards in this process are usually stacked with the most powerful local hospitals, who use the law to prevent competition and keep prices high.  This is a great example where Drum could say that the decisions are essentially being made by hospitals.  Yes they are, but they only have the power to do so because the government that grants them this licensing power over competitive capacity.  Without this government backing, new hospitals would just laugh at them.
  • Government licensing laws let the AMA effectively write the criteria for licencing doctors, which are kept really stringent to keep the supply low.  Even if I wanted to only put in stitches all day to busted up kids, I would still have to go through 8 years of medical school and residency. Drum and Yglesias focus on the the number of medical schools and residencies.  I do not know if these are an issue or not.  But what clearly is an issue is the fact that one has to endure 8 expensive years or more just to be able to hand out birth control or stitch up a skinned knee.
  • Government licensing laws help doctors fight a constant rearguard action against nurse practitioners and other less expensively trained folks who could easily do half or more of what doctors do today.
  • The FDA and prescription drug law not only helps pharma companies keep profits up, but also increases business to doctors as people have to have a prescription for certain drugs they could easily buy on their own (e.g birth control pills, antibiotics).
  • The government limits immigration and thus labor mobility, reducing the ability of doctors from other countries to move here.

I am sure there are more.

There is no denying that in the middle of every industry cartel are insiders who are maneuvering to increase the rents of the incumbent players.  In fact, I am sure that every industry has participants who dream about getting off the competitive treadmill and creating a nice industry cartel, and would be the first to sign up.  But none of these dreams are ever going to happen unless they are enabled by the coercive power of government.

Of course, the consistent answer is, well, we just have the wrong guys running things.  If we had the right guys, it would work great.  But this kind of co-option always happens.   Look at taxis and liquor license holders and the entire banking sector.  Five years ago I would bet that progressives thought they finally had that right guy in the administration.  And look what has happened.  Banking cronyism is as strong as ever.  Obama's signature health legislation is full of crony giveaways.  In 6 months the health insurers are going to be running the entire PPACA infrastructure to their own benefit.

update:  This post is verging on the "is cronyism capitalism's fault" argument.  Rather than go into that again, it is here.

Update #2:  Related

Arkansas orthodontist Ben Burris was hauled in front of the state dental board in September after dentists in northeast Arkansas complained that he was offering dental cleanings to the general public in his Braces by Burris orthodontics clinics. The price for dental cleanings was $98 for an adult and $68 for a child, which Burris has said is about half of what dentists in northeast Arkansas typically charge.

Burris said most of the patients who need cleanings don’t have a dentist, but are checked by one of the three orthodontists in his clinic. Also, Burris said he offered the service because it was good for his business and good for the public. Some of his competitors “have gone absolutely ballistic” over the price and complained to the board, Burris said.

MP: Of course, the Arkansas dental cartel has no basis to complain directly about the low prices for dental cleaning at Braces by Burris clinics, so they are instead complaining that the clinic’s low-cost teeth cleaning services violate the states Dental Practice Act, which prohibits orthodontists and other specialists from practicing “outside their specialty.”