Posts tagged ‘productivity’

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.

Obama's New Wage and Hour Laws Worse For Our Company Than Rising Minimum Wages

Rising minimum wages are bad enough, but generally we can offset them with price increases (remember that, though, next time you get ticked off about your camping fees going up).  As an aside, not every business is in a competitive position that they can do this.

But the new Obama Administration rules greatly scaling back on our ability to have our managers be exempt employees is far, far worse.  Because its not just money, but it changes the entire relationship between me and my managers.  Most of my managers don't want to be hourly employees (you should see the complaint emails I am getting since I announced that this is likely coming) and have pride they have moved beyond timeclock punching.  Also, I think a lot understand they are not going to make more from this, and they may even make less.  To the extent they are working overtime today (and they all are) they will not be allowed to work overtime in the future.  So I will have to hire someone else to do those extra tasks, and that person's salary is likely to come in part from what the managers are making now.

These next few months I am having all of my salaried managers fill out time sheets just for analytical purposes.  I need to know how bad this is going to be.  If you run a business, you shouldn't be waiting for next year to do something, you need to be thinking and analyzing right now how you are going to handle these rules.

I wrote a long article on this here.  Stephen Miller has more in the same vein (via Overlawyered great wage and hour news roundup).  Here is a taste:

In McCutchen's view, the administration fails to understand that "it's still the same pot of money that's available to compensate the employee," whether a worker is classified as exempt or nonexempt. So if overtime pay is required, a likely result will be to strictly limit overtime hours worked, despite the adverse effect on productivity, rather than—as the administration expects—to increase the employee's annual compensation.

While many non-executive employees view themselves as professionals and react negatively when shifted to hourly compensation, "the DOL wants nearly everyone to be nonexempt, and to sign in and clock out as do unionized workers," McCutchen contended. "They don't believe that some employees prefer to be salaried, with guaranteed pay and the flexibility to adjust when they do their work."

Postscript:  I guess I just don't understand the vision that is in the head of Progressives.  How does it help their stated goal of empowering the average Joe to convert him from a valued, up-and-coming junior manager to a 40 hour a week timeclock puncher?  How will people ever be able to migrate from lower end jobs to management positions if there are not junior manager positions in which they can demonstrate their energy and dedication?  I suppose they must believe that junior managers will still be doing the same things and working the same hours, but just earning lots of extra overtime with these new rules.  If that is really what they think, they are completely divorced from reality.

CA Labor Commission Has Just Killed Uber, Though It May Take Years to Bleed Out

A while back I wrote a long article about all the ways the government is making it nearly impossible to employ low-skilled labor.  I worried that because it is getting harder and harder to profitably employ low-skill labor, the country would soon sort itself into those with skills and jobs and those on government assistance, with little or no opportunity for people in the second category to move to the first.

As part of that article, I observed that much of the capital in this country is flowing to new business models that use minimal numbers of employees.  I wrote:

Is it any surprise that most entrepreneurs are pursuing business models where they leverage revenues via technology and a relatively small, high-skill workforce?  Uber and Lyft at first seem to buck this trend, with their thousands of drivers.  But in fact they prove the rule.  Uber and Lyft are very very careful to define themselves and their service in a way that all those drivers don't work for them.  I would go so far to say that if Uber were forced to actually put all of those drivers on their payroll, and deal with they myriad of labor compliance issues, their model would fall apart.

Well, we are going to find out if my last statement is true.

The California labor commission has ruled that an Uber driver qualifies as an employee, not a contractor, of the company.  As a result Uber will have to reimburse a driver for expenses accumulated in the line of duty. That includes $256 in tolls and the IRS rate of $0.56 per mile for use of a personal vehicle for business purposes.

The actual issue in this case of reimbursement of expenses is pretty narrow, and actually kind of stupid.  Uber is already paying drivers effectively by the mile by giving them a percentage of the mileage-based fee customers pay.  All this will do is cause Uber to reduce the share of revenues drivers get by something like 56 cents a mile and then hand the $0.56 to them in a separate check.  Its an extra accounting and paperwork hassle, but business people deal with mitigating such government-imposed stupidity 10 times a day.

No, the real danger of this ruling lies far beyond expense reimbursement.  A few top of head thoughts

  • This would obviously make Uber drivers subject to minimum wage.  How does one even figure that out?  Now that there are local minimum wages (e.g. LA soon to be $15 an hour) how do you compute minimum wage for a trip that begins outside of LA but ends inside the city?  Or vice versa?
  • Uber drivers currently only get paid for transporting passengers, but what about their time driving around waiting for a passenger?  Will that be classified as standby time for which the employer must pay for?  You can expect the standby time class action in California in 3..2..1..
  • This changes the whole relationship between Uber and its drivers.  Currently, Uber does not have to worry about driver productivity or work ethic, as long as they get good customer ratings when they do drive. Why?  Because Uber is not paying them except when they haul a passenger.  Now, if they have to pay them by the hour, Uber suddenly must police them for productivity and set minimum revenue generation targets for drivers.  The flexibility that drivers love will be gone.
  • And then there is Obamacare.  If drivers drive more than 29 hours a week, Uber would have to provide health care or pay really expensive penalties.  Will Uber find it necessary, as my company has and many other service businesses have, to cap driver hours at 29 hours a week max?
  • What about California break law?  Employers have an affirmative duty to make sure employees take a 30 minute unpaid meal break after X hours.  And just allowing for it (ie allowing drivers to put themselves in unavailable status) is not enough - employers have to have processes and documentation in place to make sure the employee takes their break (I kid you not).
  • What about CalOSHA?  Is Uber suddenly responsible for working conditions and safety in the vehicle?  And how does it do that if it does not own the vehicle?
  • Every employee is essentially his or her own manager.  Does that now make Uber subject to ensuring every driver has all state-mandated manager training, such as sexual harassment training?
  • Employers are typically liable for actions by their employees, even if those employees are breaking the rules and ignoring the employer's wishes.  Is Uber now liable for a driver who, say, verbally harasses a passenger?  In the past, that gets sorted out pretty fast by the rating system, but does Uber have to take a more direct hand now do avoid a deluge of lawsuits?
  • As of July 1, California employers must provide paid sick leave to employees.  They must provide unpaid leave under the family and medical leave acts.  In fact, California requires employers provide and track literally dozens of forms of mandatory paid and unpaid leave (including leave for victims of stalkers, just as one example of the scope of these requirements)
  • The taxes and required fees owed by employers for each employee are myriad.  State and Federal income tax must be withheld, Social Security and Medicare taxes paid, California state disability tax paid, unemployment tax paid, and workers compensation premiums paid.
  • Unemployment could be real nightmare.  Can drivers choose to drive for a while, then take unemployment for a while, maybe while tourist season in San Francisco is slow, then go back to driving?  You think that can't happen?  A number of my seasonal employees work in the summer, then take unemployment all winter despite having no intention of trying to find work in the winter.  I pay 7% of wages in California as unemployment taxes and would pay more except that scale is capped and I can't get in a worse category than my current F-.
  • Then there are a myriad of smaller issues that probably can be solved but consume bandwidth of a company's management that would otherwise be innovating.  As one small example, one has to post about 20 different state and Federal labor posters in CA where all employees can see them.  Where would that be for Uber drivers?

We Still Haven't Figured Out How to Measure Prosperity

The previous chart on beer availability reminds me of an issue I have been thinking about for a while -- that we do no know how to measure prosperity.

GDP growth and unemployment reduction are terrible measures.  Just to give one example, these measures looked fabulous in WWII.  But the average person living in the US had access to almost nothing -- they couldn't buy anything under rationing, they couldn't travel for leisure, etc.   GDP looked great because we were building stuff and then blowing it up, the economic equivilent of digging a hole and filling it in (but worse, because people were dying).  And unemployment looked great because we had drafted everyone and sent them off to get shot.

But median income and net worth numbers fail to measure prosperity as well.  The reason was described in this post here way back in 2007.

The home on the left was owned by Mark Hopkins, railroad millionaire and one of the most powerful men of his age in California.  Hopkins had a mansion with zillions of rooms and servants to cook and clean for him, but he never saw a movie, never listened to music except when it was live, never crossed the country in less than a week.  And while he could afford numerous servants around the house, Hopkins (like his business associates) tended to work 6 and 7 day weeks of 70 hours or more, in part due to the total lack of business productivity tools (telephone, computer, air travel, etc.) we take for granted.  Hopkins likely never read after dark by any light other than a flame.

If Mark Hopkins or any of his family contracted cancer, TB, polio, heart disease, or even appendicitis, they would probably die.  All the rage today is to moan about people's access to health care, but Hopkins had less access to health care than the poorest resident of East St. Louis.  Hopkins died at 64, an old man in an era where the average life span was in the early forties.  He saw at least one of his children die young, as most others of his age did.  In fact, Stanford University owes its founding to the early death (at 15) of the son of Leland Stanford, Hopkin's business partner and neighbor.  The richest men of his age had more than a ten times greater chance of seeing at least one of their kids die young than the poorest person in the US does today.

How do we take into account that even if a person has the same income as someone in 1952, they are effectively wealthier in many ways due to access to medical procedures, travel, entertainment, electronic devices, etc?

Somehow we need to measure consumer capability -- not just how much raw money one has but what can one do with the money?  What is the horizon of possibilities?  Deirdre McCloskey tends to eschew the term capitalism in favor of "market-tested innovation."  I think that is a pretty powerful description of our system.  But if it is, we really are only measuring the impact of productivity and cost-reduction innovations.  How do we measure the wealth impact of consumer-empowerment innovations like iPhones?  Essentially, we don't.  Which, by the way, may be one reason our current crappy metrics say we have growing income inequality.  With our current metrics, Steve Jobs' increase in wealth is noted in the metrics, but the metrics don't show the rest of us getting any wealthier by the fact that we can now have iPhones (or the myriad of competitors the iPhone spawned).  The consumer surplus from iPhones undoubtedly dwarfs the money Jobs made, but it doesn't show up in any wealth calculations.

A few years ago I told a youth group that there were still many things left to discover in the mundane world -- by this I meant the everyday world we encounter and not just at the limits of the universe or at the scale of quarks.  The example I gave at the time is that there is a lot of room for better techniques to tease out causality in complex systems -- e.g. how much did the stimulus really affect the economy or how much does CO2 really affect temperatures.  I would add this question of measuring prosperity as a second item in this category.

Worst Argument for Regulation Ever

We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value.  But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die.  Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation

I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:

Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.

Drum says, well this may be good or may be bad.  Look, it HAS to be bad.  All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value.  This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.

The language he is using, of shaking things up, is a bit like that of chemistry.  He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse.  I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent.  And impossible to spot, even if it did exist.  Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.

Scott Sumner Explains a Lot of Climate Alarmism, Without Discussing Climate

Scott Sumner is actually discussing discrimination, and how discrimination is often "proven" in social studies

The economy operates in very subtle ways, and often when I read academic studies of issues like discrimination, the techniques seem incredibly naive to me. They might put in all the attributes of male and female labor productivity they can think of, and then simply assume than any unexplained residual must be due to "discrimination." And they do this in cases where there is no obvious reason to assume discrimination. It would be like a scientist assuming that magicians created a white rabbit out of thin air, at the snap of their fingers, because they can't think of any other explanation of how it got into the black hat!

Most alarming climate forecasts are based on the period from 1978 to 1998.  During this 20 year period world temperatures rose about a half degree C.  People may say they are talking about temperature increases since 1950, but most if not all of those increases occurred from 1978-1998.  Temperatures were mostly flat or down before and since.

A key, if not the key, argument for CO2-driven catastrophic warming that is based on actual historic data (rather than on theory or models) is that temperatures rose in this 20 year period farther and faster than would be possible by any natural causes, and thus must have been driven by man-made CO2.  Essentially what scientists said was, "we have considered every possible natural cause of warming that we can think of, and these are not enough to cause this warming, so the warming must be unnatural."  I was struck just how similar this process was to what Mr. Sumner describes.  Most skeptics, by the way, agree that some of this warming may have been driven by manmade CO2 but at the same time argue that there were many potential natural effects (e.g. ocean cycles) that were not considered in this original analysis.

IOS App Recommendation -- Tripcase

I really am not a productivity app sort of guy.  I have a lot of games, but most apps strike me as just dedicated browsers for someone's web site.    To date I am a big user of the Kindle app and the Feedly RSS feed reader app and the Gmail app.   Oh, and Google maps (the Apple maps program still sucks).   And that is about it.

But I have been using Tripcase (free) to bring together all my travel info and I really like it.  All one has to do is forward airline, hotel, car rental, restaurant, etc confirmations to a certain email address and the program parses out what information it needs.  The only work is that each confirmation gets set up as a separate trip, but it is easy to merge three or four together to get all of one trip in a single record.  It provides a nice interface with travel information and provides notifications for such things as flight delays and gate changes.

Laissez Faire and the Potato Famine

Via Cafe Hayek

As explained by historian Stephen Davies, after defeating James II in 1690, protestants subjected Irish Catholics to harsh restrictions on land ownership and leasing.  Most of Ireland’s people were thus forced to farm plots of land that were inefficiently small and on which they had no incentives to make long-term improvements.  As a consequence, Irish agricultural productivity stagnated, and, in turn, the high-yield, highly nutritious, and labor-intensive potato became the dominant crop.  In combination with interventions that obstructed Catholics from engaging in modern commercial activities – interventions that kept large numbers of Irish practicing subsistence agriculture well into the 19th century – this over-dependence on the potato spelled doom when in 1845 that crop became infected with the fungus Phytophthora infestans.

To make matters worse, Britain’s high-tariff “corn laws” discouraged the importation of grains that would have lessened the starvation.  Indeed, one of Britain’s most famous moves toward laissez faire – the 1846 repeal of the corn laws – was partly a response to the famine in Ireland.

Had laissez faire in fact reigned in Ireland in the mid-19th century, the potato famine almost certainly would never had happened.

This Minimum Wage Conversation is Not a Hypothetical -- I Have It All The Time

Don Boudreax writes:

Here’s a project for all unemployed young people – say, ages 18 through 21 – in America today.  Go to a nearby supermarket or restaurant or lawn-care company or pet store and ask for a job at the minimum wage.  If you are denied, offer to work for $4.00 per hour.  The owner or manager will almost surely decline, saying that it’s against the law.

“Would you like to hire me at $4.00?” you ask.

“Well yes I would” is the answer you’re likely to get in reply.

“So, hire me at that wage.  I’m an adult, I’m sober, and I have no mental issues.  I’m willing to work for $4.00 per hour.”

“You don’t get it, kid.  I can’t hire you at that wage.  I’ll get fined, or worse.  Go away.”

“Ok, I’ll leave.  But no one – including you – will hire me at $7.25 per hour.  What am I supposed to do?”

“Look kid.  That’s your problem.  I’m sorry.  I don’t make the laws, but I gotta follow them.  Go away now.”

I know that this is a realistic scenario because I have this conversation with employees all the time.  Except in my case, applicants are generally not 18 years old but 70 years old.

A bit of background:  My company operates campground and other recreation areas mainly using retired people who live on-site in their own RV's.  Few of my 400+ employees are under 65 and several are over 90.

There are several reasons this conversation occurs:

  • As my employees get older, and perhaps sicker with various disabilities, their work slows down to the point that it falls under our productivity expectations.  Employees may come to me saying they want to stay busy but they know they don't work very fast but they would be happy to work for $5 or $4 an hour if they could just keep this job they love.  (There is a Federal law that allows waiving of minimum wages for disability situations.  We tried it -- once.  The paperwork was daunting and the approval came 7 months after the application -- 2 months after the seasonal employee had already gone home for the year).
  • Many people like to stay busy but face wage caps where they begin to lose their Social Security.  They want to keep their total income under the wage cap.  We try to create some jobs that require fewer hours so they can get their wages down that way, but in many cases we have a limited number of on-site living spots and a fixed amount of work such that each person occupying a living spot must do a certain amount of work to make sure it all gets done.  So at some point we can't give them fewer hours, and then they will ask for lower pay.

I frequently have to tell people I simply cannot pay them less.  They ask if they can sign a paper saying they want to be paid less, and I tell them something like "no, the law assumes you are a gullible rube and that I am evil and infinitely powerful so that if you sign a paper, it just means I forced you to do it."  Which is all true, that is exactly the logic of the law.

People look at me funny sometimes when I say the minimum wage law limits employee rights by putting a floor on what they may charge for their labor.  This is an odd way of putting it for them, because minimum wage laws are generally explained in the oppressor-oppressed model, but it makes perfect sense from my experience.

The Problem with Infrastructure

Obama, accompanied by the usual chorus on the Left including Kevin Drum, is yet again trumpeting infrastructure spending as a partial economic solution for what ails us, in part based on a McKinsey Global Institute report.   Infrastructure is like education (the other half of the Obama "plan") -- it's hard to find anyone against it per se, it is easy to find examples of it failing, and it is really hard to craft programs at the Federal level that really improve anything.

Having been inside the McKinsey sausage factor for five years, I was loath to just accept their conclusion without seeing the data, so I read the section of the report on infrastructure.  Having read the report, I still don't see how they got to the under-funding number.  Some of the evidence is laughably biased, such as pronouncements from the American Society of Civil Engineers, who clearly would be thrilled with more government infrastructure spending.  The rest comes from something called the world economic forum, but I simply don't have the energy right now to follow the pea any further.

I had two reactions to this plan:

  1. Presumably what infrastructure projects we choose matters, so how can we have any confidence (given things like our green energy investment program) that these investments will be chosen wisely and not based on political expediency?
  2. From my experience, and also from the McKinsey numbers, most of the infrastructure needs are refurbishment and replacement of existing infrastructure, rather than new infrastructure.  But politicians are typically loath to make these kind of investments, preferring to offer new toys to voters rather than saying all that money was spent just to keep their existing toys.  Just look at the DC metro system, which is still pursuing expensive expansion plans at the same time it refuses to perform capital maintenance and replacement on its current crumbling infrastructure.  Or look at Detroit which is falling apart but still wants to spend $400 million on a new hockey rink.

I was pleasantly surprised that McKinsey actually raised both of these issues as critical.  To the point about project selection:

To effectively deploy additional investment in infrastructure, the United States will have to improve its performance on project election, timely delivery and execution, and maintenance and renewal. This could raise the overall productivity of US infrastructure by as much as 40 percent and generate more economic impact for every dollar spent. And there is added pressure to raise infrastructure productivity today: as commodity prices rise, input costs are going up as well. In extreme circumstances, this can even lead to spot shortages of asphalt and other critical materials, making productive use of such assets even more important.

One of the most effective ways to make infrastructure investment more productive is to choose the right mix of projects from the outset. Too often, the primary approval criteria for project selection in the United States are political support and visibility rather than comprehensive cost-benefit analysis.129 Even when economic analysis is used, it is not always rigorous, or it may be disregarded in actual decision making. When state and local governments choose sub-optimal projects, the cost of financing rises, so focusing on those projects with the clearest returns is a crucial part of taking a more cost-effective approach for the nation as a whole.

In addition, planners at all levels of US government tend to have a bias toward addressing congestion and bottlenecks by building new capacity. But rather than immediately jumping to build new infrastructure projects to solve problems,
planners and project sponsors might first consider refurbishing existing assets or using technology to get more out of them. (See “Better maintenance, optimization, and demand management can extend the life of existing infrastructure assets” later in this chapter.)

The McKinsey study is not arguing for Keynesian digging holes and filling them in again.   They are arguing for infrastructure spending but only if it is better targeted than such programs have been in the past.   Anything about this Administration (or any other Administration, really) that gives you confidence this will happen?

In fact, they argue that a large reason for under-developed infrastructure is not the spending level per se but the insanely inefficient way in which government spends the money

Delays and cost overruns are a familiar refrain in infrastructure projects. Boston’s Big Dig, for example, remains the costliest highway project in US history and was plagued by years of delay and shoddy construction. Originally estimated at $2.6 billion, it now has a final price tag estimated by the Massachusetts Department of Transportation at $24.3 billion, including interest on borrowing. More recently, the San Francisco–Oakland Bay Bridge is being completed almost a decade late, and its original budget of $1.3 billion has grown to more than $6 billion.

Finally, their recommendation focuses more on maintenance and the prosaic, rather than expensive sexy headline grabbing investments (cough California high speed rail cough) that politicians prefer

Another major strategy for increasing infrastructure productivity involves maximizing the life span and capacity of existing assets. In many cases, directing more resources to these areas may be a more cost-effective choice for policy makers than new build-outs.

First, there is a need to focus more attention on maintenance, refurbishment, and renewal. This is an increasingly urgent issue for the nation’s aging water infrastructure, much of which was built in the years immediately after World War II; some of the nation’s oldest pipe systems are now more than a century old. Even more recent water treatment plants will need refurbishment: many built in the
1970s after passage of the Clean Water Act will soon require rehabilitation or replacement. Proactive maintenance to upgrade and extend the life of these aging systems is becoming a more urgent priority.

The study uses a GDP multiplier of 1.77 for infrastructure spending, which explains why their claimed GDP impacts are so high.  Using this kind of chicked-in-every-pot high multiplier will of course make infrastructure spending seem like a no-brainer.  Of course those of us with more sympathy towards Austrian economics, wherein recessions are caused by misallocations of capital, will worry that this kind of government spending program, shifting private resources to public decision makers to spend, will only double down on the same crap that caused the recession in the first place.  I grew up with Japan's MITI being praised as a model by the American Left, watched the lost decades that followed this government-directed investment program, and believe that a similar reckoning is coming in China.

But A Minimum Wage Hike is A-OK?

I don't know how I got onto blogging all Steven Rattner, all the time, but here I go again.  Mr. Rattner is complaining that the sequester is costing his son a chance at a government internship for which he had wanted to apply.

So perhaps Mr. Rattner's son could go work in a productive field instead?  Oops, probably not, because rising minimum wages and Obama Administration crack-downs on unpaid private internships have made it harder for all the rest of us to get our little preciouses an internship.  I will bet any amount of money that the number of internships killed by minimum wage laws is at least two orders of magnitude larger than the number of internships killed by the sequester.

And besides, we should be thrilled that  one less young person is having their formative organizational experiences (from conflict resolution to productivity expectations) in government.

Oh, and by the way, that bit about the Obama Administration cracking down on unpaid internships?  Well, that only applies to you private employers who are teaching useless skills like innovation and wealth creation.  Jobs that teach Congress's organizational and productivity secrets don't have to be paid because of all the valuable lessons taught.

US Doctor Salaries

Kevin Drum thinks he has found the smoking health care gun - US doctors are paid more than everyone else.  That is why we have too-expensive medical care!  A few quick thoughts

  • I am the last one to argue that doctors salaries are set anywhere like at a market clearing price.  Our certification system, crazy third-party payer systems, lack of price transparency, and absurd arguments over the "doc fix" and Medicare reimbursement rates all convince me that doctor salaries must be "wrong"
  • The charts he shows have absolutely no correction for productivity, at least as I read the methodology.  Per the text, they don't even have correction for hours worked.  A McKinsey report several years ago found that US doctors made more, but also saw a lot more patients in a day.  GP care cost more than expected vs. other country's experience, but is due mostly to number of visits, not cost per visit.
  • There is no correction for doctor expenses.  Malpractice insurance, anyone?  We have the most costly malpractice insurance in the world because we have the most broken system.  Doctors pay that out of their salary
  • US GP salaries in Drum's linked report are actually falling, unlike all the other countries studied.  Seem to have fallen 6% in 10 years (page 18), whereas France, for example, has increased more than 10%.

To the last point, I have a hypothesis.  When you first overlay a government health care / price control regime, you get an initial savings.  Doctors are forced to work for less and they still, out of habit and momentum, abide by past productivity standards.  But over time, productivity, like any government-captured function falls.  And over time, doctors, like other civil service groups, become better at organizing and lobbying and begin to get increasing pay packages.  After all, if teachers and fire-fighters can scare Californians into absurd pay and benefit packages, what do you think doctors will be able to do once they learn the game?

A Quick Reminder to Swedish Workers

Apparently Swedish unions are demanding a looser monetary policy

Forget Chuck Schumer's cat-out-of-the-bag 'get back to work' comments to Bernanke, now it is union-leaders who are advising the world's central bankers. "There is a not a single reason not to lower rates" exclaims Sweden's trade union confederation to the central bank as he begins negotiations with employers on wage deals for next year. His demands (for lower rates) are "far from excessive" and he adds "should not cause inflation" as Swedish organized labor have "never called for levels that ... could not be supported economically."

Inflation and monetary debasement have always been Progressive favorites -- until, of course, they were not.  Consider the plight of the worker in Weimar Germany

By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.

It was total hell.  If a worker's family member could not find something to buy in the morning with the worker's morning pay packet, the money was worthless by dinner time.  Not to mention the incredible lost productivity of all those man-hours spent running around trying to find goods on shelves (of which we got a small taste post-Sandy, as people spent hundreds of dollars of their own time waiting in queues because the government would not let gas station owners charge them an extra $20 for scarce gasoline).

Bid Rigging for Municipal Asset Management

Rolling Stone Magazine has an good story on the conviction of a number of banks and brokers on charges of bid-rigging, specifically on contracts for short-to-medium term management of municipal bond cash accounts.  Apparently brokers were paid by certain banks to be given a look at all the other bids before they made their final bid.  The article focuses mainly on the ability of winning bidders not to bid any higher than necessary, though I would suppose there were also times when, given this peek, the winning bidder actually raised its bid higher than it might have to ace out other bidders.

This is classic government contracting fraud and it's great to see this being rooted out.  I am not wildly confident it is going to go away, but any prosecutorial attention is welcome.

But I am left with a few questions:

  • It seems that government contracting is more susceptible to this kind of manipulation.  Similar stories have existed for years in state highway contracting, and the municipal bond world has had accusations of kick-backs for years.  Is this a correct perception, or is the rate of fraud between public and private contracting the same but we just notice more with the government because the numbers are larger, the press coverage is greater, and the prosecutorial resources are more robust?
  • If government contracting of this sort is more susceptible to fraud, why, and how do we fix it?

The latter is not an academic question for me.  I run a company that privately operates public recreation areas.  I bid on and manage government contracts.  Frequently, a major argument used against the expansion of such privatization initiatives is that past government outsourcing and contracting efforts have been characterized by fraud and mismanagement.  The argument boils down to "the government has so many management problems that it can't be trusted with contracting for certain services so it needs to operate those services itself."

The only way to reconcile this view is to assume that private actors are more likely to act fraudulently and be dishonest than public employees.  If this were true, then the public would be safer if a public management process of questionable ability were applied towards public employees rather than outside private contractors, because those who were being managed would be less likely to take advantage.  And certainly there are plenty of folks with deep skepticism of private enterprise that believe this.

However, I would offer that only by adopting an asymmetric view of what constitutes fraud would we get to this conclusion.  Clearly, banks colluding to shave a few basis points off municipal asset returns is fraud.     As the author of the Rolling Stone piece puts it several times, the crime here is that the public did not get the best market rate.  So why is, say, elected officials colluding with public employees unions to artificially raise wages, benefits, and staffing levels above market rates not fraud as well?  In both cases insiders are manipulating the government's procurement and political processes to pay more than the market rates for certain services.

This is Bastiat's "seen and unseen" of the privatization debate.   Yes, the world is unfortunately littered with examples of government procurement fraud.  This is often cited as a reason for maintaining the status quo of continued government management of a diverse range of services.  But what we miss, what is unseen, is that these government services are often run with staffing levels, work rules, productivity expectations, and pay rates that would constitute a scandal if uncovered in a division of a corporation, particularly if the workers were spending a lot of money to make sure the manager handing them this largess was able to keep his job.

Yes, the public lost several basis points on its investments when it did not get the market rate of return from cheating bankers.  But it loses as much as 50% of every tax dollar sent to many state agencies because it does not get market rates (and practices) for state labor.

An Amazing Hypothesis: Supernovas and Earth's Climate

A reader sent this abstract of a Henrik Svensmark study with a one word caption:  Wow!  I agree.  The notion that "local" (and by local, we mean unimaginably far away) supernova affecting the Earth's climate is certainly creative.  Haven't even read the thing so certainly not buying it yet, but it certainly is an amazing hypothesis.

Observations of open star clusters in the solar neighbourhood are used to calculate local supernova (SN) rates for the past 510 Myr. Peaks in the SN rates match passages of the Sun through periods of locally increased cluster formation which could be caused by spiral arms of the Galaxy. A statistical analysis indicates that the Solar system has experienced many large short-term increases in the flux of Galactic cosmic rays (GCR) from nearby SNe. The hypothesis that a high GCR flux should coincide with cold conditions on the Earth is borne out by comparing the general geological record of climate over the past 510 Myr with the fluctuating local SN rates. Surprisingly, a simple combination of tectonics (long-term changes in sea level) and astrophysical activity (SN rates) largely accounts for the observed variations in marine biodiversity over the past 510 Myr. An inverse correspondence between SN rates and carbon dioxide (CO2) levels is discussed in terms of a possible drawdown of CO2 by enhanced bio-productivity in oceans that are better fertilized in cold conditions – a hypothesis that is not contradicted by data on the relative abundance of the heavy isotope of carbon, 13C.

I was initially very skeptical of Svensmark's work attempting to link cosmic rays to cloud formation, with that affect acting as an amplifier (in terms of warming and cooling effects) of changes in solar output.  I must say that over time, that work has survived replication effects pretty well.

Eating Your Seed Corn

I found this to be one of the most immoral statements I have read in a long time (bold added)

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.

Another way to state the passage in bold is, "if one can convince himself he will be happier with another person's money than that other person would be, it is not only morally justified, but a moral imperative to take it."

This is the moral bankruptcy of the modern welfare state laid bare for all to see.  Not sure if this even deserves further comment.  Either you see the immorality or you bring a lot of very different assumptions about morality to the table than I.  For those of you who accept the quoted statement, how are you confident you will always be the taker, the beneficiary?  You might be if the box is drawn just around the US, but from a worldwide perspective all you folks in the American 99% may find yourselves in the world's 1%.

And from a purely practical standpoint, while I suppose one might argue that the total happiness in this particular instant could be maximized by taking most all the rich's marginal income, what happens tomorrow?  It's like eating your seed corn.  Taking capital out of the hands of the folks who have been the most productive at employing capital and helicopter dropping it on the 99% feels good right up until you need some job creation or economic growth or productivity improvement.

To this day, over 30 years after I had it explained in economics class, I am still floored by the line I read in the introductory macro textbook describing the Keynesian manipulation of Y=C+I+G+(X-M) to demonstrate a "multiplier" effect.  The part that I never could get over was at the very beginning when they said "I, or Investment, is considered exogenous" - in other words, the other variables could be freely manipulated, the government could grow and deficit spend as much as it liked, and investment would be unaffected.  Huh?

My memory was that Keynesians considered "I" a loser.  They felt anything that was not G or C actually acted as a drag, at least in the near term (in the long run we will all be dead).  This despite the fact that "I" is the only thing that grows the pie over time.

Chinese Declaration of Independence

This is a story I don't know enough about

Farmers from 18 households in Xiaogang signed a secret life-and-death agreement ending collective farming with their thumbprints. (From Cowen and Tabarrok, Modern Principles: Macroeconomics)

The Great Leap Forward was a great leap backward – agricultural land was less productive in 1978 than it had been in 1949 when the communists took over.  In 1978, however, farmers in the village of Xiaogang held a secret meeting.  The farmers agreed to divide the communal land and assign it to individuals – each farmer had to produce a quota for the government but anything he or she produced in excess of the quota they would keep.  The agreement violated government policy and as a result the farmers also pledged that if any of them were to be killed or jailed the others would raise his or her children until the age of 18. [The actual agreement is shown at right.]

The change from collective property rights to something closer to private property rights had an immediate effect, investment, work effort and productivity increased.  “You can’t be lazy when you work for your family and yourself,” said one of the farmers.

Word of the secret agreement leaked out and local bureaucrats cut off Xiaogang from fertilizer, seeds and pesticides.  But amazingly, before Xiaogang could be stopped, farmers in other villages also began to abandon collective property. In Beijing, Mao Zedong was dead and a new set of rulers, seeing the productivity improvements, decided to let the experiment proceed.

The Ultimate End of Social-Democratic Labor Policy

When a country

  • Increases the minimum wage, and therefore the minimum skill / productivity needed for a job
  • Adds substantially to the costs of labor through required taxes, insurance premiums, pensions, etc
  • Makes employees virtually un-fireable, thus forcing companies to think twice about hiring young, unproven employees they may be saddled with, good or bad, for decades
  • Puts labor policy in the hands of people who already have jobs (ie unions)
  • Shift wealth via social security and medical programs from the young to the old

It gets this

 

The bitterly ironic part is that when these folks hit the streets in mass protests, it will likely be for more of the same that put them there in the first place.

 
Want to argue that such policies are hurting workers rather than helping?  Good luck, at least in Italy

Pietro Ichino, a professor of labor law at the University of Milan and a senator in the Italian legislature, is known as the author of several “neoliberal” books and studies recommending that the Italian government relax its extraordinarily stringent regulation of employers’ hiring and firing decisions. As Bloomberg Business Week reports, that means that Prof. Ichino must fear for his life: “For the past 10 years, the academic and parliamentarian has lived under armed escort, traveling exclusively by armored car, and almost never without the company of two plainclothes policemen. The protection is provided by the Italian government, which has reason to believe that people want to murder Ichino for his views.”

Memo to US:  Don't get cocky, you are going down the same path

 Update:  Interesting and sort of related from Megan McArdle

An apparent paradox that frequently puzzles journalists is that Europeans work fewer hours than workers in the United States, while in some countries, hourly productivity appears to be the same, or even higher, than that of American workers.
This is not actually a paradox at all.  Much of the decline in European hours worked per-capita came in the form of unemployment.  Rigid labor laws which make it hard to fire (and thus, risky to hire) shut less productive workers out of the market, particularly the young, and those who had been displaced due to disruptive industry change.  So does anything that raises the cost of labor, like, er, loads of mandatory vacation and leave.  When you exclude your least productive workers from the labor force, your measured hourly productivity will be higher, particularly if you use metrics like GDP per hours worked.

Government Mal-Investment

A reader sends me this editorial from Jerry Jordan at IBD.  It discusses a topic that is one of my favorites - government mal-investment.  By a thousand different mechanisms, from direct investment (Solyndra) to artificial interest rates to monkeying with price signals to economic rule-making (e.g. community banking, ethanol mandates) the government is shifting capital and resources from the allocations a well-funcitoning market would make to optimize returns and productivity to allocations based on political calculation.  We rightly worry about deficits and taxes, but in the long run this redistribution of investment from the productive to the sexy or politically expedient may have the largest long-term negative implications -- just look at what the management of the Japanese economy by MITI (touted at the time as fabulous by statists everywhere) did to that country, with the lost decade becoming the the lost two decades.

It is hard to excerpt but here is how it begins

It usually surfaces with an entrepreneurial adolescent deciding it would be a good idea to sell lemonade at the curbside to passersby

Parents, wanting to encourage the idea that working and making money is a good idea, drive around to buy the lemon, sugar, designer bottled water, cups, spoons, napkins, a sign or two, and probably a paper table cloth.

Aside from time and gas, the outing adds up to something north of $10. At the opening of business the next day, the kids find business is slow to nonexistent at $1 per cup. So, they start to learn about market demand and find that business becomes so brisk at only 10 cents per cup that they are sold out by noon, having served 70 cups of lemonade and hauled in $7.

The excited lunch-time conversation is about expanding the business. A stand across the street to catch traffic going the opposite direction; maybe one around the corner for the cross-street traffic. The kids see growing revenue; the "investors" see mounting losses.

There is a strand of economics, we'll call it the K-brand, that sees all this as worthwhile. They add together the $10 spent by the parents to back the venture and the $7 spent by the customers and conclude that an additional $17 of spending is clearly a good thing. Surely, the neighborhood economy has been stimulated.

To the family it is a loss, chalked up as a form of consumption. If this were a business enterprise it would be a write-off. In classical economics it is a "mal-investment."

 

Name the Industry

Name the industry where 99.9% of the time, public policy has an explicit goal to substantially reduce worker productivity.   Answer.

Do You Want to Be A Farmer?

I have zero desire to be  a farmer.  But that would seem to be the logical end result if we take Obama's recent statement to its logical conclusion.  He said in his Kansas "OK, I really am a socialist after all" speech:

Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.

As has been pointed out by economists everywhere since the speech, Obama is fighting against the very roots of wealth creation and growth and our economy.  Productivity improvement has always been the main engine of a better life for Americans, but here Obama is decrying it.

This reduction in employment in major industries due to productivity is not new.  It began with the agriculture.  Check this out from the always awesome Mark Perry

This is exactly what Obama is criticizing.  Without productivity improvements of the type Obama seems to hate, nine out of ten of you would be laboring in a field rather than reading this on the Internet.   Are you poorer because you don't have to grow your own food?  Of course not.   Every time we increase productivity in a major industry, we fee up labor for the next big thing.  We couldn't have had the steel or auto or oil industries if agricultural productivity improvements had not feed up labor for them.  The computer revolution would be impossible if we all were working in steel mills.

PS- of course this does not work if the next big thing, say domestic gas productions through fracking, is blocked by the government and private investment capital is diverted by the government to cronies with a solar panel factory.

Paying More Now So We Can Pay More Later

From the Goldwater Institute, on the amount of money we in Phoenix are paying in taxes to support union management costs

Phoenix taxpayers spend millions of dollars to pay full salary and benefits for city employees to work exclusively for labor unions, a Goldwater Institute investigation found.

Collective bargaining agreements with seven labor organizations require the city to pay union officers and provide members with thousands of additional hours to conduct union business instead of doing their government jobs.

The total cost to Phoenix taxpayers is about $3.7 million per year, based on payroll records supplied by the city. In all, more than 73,000 hours of annual release time for city workers to conduct union business at taxpayers’ expense are permitted in the agreements.

The top officials in all of the unions have regular jobs with the city. But buried in the labor agreements are a series of provisions for those employees to be released from their regular duties to perform union work.

For top officers, the typical amount of annual release time is 2,080 hours, a full year of work based on 52 weeks at 40 hours each. They continue to draw full pay and benefits, just as if they were showing up for their regular jobs. But they are released from their regular duties to conduct undefined union business.

Union officials say the time is a good investment that leads to a more productive workforce. Critics say it amounts to an illegal gift of taxpayer money.

The "more productive workforce" line is just hilarious.  99.9% of the this work very likely is against the best interests of taxpayers, either raising future salaries or enforcing productivity-killing work rules or preventing the termination of incompetent employees.

I understand that there are similar provisions in some private union contracts, but if I was a shareholder in these companies I would be outraged about those as well.  As it turns out, private companies that have these deals tend to be among the most dysfunctional and uncompetitive in the country (e.g. GM).

What's particularly ugly about this is that it is so reminiscent of a number of Soprano's episodes, with the mafia guys all sitting around in no-work and no-show jobs at taxpayer expense.

Believe it or Not....

... there are actually folks who think that Obama's farcical and unreachable 54.5 mpg standards for cars are too low.

Since cars are redesigned every 5 years, the 2025 date is basically 3 car revisions from now.  It also is far enough in the future the auto makers can cynically sign on now fully expecting to ignore or change the regulation in the future.

This is the corporate state in 2011.  Every single executive signing on to this is thinking "this standard is total BS."  But they go along with it because they fear the government's power over them and crave the valuable taxpayer $ giveaways this Administration has demonstrated it is willing to give its bestest buddies in the auto industry.

Of course, once again, some greenie has convinced himself this will create all sorts of jobs.   Sure, investments in car mileage is an investment in productivity (cars will uses fewer resources for the same output, ie miles driven).  BUT - the money that will be forced into this investment would come from other spending and investments.  Right now, private actors think that these other investments are a better use of the money than investing in more MPG.  I will take the market's verdict over the gut feel of an innumerate green.  So this standard is about shifting investment and spending from more to less productive uses.  Which has to reduce growth and jobs.

Stossel on Keynsianism

This is right on the mark

His description of what Keynesians believe is correct. It's why Keynesians, including the President, thought that government spending would stimulate the economy. As Klein points out, "Obama didn't just have a team of Keynesians. He had the Keynesian all-star team."

Right, but then Klein gets it wrong: "The idea [behind Keynesian economics], in other words, is not about whether the government spends money better than individuals."

Yes it is! Obama and Klein think that during a recession, "the financial system scares business and consumers so badly that they hoard money, which worsens the damage to the system." Therefore, the government must take money away from individuals, and spend it elsewhere. Eric Cantor correctly pointed out that the theory is: "government can be counted on to spend more wisely than the people."

Part of the problem here is in nomenclature.  People don't think of saving as spending.  So I will shift a word a bit.  The idea of Keynesian economics is that the government can deploy your money better than individuals can.

The cause of the asset bubble for this argument is almost irrelevant.  Households, finding themselves over-leveraged, want to deleverage by buying fewer things and saving more money.  The Keynesians explicitly wanted to prevent this by taking the money that would have been saved and spending it.  This destroys value in two ways.  As Stossel points out, it shifts money from being deployed with an eye on productivity to being deployed with an eye on politics.  From a value-creation standpoint, this has to destroy value.  In addition, by slowing the process of deleveraging, it slows the recovery, unless individuals in the mean time can be convinced that they really don't need to deleverage.  And is that really the post-bubble message we should be sending out?

 

Mandating Faulty Accounting to Reach Absurd MPG Standards

President Obama wants a 56.2 mile per gallon standard for cars by 2025.  Both advocates and opponents of this say the only way to make this is if everyone drives an electric car or plug in hybrid.  But the fact of the matter is, even those don't get 56.2 mpg, except through an accounting fiction.

A while back I ran the numbers on the Nissan Leaf. According to the EPA, this car gets an equivalent of 99 MPG.  But that is only by adopting the fiction of looking only at the efficiency in converting electricity to power in the wheels.  But the electricity comes from somewhere (the marginal kilowatt almost certainly comes from a fossil fuel) and the new EPA methodology completely ignores conversion efficiency of fuel to electricity.  Here is how I explained it at Forbes:

The problem is that, using this methodology, the EPA is comparing apples to oranges.   The single biggest energy loss in fossil fuel combustion is the step when we try to capture useful mechanical work (ie spinning a driveshaft in a car or a generator in a power plant) from the heat of the fuel’s combustion.  Even the most efficient processes tend to capture only half of the potential energy of the fuel.   There can be other losses in the conversion and distribution chain, but this is by far the largest.

The EPA is therefore giving the electric vehicle a huge break.  When we measure mpg on a traditional car, the efficiency takes a big hit due to the conversion efficiencies and heat losses in combustion.  The same thing happens when we generate electricity, but the electric car in this measurement is not being saddled with these losses, even though we know they still occur in the system.

Lets consider an analogy.  We want to measure how efficiently two different workers can install a refrigerator in a customer’s apartment.  In both cases the customer lives in a fourth floor walkup.  The first installer finds the refrigerator has been left on the street.  He has to spend much of his time struggling to haul the appliance up four flights of stairs.  After that, relatively speaking, the installation is a breeze.  The second installer finds his refrigerator has thoughtfully been delivered right to the customer’s door on the fourth floor.  He quickly brings the unit inside and completes the installation.

So who is a better installer?  If one only looks at the installer’s time, the second person looks orders of magnitude better.  But we know that he is only faster because he offloaded much of the work on the delivery guys.  If we were to look at the total time of the delivery person plus the installer, we’d probably find they were much closer in their productivity.  The same is true of the mileage standards — by the EPA’s metric, the electric vehicle looks much better than the traditional vehicle, but that is only because someone else at the power plant had to do the really hard bit of work that the traditional auto must do itself.  Having electricity rather than gasoline in the tank is the equivalent of starting with the refrigerator at the top rather than the bottom of the stairs.

The DOE has actually published a better methodology, going from "well to wheels," creating a true comparable efficiency for electric cars to gasoline engine cars.  By this methodology, the Nissan Leaf all electric car only gets 36 MPG!  In fact, no current electric car would meet the 56.2 MPG standard if the accounting were done correctly.  Which is why the EPA had to create a biased, inaccurate MPG equivalent measure for electric vehicles to artificially support this Presidential initiative.