Posts tagged ‘trade’

Cap and Trade and the Corporate State

For years, one of the problems I have had with the way CO2 cap and trade systems were structured was a fear that these systems would devolve into cronyism, with the companies best able to lobby the government getting allocations while less connected companies had to pay.  It seems this is already occuring in California:

 The California Air Resources Board (ARB), the regulator of the forthcoming program, held a workshop in Sacramento on Monday where it discussed plans to give away more free permits to prevent leakage in “trade-exposed” industries like cement production, oil refining and food processing.

Over the first three allowance auctions, which begin in November, the state will sell 48.9 million allowances and give away 53.8 million allowances, according to ARB.

Any company deemed to have either a high, medium or low risk of leaving the state will receive all the allowances they need to comply with the program during the first two-year compliance period, from 2013-2014, rather than have to buy the permits at regular auctions.

But those in the low and medium risk groups are currently scheduled to see their allotment of free allowances start to decline in 2015 by as much as half.

ARB officials on Monday said they are conducting studies examining the leakage risk of companies based on their historical energy costs and trade flows.

Don't be fooled by the quasi-scientific-sounding language here about categories of "trade exposure."  The reality will be that companies with political clout will get the permits, and companies without such clout will not.  This is a system that will favor large manufacturers over smaller companies.  It will also, oddly, apparently shift the burden of compliance from large manufacturers to service companies  (since service companies are the least likely to be "trade exposed.")  Of course, any manufacturer still operating plants in California is crazy anyway.

How About A Left-Right Coalition Against the Corporate State?

I am encouraged to see this from the Left.  Kevin Drum writes, in response to a proposal for California state licensing of dog groomers:

What's unfortunate, I guess, is that this would all be unobjectionable if it were a voluntary certification program. If you want to pay more to take Fido to a certified groomer, go right ahead. If you want to save money, then don't. But critics are almost certainly right that a voluntary license would become a required license in pretty short order. After all, Vargas's proposal may be for a voluntary license right now, but that's only because he's failed to get support for a required license in the past.

What's more, if the program were voluntary I'm not sure why you'd need the state involved in the first place. If there's really a demand for this kind of certification, it seems likely that a trade association of some kind would set something up. And if there isn't, then why bother?

Right on!  I wish Drum would carry this same thinking further into other economic spheres (why are consumers powerful enough to handle dog grooming choices suddenly infantile when it comes to health care decisions) but I am encouraged none-the-less.  There is room, I think, for a left-right coalition against corporate cronyism (of which licensing is among the worst forms, helping to protect incumbent businesses against upstart competitors).  Unfortunately, such cronyism is so deeply ingrained in both Romney and Obama that it is certainly not going to happen in this election.

Part-Time Job for College Student

The trade group that represents companies like mine that privately operate public parks is looking for a college student to work part-time for us, either this summer or into the fall.  The ideal committment is 20 hours a week for 6-10 weeks but we could accommodate fewer hours for a longer span of time.  We are willing to pay in the ballpark of $13 an hour plus expenses (phone and Internet bills, etc).  We anticipate the candidate would work from his or her own home (or dorm) and already has access to a computer and Internet connection as well as a word processing software of some sort.

Job responsibilities would include:

  • Working with our members to accumulate and organize our intellectual property vis a vis this business.  This includes marketing material, regulatory and statutory information, how-to guides, etc.
  • Working with our partner agencies, like the US Forest Service, to get statistics on our members' scope  (e.g. we don't even know how many US Forest Service parks are run privately) and to synthesize these into marketing materials

The candidate need not have any specific knowledge of our business, and we have experts in the organization that can supply contacts and information.  Being an all-volunteer organization, we need someone with the time and the focus to gather and organize the information we have.  The candidate will have direct contact with the CEO's of most of the key players in this industry as well as with senior staff officers of a number of public recreation and lands agencies.    We want someone who is bright and unafraid to approach, even pester, strangers for information.  Quantitative skills and/or economics or business-related studies are a plus but are not required.  Experience with web tools such as content management systems like WordPress also a plus.

If someone is interested, have them email me at warren -at- camprrm *dot* com or hit the email link above.

First Rule of Budget Politics

Proponents of higher taxes and larger government often criticize small government folks in Congress for being "obstructionist" and "not willing to compromise."

But here is the problem:  Coyote's first rule of budget politics is to never trade current tax increases or "temporary" spending increases for future spending cuts, because the future spending cuts never happen.  Ever.  Not once.  In fact, I would not agree to trading current tax increases for current spending cuts, because taxes will stay forever but spending cuts will just be over-ridden in a few months.

Here is a recent example:

Last summer, Republicans in Congress agreed to increase the federal debt limit in exchange for the Democrats’ pledge to cap future spending at agreed-upon levels. The compromise was embodied in the Budget Control Act; discretionary spending was to increase by no more than $7 billion in the current fiscal year. I wrote yesterday about the fact that the Democrats intended to violate the Budget Control Act by increasing deficit spending on the Post Office by $34 billion. The measure probably would have glided through the Senate without notice had Jeff Sessions not challenged it. Sessions insisted on a point of order, based on the fact that the spending bill violated the Budget Control Act. It required 60 votes to waive Sessions’ point of order and toss the BCA on the trash heap.

Today the Senate voted 62-37 to do exactly that. This means that the consideration that Republicans obtained in exchange for increasing the debt limit is gone. Moreover, some Republicans–I haven’t yet seen the list–voted with the Democrats today.

One principal lesson can be drawn from this experience. It happens all the time that Congressional leaders will trumpet a budget agreement that allegedly saves the taxpayers trillions of dollars–not now, of course, but in the “out years.” But the out years never come. Tax increases are rarely deferred to the out years; they take place now, when it counts. But spending cuts? Never today, always tomorrow.

Purported agreements about what federal spending will be years from now are utterly meaningless. Congressmen will make a deal, brag about the ostensible savings in the press, and then walk away from it the moment our backs are turned, as the Democrats (and a handful of Republicans) did today.

When folks say, "we just want a compromise" on budget issues, what they are really saying is "we want to roll you.  We are hoping you are stupid enough to trade for future cost reductions that will never happen.  We can get away with this because we have an ally in the press, who always treats promises of future cost reductions as entirely credible and believable and thus paint those who are skeptical of them as radical obstructionists."

A Vivid Reminder of How The Climate Debate is Broken

My Forbes column is up this week.  I really did not want to write about climate, but when Forbes conctributor Steve Zwick wrote this, I had to respond

We know who the active denialists are – not the people who buy the lies, mind you, but the people who create the lies.  Let’s start keeping track of them now, and when the famines come, let’s make them pay.  Let’s let their houses burn.  Let’s swap their safe land for submerged islands.  Let’s force them to bear the cost of rising food prices.

They broke the climate.  Why should the rest of us have to pay for it?

The bizarre threats and ad hominem attacks have to stop.  Real debate is necessary based on an assumption that our opponents may be wrong, but are still people of good will.  And we need to debate what really freaking matters:

Instead of screwing around in the media trying to assign blame for the recent US heat wave to CO2 and threatening to burn down the houses of those who disagree with us, we should be arguing about what matters.  And the main scientific issue that really matters is understanding climate feedback.  I won't repeat all of the previous posts (see here and here), but this is worth repeating:

Direct warming from the greenhouse gas effect of CO2 does not create a catastrophe, and at most, according to the IPCC, might warm the Earth another degree over the next century.  The catastrophe comes from the assumption that there are large net positive feedbacks in the climate system that multiply a small initial warming from CO2 many times.  It is this assumption that positive feedbacks dominate over negative feedbacks that creates the catastrophe.  It is telling that when prominent supporters of the catastrophic theory argue the science is settled, they always want to talk about the greenhouse gas effect (which most of us skeptics accept), NOT the positive feedback assumption.  The assumption of net positive climate feedback is not at all settled -- in fact there is as much evidence the feedback is net negative as net positive -- which may be why catastrophic theory supporters seldom if ever mention this aspect of the science in the media.

I said I would offer a counter-proposal to Mr. Zwick's that skeptics bear the costs of climate change.  I am ready to step up to the cost of any future man-made climate change if Mr. Zwick is ready to write a check for the lost economic activity and increased poverty caused by his proposals.  We are at an exciting point in history where a billion people, or more, in Asia and Africa and Latin America are at the cusp of emerging from millenia of poverty.  To do so, they need to burn every fossil fuel they can get their hands on, not be forced to use rich people's toys like wind and solar.  I am happy to trade my home for an imaginary one that Zwick thinks will be under water.  Not only is this a great way to upgrade to some oceanfront property, but I am fully confident the crazy Al Gore sea level rise predictions are a chimera, since sea levels have been rising at a fairly constant rate since the end of the little ice age..  In return, perhaps Mr. Zwick can trade his job for one in Asia that disappears when he closes the tap on fossil fuels?

I encourage you to read it all, including an appearance by the summer of the shark.

Price Signal Flashing

OK, those of you looking for a business opportunity, Taylor dominates the soft-serve ice cream machine business.   Today one of our machines broke.  We got a quote for a refurbished machine -- with trade-in of our old macine - $14,000!  The brand new ones cost as much as a car.

So investors -- there is your flashing price signal.  There should be a big enough umbrella here to make some money with a good design and thoughtful sourcing.  And I can tell you everyone who uses these machines is eagerly awaiting such an entrant.

Money Does Not Corrupt Politics, State Power Corrupts Politics

Kevin Drum asks whether money corrupts politics, and comes to the conclusion that it does.  I disagree.

Money does not corrupt politics, the expansion of state power corrupts politics.  Every time the state gains a new power to take money from person A and give it to person B, or to throttle company A's business in favor of company B, private individuals start to scheme how they might access that power to their own benefit.

Think back to the much smaller US government of the 19th century.  Don't you long for the day when political corruption mainly meant packing the Post Office with one's kin?  It is absolutely no coincidence that the largest political scandal of that century (the Crédit Mobilier) accompanied the largest expansion of Federal power in that century (the Federally-funded construction of the Transcontinental Railroad).

Political corruption follows the power.  Sure, this power is often bought in dollars, but if we were to entirely ban money from the political process, the corruptions would remain.  And it would shift payment from money to other goods, like quid pro quo's, barter, and access to grass roots labor supplies.  Anyone remember machine politics?

Here is an example from an Administration schooled from an early age in Chicago machine politics

The Heritage Foundation has issued a new report that charges the Obama administration sent presidential earmarks, taxpayer dollars, to Democratic lawmakers to help convince them to vote for controversial proposals such as cap and trade and the health care bill.

“When you examine the recipients of those grants, there were at least 32 vulnerable house Democrats who received significant federal grant money during the run-up or directly after the votes on those pieces of legislation,” says Lachlan Markay, one of the authors of the report.

The amount of earmarks spiked around the time of difficult votes such as cap and trade, then dropped, only to spike again around controversial financial regulations known as Dodd/Frank, and spiked the most just before the vote on the health care bill....

On their websites, lawmakers didn’t advertise their votes, but did tout at length the money they’d gotten for various local projects.

“As a way to counteract the negative voter sentiment that would come from voting for unpopular legislation,” says Markay. “These were attempts to make sure that constituents knew they were bringing money home to their district.”...

Numbers from the non-partisan Congressional Research Service show that the value of administration earmarks under President Obama increased by a 126 percent in his first two years in office and the actual number of administrative earmarks increased by 54 percent.

Those are dramatic increases that are 11 times more than Congress itself increased earmarks, which the White House did not explain today.

By the way, of all the ways that access to political power can be bought, political spending under our current rules is by far the most transparent.   Just as in narcotics or prostitution, a ban wouldn't eliminate it, it would simply drive it further underground and into other forms of currency.

IRS Harassing the Tea Party?

Sure seems like it.   Here is the list of questions the Ohio Tea Party has asked as part of their application, which should be routine, for 501(c)4 status.  The Virginia Tea Party had similar requests, including apparently a demand for donor lists and confidential materials which the IRS says will be made public.  The latter seems part and parcel of recent initiative on the Left (seen also in the whole Heartland fiasco) to out confidential donors of Conservative and libertarian organizations while demanding no similar transparency of organizations on the Left.

By the way, I am President of a 501(c)4 organization  (basically a trade group) and I can say with some authority that we never have received any sort of parallel set of questions from the IRS vis a vis our status, so this is either a very new requirement or one especially crafted to apply only to the Tea Party.  I can say from all too much experience that having a Federal agency sit on a request for 9 months and then suddenly demand incredible amounts of work in just a few days from the private party is absolutely typical.

Trade is Cooperation, Not War

First, I will admit that this was probably a throwaway line, but it does represent the worldview of a lot of Americans.  In an article showing a funny story about poor preparation of college students, Kevin Drum ended with this:

This does not bode well for our coming economic war with China, does it?

Trade is not war.  Trade is cooperation, exactly the opposite of war.   By definition, it benefits both parties or it would not occur, though of course it can benefit one more than the other.

Treating trade like war is a very dangerous game engaged in by some politicians.  At best, it leads to protectionism that makes the country poorer.  At worst, it can lead to real war.

Consider two examples of a country treating trade like war, both from Japan.  In the 1930's, Japan developed an imperial desire to directly control all the key resources it needed, rather than to trade for them.  The wealthy ports of China and iron-rich Manchuria were early targets.   This desire was compounded when the US used trade embargoes as a policy tool to protest Japanese invasions and occupation of China.  This eventually led to war, with Japan's goal mainly to capture oil and rubber supplies of southeast Asia.  Obviously, this effort led to Japan essentially being left a smoking hole in the ground by late 1945.

The second example was in the 1980's, as Japan, via MITI, actively managed its economy to promote trade.  The "trade as war" vision was common among Japanese leaders of the time.  The results was a gross, government-forced misallocation of resources and bubble in the real estate and stock markets that led to a couple of lost decades.

 

Keep Your Law Off My Body, err, or Maybe Not

Massachusetts liberals up the penalties for women (and men) using their bodies in ways the government does not like.   Proving once again that the women's groups' motto, "keep your laws off my body," was in fact a fake libertarianism, aimed at exactly one thing -- abortion -- and nothing else.  Those on the Left who mouthed this slogan seem to be A-OK with regulating consensual sex, salt and soda pop consumption, access to medical procedures, health care choices, etc.

Also, this seems to be yet another law that purports to promote women's rights by treating them like they are ignorant rubes unable to make the smallest decisions for themselves.  The implicit assumption in the law is that all prostitutes are in the profession solely due to male compulsion.  This is consistent with a certain philosophy among feminists that all behaviors of women with which they don't agree are not due to a normal excercise of free will by people who simply have different preferences, but are due to some sort of enslavement by the patrimony.

But one high-priced online hooker said she’s no victim — and she doesn’t know any women who are.

“If you are an escort, you go into it of your own free will,” she said. “Absolutely no one is forced into doing this. You don’t have to be affiliated with any agency. I’m not forced to do anything I don’t want.”

What’s more, the new law’s focus on johns, she said, will hurt her lucrative-though-lawless trade.

“If that’s the law that’s been written, then yes, it’s going to impact business,” she said when read the new penalties.

There is no doubt that some women get into situations where they are abused or forced into work or have a large portion of their earnings taken.  But this tends to be a result of the profession being underground, giving women no legal recourse when they are abused and defrauded.  If one really is worried about women's working conditions, the best thing to do is legalize prostitution, instantly giving them access to the legal system to redress wrongs.

I AM Doing Good

I accidentally watched a few minutes of a morning show today, something I try really hard to avoid.  Matt whats-his-name was interviewing Richard Branson, and they were talking about the importance of corporations "doing good".  Once startups get going, Branson said, they need to start doing good for people, meaning I guess that they buy carbon offsets or something.

Guess what?  If my startup is succesful, I am already doing good.  I can't make a dime unless I create value for people net of what they pay me.  Every customer walks away from our interaction better off, or they would not have voluntarily elected to trade with me (and if they are not better off, I will never see them again and I will find lots of nasty stuff chasing future customers away on the Internet.)  I am tired of this notion that a succesful business person's value can only be judged by what he or she does with their money and time outside of business.  I understand the frustration with a few Wall Street and GE-type executives who are living like fat ticks on their connections with government, but most of us only are succesful if we do something useful.

This, from Carpe Diem, is along the same lines.  He looks at an editorial from the DC paper about the entry of Walmart, which says among other things

Despite the peacocking by Gray and others after the agreement was signed, the District is receiving mostly crumbs. Walmart has committed to providing $21 million in charitable donations over the next seven years, an average of $3 million a year. That's a pittance."

Walmart does not have to do squat for the community beyond its core business, because selling  a broad range of goods conviniently and at really low prices is enough. Or if it is not enough, they will not make money.  The promise of $21 million to some boondoggle controlled by a  few politician's friends is just a distraction, I wish they had not done it, but I understand that this is essentially a bribe to the officials of the DC banana republic to let them do business.

Postscript:  I have no problem with doing charitable work outside of work.  Both my company and I do, by choice, though unlike Richard Branson I don't need to have a crew of paid PR agents making sure everyone knows it.

A Small Victory

A small victory against the relentless march of the state regulators and licensors

Eyebrow threading to remove facial hair, a practice which has ancient roots in Eastern countries such as India and Iran, is gaining popularity around the country.

And threaders can now operate freely in the state without a cosmetology license after an October court settlement determined that the Arizona Board of Cosmetology would no longer regulate the trade.

The consent judgment resulted from a lawsuit filed in Maricopa County Superior Court by five threaders, including Gutierrez.

The threaders argued that the Board of Cosmetology was merely trying to help more traditional hair removal outfits remove a source of low-cost competition.  The threaders were represented by the IJ, who do great work for economic liberty

Chinese Consumers Thank the US Senate

From my Forbes post today, the following letter:

From:  The Consumers and Small Businesses of China

To:   The United States Senate

Re:  Currency Exchange Rate Oversight Reform Act of 2011

Dear Senators:

Thanks!  For years, our government has pursued a currency and trade policy that has subsidized your American consumers at the expense of our own here in China, and while we are unsure exactly why you would want to end this arrangement (we presume due to powerful lobby by your large manufacturers), we are happy that you are doing so....

A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese.  So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts.  And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields and creating inflationary pressures.

Every single step China takes to promote exports is in effect a transfer of wealth from Chinese citizens to Americans, and we are tired of it.

Read it all.

More Corporate Welfare, in the Form of a Currency War

From the Hill, the ghost of Hawley-Smoot returns

 The Senate voted Monday to advance legislation pressuring the Chinese government to stop undervaluing its currency, a practice most economists agree is giving the country an unfair trade advantage and is costing the U.S. jobs.

The Senate voted 79-19 to end debate on a motion to proceed to the bill, the Currency Exchange Rate Oversight Reform Act of 2011. While the vote does not mean the bill has passed, the strong show of support suggests it could well be approved in the upper chamber by the week’s end. Passage through the House is less clear, however, and GOP leaders have given no indication they will move forward with it.

Senate Democratic leadership, responsible for bringing the legislation to the Senate floor, heralded it as a way to create jobs and right a long-standing trade imbalance with China.

“China is by far the biggest exploiter of predatory currency practices,” Sen. Charles Schumer (D-N.Y.) said Monday. “[T]hese currency policies artificially raise the price of U.S. exports and suppress the price of imports into the United States, undermining the economic health of American manufacturers and their ability to compete at home and around the globe.”

This is a great example of how a group, in this case the Democratic Party, can say they are against corporate welfare, but in fact be 100% behind it simply by changing the terms used.

Look at the sentence in bold.  Another way to write this would be "we want a law to help a few visible and influential manufacturers who most compete with China, but hurts consumers (ie every single American) and every business that uses imported raw materials.

Protectionism like this is corporate welfare for a few large manufacturers.  I find it amazing the reporter can say that "most economists agree" an undervalued Chinese currency is costing us jobs.  My sense is that most economists don't agree with this statement.  All this law will do is unilaterally increase consumer prices and raw material costs, and I know few economists who think this is stimulative.

A cheap yuan is a direct subsidy of American consumers by the Chinese, and I am not sure why we shouldn't let it continue as long as they are dumb enough to keep doing it.

Absolutely Sensible Thought That Seems To Violate Most People's Intuition

Commenting on the Gibson guitar raid

I'm confused by the ban on Brazilian rosewood. According to the Wikipedia article, [Brazilian rosewood]

is found only in Brazil, from the eastern forests of Bahia to Rio de Janeiro. It is threatened by habitat loss, since most of its habitat has been converted to farmland. Due to its endangered status, it was CITES-listed on Nov. 6 1992 in Appendix I (the most protected), and illegal to trade.

It grows in a specific area but is threatened because most of this habitat has been converted to farmland? And the solution is to ban trade in the wood, making it of no economic value? How is this supposed to preserve the habitat? Wouldn't that be an excellent reason to go ahead and convert the rest of the habitat to farmland, growing something that would be of economic value? I just don't get the logic there. Wouldn't it make more sense to have a world market in Brazilian rosewood, a natural product both beautiful and prized for its resonant qualities in musical instruments? Wouldn't that make it very desirable to create plantations devoted to growing rosewood so you could sell it into that international market? Wouldn't that result in a lot more rosewood? Surely a valuable product like rosewood would be a higher value use of the land than as mere farmland?

Here is the same idea from a different venue.  Might be more polar bears left if people wanted one for breakfast

Restraint of Trade

Private actors are often accused of collusion to restrain trade and decrease competition, and certainly there are a number of examples of this in history.  However, all such private arrangements are usually doomed, in part because the incentive for certain parties to cheat are high in such arrangements.  And the parties to such agreements have no control over new or outside competitors entering the fray.

The only stable restraints of trade and competition are therefore enforced by the government, who can use police and prisons to enforce such rules.  That is why successful businesses who are tired of fighting off upstart competitors run to the government for help.

But the government does not like competition with its own services (e.g. Federal bans on intracity mail delivery competition). Here is a good example:

"Drivers attending the Indiana State Fair or a major sporting event downtown may sometimes opt to grab a parking spot in someone's yard rather than pay higher prices in a parking lot, but some city officials think people who provide parking spots should get a permit first. City leaders are proposing that residents pay a $75 fee (per event) if they want to turn their yards into parking lots."

Does anyone think there is a burning safety issue here?  The goal is to kill competition with publicly operated parking garages.  My guess is that someone figured out the average revenue of a private home offering front lawn parking, added $5, and made that the registration fee.

Libertarians as Corporate Whores

I am amazed lately as the left has tried to pitch libertarians as corporate whores, taking certain small-government positions because they have been paid off by Koch or Exxon.

I can understand how this charge might bite for Democrats and Republicans whose positions tend to be a hodge-podge of individual liberty and state control (and which seem to morph back and forth depending on which team is in the White House).  When there is no consistent, temporally stable philosophy that drives political positions, then it might be appropriate to look at other factors that might drive a public stance on an issue.  If, for example, I had always supported tight regulation of corporate market share, one might wonder why I defend Google against anti-trust scrutiny and reasonably look for other motives.

But as a libertarian, I consistently support market solutions over government regulation.  On this site I have supported the right of hair threaders and interior designers and real estate agents and casket sellers to ply their trade without government permissions.  I have supported legalization of gambling, marijuana and narcotic sales, and prostitution.

So why is it that I can plow along trying my best to be a consistent advocate of individual liberty, without a hint that I am in the pay of hair threaders or hookers, but as soon as I write on, say, natural gas fracking I am in the pay of the Koch brothers?  This strikes me as the lamest possible argument.

On this blog, think of me as sitting at a roulette table and always betting on black  (yes, the house will eventually win but welcome to the world of being a libertarian in modern statist politics).  Spin after spin I bet black.  Imagine a couple of folks walking up and seeing me place my next bet on black.  Why do you think he did that?  Was it because the last number was a 6?  Or because three of the last five were red?  No guys, it's because I always bet black.

Of nearly all the political groups, libertarians should be the most transparent.  We always side with individual liberty, and searching for other motives for these positions is generally futile.

Additional Thoughts on Risk

SB7 has some good observations about risk:

I was listening to the WSJ radio podcast while getting some dinner ready, and one of their reporters said, in the context of discussing Fukushima, that some of the engineers at the plant "knew there was a risk" in the plant's older design and could conceivably face charges for not doing something about said risk.

This kind of talk really grinds my gears.  In any engineering situation there is always some risk.  You can have less risk, or more risk, but risk is not something you either have or do not have.

I will go one step further.  This ex post facto witch hunt aimed at folks who discussed risks  (an pogrom that occurs in nearly every product liability lawsuit with fishing expeditions through company memos) is the WORST possible thing for consumers concerned about the safety of their products and environment.  Engineers have to feel free to express safety concerns within organizations no matter how hypothetical these suppositions may be.

Some concerns will turn out to be unfounded.  Some suggested risks will be deemed too small to economically overcome.  And some will turn out to be substantial and require action.  And sometimes well-intentioned people will make what is, in retrospect, the wrong trade-offs with risks.   These witch hunts only tend to suppress this very valuable and necessary internal dialog within organizations.  Nothing is going to turn the brains of engineers off faster than an incentive system that punishes them retroactively for well-intentioned discussions about risk.

Show Us Your Lightsaber Or You Will Be Fined

This year, US oil refiners will pay more than $6 million in fines to the EPA for not using a product that doesn't exist.   Refiners are required to blend at least 6.6 million gallons of cellulosic ethanol this year, or pay a fine to the EPA of $1 per gallon of this target not met.

But here is the funny part - no cellulosic ethanol exists for refiners to buy, even by the EPA's own analysis.  The product simply does not exist in any more than pilot plant / experimental volumes.  But that is not stopping the EPA from imposing the fines, which will get passed on into gasoline prices.

Here is the saddest part, from a defender of the cellulosic mandates:

Next-generation ethanol advocates say that small-scale commercial production of the fuel is just around the corner. When the EPA proposal was released yesterday, one advocate blamed the oil and gas industry for slow progress.

“America’s advanced and cellulosic ethanol industry is rapidly progressing with many technologies proven and biorefinery projects shovel-ready. Yet, advanced biofuel producers continue to sail into a head wind created by tax policy favoring oil and gas,” said Brooke Coleman, executive director of the Advanced Ethanol Council, in a statement.

What in the hell are they talking about?  Their plants get their construction subsidized with public financing, the oil industry is required to buy their product, trade barriers exist to limit foreign competition.  These guys are not fighting a headwind, they are trying to hit a golf ball downwind in a hurricane and they still can't clear the lady's tee.

Perhaps My Only Defense of the Income Tax

The other day I was watching a show on extreme tax protesters, specifically those who believe the entire income tax system to be illegal and thus they actually owe no taxes.

While I am sympathetic to issues folks have with taxation, from a legal and Constitutional perspective the income tax actually comes from a better, almost more quaint time.  Why?  Because instead of dealing with the Constitutional problems with the income tax by having a series of judges stare at the Constitution with their eyes crossed until the problem disappears, they actually wrote and passed a freaking Constitutional amendment.  Granted that the amendment was passed under false pretexts (e.g. that the tax would never apply to more than the top 1% of earners or earners with less than $1 million in income).  But they sought an amendment.  The took the wording of the Constitution seriously.

In fact, the 18th Amendment (prohibition) and the 21st Amendment (its repeal) were the last times the Constitution has been amended to give or take away Federal powers (everything since has been related to voting and elections).  Ever since 1933, we have effectively added non-enumerated powers by essentially ignoring the Constitution, such amendment process being seen as too much of a hassle to stand in the way of critical regulations on seat belts or marijuana.

Everyone knows it took a Constitutional Amendment to get alcohol prohibition, but think about this in today's world.  Would we even bother?  No way!  Congress has taken on the power to regulate or prohibit just about anything it wants by stretching the commerce clause form its original meaning of preventing states from setting up barriers to interstate trade to an all-encompassing power of fiat to do anything Congress freaking wants.

My kids and I were watching 2081, the excellent short movie based on the Vonnegut short story "Harrison Bergerson."  That story posits a government department of handicapping that solves the inequality issue once and for all by handicapping the most able down to some lowest common denominator.

Anyway, the intro to the movie said it was based on something like the 280th amendment to the Constitution.   But I don't think we are ever going to get that high.  Certainly those who want more government power don't need any more amendments, as the Constitution is no longer constraining in the least and an increasing number of the Bill of Rights are either bad jokes (9,10) or are being gutted as we speak (2,4).

I don't expect another Amendment in my lifetime.  The only way I think we will see one is if we get some sort of libertarian revolution, and the only Amendment we would need would be the one saying "Look, we were't freaking kidding in the 10th amendment, go read it again."  OK, maybe some clarity on the commerce clause would be good as well.

I am not a big fan of the income tax, or of Prohibition, but it was a better world when we knew we had to at least amend the Constitution to do these things because we took the enumerated powers seriously.

Outrageous -- Hedge Funds Using Obama Administration to Gut Their Short-Selling Targets

Living in Phoenix I know a number of people who work for Apollo (University of Phoenix).  They have obviously been appalled by the Obama war on for-profit colleges and the egregiously-flawed report that came out last year.  Several have told me they have complained for a while that certain hedge funds were pushing this initiative in order to make money off of short positions on their stock.  I thought this was a bit paranoid, but now the accusation is coming from third parties, even those on the Left:

A proposed regulation from the Education Department threatens to devastate for-profit career or trade schools, but one thing is even more controversial than the regulation -- how it was crafted.

Education Department officials were encouraged and advised about the content of the regulation by a man who stood to make millions if it were issued.

"Wall Street investors were manipulating the regulatory process and Department of Education officials were letting them," charged Melanie Sloan of a liberal-leaning ethics watchdog called Citizens For Responsibility and Ethics in Washington....

Among others, Sloan is referring to Steven Eisman, a hedge fund manager and a figure in the book "The Big Short," who testified in the Senate against for-profit career or trade schools, attacking them as "fundamentally unsound."

At the same time, he was betting that the stocks of those companies would fall, a practice known as short selling. "Making sure that they were going to be defamed and that their value was going to be depressed," said Harry Alford, head of the National Black Chamber of Commerce, who worries about the schools because they serve many minority students.

Simultaneously, through emails and conference calls, Eisman was advising Education Department officials -- and one White House adviser -- in detail on how best to write the new regulation, which he estimated would reduce the schools' earnings by as much as 75 percent.

The proposed regulation from the administration is aimed at what are known as career or vocational schools. The rule would cut federal aid to programs where student debt levels are deemed to be too high and where students are struggling to repay their loans.

In other news, everyone seems A-OK with kids in not-for-profit universities running up $200,000 debts to get such lucrative, workplace-ready degrees as women's studies, comp. lit. and poetry.

Regime Uncertainty

Kevin Drum doesn't buy the regime uncertainty argument as a partial explanation of the slow recovery.

Here's what's remarkable: Carter, a law professor at Yale, apparently never once bothered to ask this guy just what regulations he's talking about. Is he concerned with general stuff like the healthcare law? Or something highly specific to his industry? Or what?

Regardless, I've heard this kind of blowhard conversation too often to take it seriously. Sure, it's possible this guy manufactures canisters for nuclear waste or something, and there's a big regulatory change for nuclear waste storage that's been in the works for years and has been causing everyone in the industry heartburn for as long as they can remember. But the simple fact is that regulatory uncertainty is no greater today than it's ever been. Financialuncertainty is high, but the Obama adminstration just hasn't been overhauling regs that affect the cost of new workers any more than usual. The only substantial exception is the new healthcare law, and if you oppose it that's fine. But it was passed over a year ago and its effects are pretty easy to project.

First, the costs of the health care law are NOT easy to project, and are made even harder when your company might or might not get waivers from certain provisions.    Second, he seems to forget cap and trade, first by law and then by executive fiat; the NLRB's new veto power over corporate relocations it exercised with Boeing; the absurdly turbulent tax/regulatory/permitting regime in the energy field, and particularly oil and gas.  How about trillion dollar stimulus projects, that until very recently Obama was still talking about replicating (and Krugman begs for to this day).  I could go on and on.  This is spoke just like a person who never had to run a business.

Further, I wrote this in the comments section:

I think you are both right and wrong.  I am sure the discussion about this is to some extent overblown.  But you are thinking about business and hiring much too narrowly.

You seem to have a mental model of business showing up at the door, and someone turning that business down because they don't want to hire an employee to serve it (or out of sheer petulance because Fox News told them to sit on their hands, lol).  You find it unlikely anyone would refuse the business, and so do I.

But I run a small to medium size business, and a lot of hiring decisions don't work that way.    I do have some situations that fit your model - I have a campground that is really busy this year, so we hired more people to serve the volume.   No problem.

But most of my hiring decisions are effectively investments.  I am going to create a new position, pay money to train that person, and pay their wage for a while in advance of demand.  Or I am going to open a new site or department or location and make a lot of investment, and the return on investment may be very sensitive to small changes in labor or regulatory costs.

For our business, with labor costs over 50% of costs, the issue is definitely labor costs.  Our pre-tax margins are in the 6-7% range.  So if labor costs are 60% of revenues, then a 10% change in labor costs might wipe out the margin entirely, and a much smaller change in costs might flip the investment from making sense to not making sense.

We run a seasonal business with part-time workers who are older and on Medicare.  Regulations about exactly how much we will have to pay under Obamacare have not been written, so we have no idea how much our employment costs will go up in 2014, so we sit and wait.  I have cancelled two planned campground construction projects in the last 6 months because we have no freaking idea if they will make money.

If I am having trouble with just this one law figuring out whether to make investments, what are, say, oil companies doing in evaluating investments when they have absolutely no idea what their taxes will be, whether they will be permitted or not to drill, or whether they will be subject to cap and trade?

One other thought, it strikes me that there is a lot of good scholarship that suggests that the Great Depression was extended by just this kind of regime uncertainty.  Now, of course, the proposed structural changes to the economy being proposed at the time were more radical than anything on the table today.  The National Industrial Recovery Act was essentially an experiment in Mussolini-style economic corporatism, until most of it was struck down by the Supreme Court.   Nothing so radical is being proposed (unless you work in health care).

Look, I know the Left has convinced itself that only consumer demand matters in an economy, but business investment has simply got to matter in a recovery.   If the returns on future investments are harder to predict, and therefore riskier, businesses are going to apply a higher hurdle rate to new investments, meaning they don't stop entirely, but do invest less.

One interesting may to confirm this some day would be to look back and see if larger corporations with political access invested more than smaller ones or ones with less access.  Did GE, who clearly can get whatever it wants right now from the government, invest more than a small company or even than Exxon, which is on the political outs?  If so, this in my mind would confirm the regime uncertainty hypothesis, because it means that the companies doing most of the investing were the ones confident that they could shape the mandates coming out of the government in their favor.

Beyond regime uncertainty, if you want to talk about Obama and the recovery, you have to mention that a trillion dollars was diverted from private hands to public hands.  Does anyone believe that taking a trillion dollars out of whatever investments private actors would have used the money for and diverting most of it to help maintain government payrolls is really the way to increase the strength and productivity of the economy?

Oil and Speculators

My new column is up at Forbes, and discusses the absurdity of blaming sustained higher oil and gas prices on speculators.

Is there a crime in the current oil prices?  Yes, but it’s not one of speculation.  Prices are a form of communication.  Higher prices tell consumers to use less oil, and producers to go find more.  The real crime today is that while the signal is flashing today to oil companies to go find more crude, the Obama administration has bent over backwards to make such efforts all but impossible.  In fact, the Obama Administration desperately tried and failed to increase oil and gas prices via cap and trade last year.  President Obama is not really against higher oil prices, he just wants them driven higher by the state, not by the markets.

Licensing is Anti-Consumer

Via Carpe Diem, yet another group of market incumbents using licensing and regulation to limit competition and, in particular, ban business models different than those of the incumbents.

From the Institute for Justice: "Until 2010, sedan and independent limo services were an affordable alternative to taxicabs in the Music City. A trip to the airport only cost $25. But in June 2010, the Metropolitan County Council passed a series of anti-competitive regulations requested by the Tennessee Livery Association - a trade group formed by expensive limousine companies. These regulations force sedan and independent limo companies to increase their fares to $45 minimum.

The regulations also prohibit limo and sedan companies from using leased vehicles, require them to dispatch only from their place of business, require them to wait a minimum of 15 minutes before picking up a customer and forbid them from parking or waiting for customers at hotels or bars. And, in January 2012, companies will have to take all vehicles off the road if they are more than 7 years old for a sedan or SUV or more than 10 years old for a limousine.

Who Makes the Price-Value Tradeoffs?

I have written a ton in the past on what I consider the fundamental problem in health care:  The taking of price-value tradeoffs out of the hands of consumers, first through encouragement of first-dollar employer plans and now through a Federal government takeover.  For example:

The computer keyboard I am typing on right now costs about $55 on Amazon.com.  Is that a fair price?

At some level, the answer must be “yes.”  Why?  Because I bought it – simple as that.  No one was compelling me to buy this particular model, so if I thought the price too high or the features too skimpy, I would have just passed on the purchase.  If I desperately wanted or needed a keyboard, I might have bought one of literally hundreds of others for sale at Amazon, priced from a low of $1.49 (used) to a high of $2400 (I kid you not).  After shopping through the various options, I chose my keyboard as the best match, for me, of price and features.

For decades, this seemingly prosaic act of individual “shopping” has been steadily eroded in health care with the growth of third party payers, particularly Medicare.   How much did you pay for you last doctor visit?  Your last x-ray?  Your last blood test?  Believe it or not, it is still possible to price-shop medical care — I do it myself, because I have a high deductible health insurance plan under which I pay all but the most bankrupting bills out of pocket.  As an example, three x-rays last month of my son’s ankle would have been billed to my insurance company at over $100, but I asked for their cash price and they pulled a separate book from a hidden place under the counter and quoted me $35.  I got a 70+% discount merely for caring about the price.

But my health plan, which includes this seemingly positive incentive to shop, will soon be illegal as high-deductible insurance plans, as well as medical savings accounts, are effectively banned.  Under Obamacare, virtually all individual payments for medical products and services will cease — the government and a few large, highly regulated insurers will pay for nearly every visit, drug, or procedure.  The government will be making price-value trade-offs for our care, and they will be doing it incredibly imperfectly, because by eliminating individual shopping they have cut off a, excuse the pun, priceless source of information.

And here:

If we are all forced to have the same, low deductible, first-dollar health plans, what incentive is one going to have to stay out of the health care system, even for something minor?  What is to stop you from going to the doctor every day because you are hypochondriacal, or you are lonely, or bored, or just because you want to save on buying your own subscription to Highlights Magazine?  The buffet will be open and everything will be essentially free – what’s to stop people from gorging themselves?

You might say that you are more responsible than that, and perhaps you are.  But think about this:  Twenty years ago we used to all complain about the 2 or 3 pieces of junk mail we might find a day in our mailbox.  That was when the each piece of mail cost real money to send.  Today, junk mail in the form of email is essentially free to send.  How many pieces of junk mail do you get today?  Even if you are not hitting the system up for free health care, you know someone else will be spamming the system, and eventually all of us as taxpayers will have to pay for it.

The only way to stop this behavior is for the government to create a department of “No” to head off this behavior — what Sarah Palin so famously called “Death Panels.”

Both Tyler Cowen and Megan McArdle discuss individual vs. the government in making price-value tradeoffs for health care in the context of Paul Ryan's proposal to voucherize Medicare.

McArdle:

Expect there to be a lot of angry back and forth over this in the next week or so.  But one thing to keep in mind is that this Medicare plan is not effectively very different from what the Democrats claim ObamaCare is going to do:  which is to say, cap the amount of money spent on providing health benefits to those who are not rich enough to opt out of the public system.  The Democrats want to do so by having a central committee of experts decide what our health dollars get spent on; the GOP wants to put those decisions into the hands of consumers.  But this is not an argument about who loves old, sick people more.  Both parties are promising to halt the rapid growth of government health care expenditures, which is definitionally going to fall hardest on old, sick people....

There are also the tradeoffs to consider.  It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee.  Every committee decision that cuts off a potentially useful treatment (and I'm afraid it can't all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups.  Each treatment is a decision with a small marginal cost to the taxpayer; it's in aggregate that they become expensive.  Which means that the congressional tendency is always going to be to override--and while there are supposed to be structural barriers against this in the bill, they aren't very strong . . . about like trying to quit smoking by hiding your cigarettes from yourself.