Tag Archives: Build Back Better

Relax: Natural Variability Causes Heatwaves

30 Saturday Jul 2022

Posted by in Global Warming

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Lately almost any passing weather phenomenon is said to have been rooted in climate change and higher carbon concentrations. The recent heatwaves that seared parts of Europe and the U.S. are no exception, and climate change activists always find heat spells ripe for rhetorical exploitation. But while these would-be Cassandras and Gretas push their fearful narrative, there are strong reasons to doubt that these weather events are any cause for alarm. This summer’s heat waves, like all others, were of limited geographic scope, and they certainly weren’t the most severe heat waves on record in terms of either duration or magnitude. More on that below.

Data Problems

Temperature measurements tend to be exaggerated these days because so many “official” temperature records come from local airports or other urban sites rich in impervious cover and heat absorbing building materials. This gives rise to the so-called “urban heat island effect”, which refers to the elevated temperatures measured in urban versus rural areas. It’s even worse than that, however, as the vast majority of active weather stations in the U.S. are sited at “hot spots”, and many of them are poorly maintained. Data problems plague European temperature records as well.

Furthermore, official temperature records are extremely short on climatological scales, going back only about 150 years in the U.S. And these records have been “adjusted” by weather authorities like the National Oceanographic and Atmospheric Administration (NOAA), usually with the early records “cooled” relative to more recent readings. That means the long-term trend in temperatures is biased upward.

Climate Catastrophists

Nevertheless, Joe Biden has been threatening to declare a wholly unjustified “climate emergency“, perhaps thinking these dog days are the perfect time to assume a host of new emergency powers. It’s unclear whether the new “Build Back” bill making its way through Congress will be enough to satisfy the appetite of Biden’s handlers for costly and ultimately ineffective climate measures.

It’s tempting to think delirium from the heat waves is what prompted Al Gore to compare climate change skeptics to the dithering police officers in Uvalde, TX, but Gore’s fever is nothing new. We’re still waiting for the world to end, which he once predicted would occur by 2016.

Even weather reporters on TV are breathless in their descriptions of the heatwaves. They’ve certainly become dramatists for the climate-change cause. And people love good scare stories. It gives them an excuse to polish up their pitchforks! Or to be lazy and stay inside. It’s telling that so many people now quote heat index values (which combine heat and humidity), rather than actual temperatures, in the warm summer months. After all, it’s more thrilling to say it’s 105 outside than it is to say 95.

Anyway, compare the paired maps in each of the graphics below (here are links to sources for the first and second):

The temperatures are comparable, but the use of RED colors on the 2022 maps is so much more frightening! This post from Anthony Watts provides a list of links to news sources taking alarmist perspectives on the heatwaves in the U.S. and Europe, and falsely attributing the heatwaves to CO2.

Same Old High Pressure Domes

Cliff Mass offers a bone to the climate change community. He thinks perhaps 5% – 10% of the recent temperature anomaly in the UK is attributable to greenhouse gases. An effect of that magnitude is hardly worthy of government action, let alone panic. Mass says:

“Natural variability of the atmosphere was the proximate cause of the warmth and does not represent an existential threat to the population of Europe.”

The heat wave phenomenon is typical of slow-moving high-pressure systems that often develop during the summer months. These domes of high pressure vary in temperature and geographic breadth, and they are sandwiched between or adjacent to low-pressure systems with cooler temperatures. That’s been the case in both Europe and the U.S. during this summer’s heat waves, as illustrated by the following graphics, The northern hemisphere is not entirely enveloped in a heat wave.

And the rest of the globe? In the tropics (below 20 degrees latitude), June 2022 was the coolest June in 22 years, according to satellite temperature readings! Furthermore, the monthly anomaly in June was the coolest in 10 years. In the Southern Hemisphere, Australia and South America have had extremely cold winters. Antarctica had its coldest winter on record in 2021. Yet Joe Biden is under the misapprehension that we’re experiencing “a climate emergency”.

These are not the worst heat waves on record. Both the U.S. and Europe experienced higher temperatures and prolonged heat waves during the 1930s. For example, St.Louis, Missouri matched or exceeded 110 degrees four times in the 1930s, and twice in 1954, whereas the city topped out at 102 so far this year, and that was after a cool spring. There was an extreme European heat wave in 1976 that was drier and much lengthier, and others occurred in 1911 and 1906. Of course, available temperature comparisons are distorted because the early readings weren’t as impacted by urban heat islands. There are historical accounts of drastic heat waves much earlier, such as the 1500s and 1700s. Here is more heatwave history, in case you’re interested.

We’ll Be Fine

Heat isn’t the only story, of course. A wide range of other disastrous events are blamed on climate change. Wildfires are a prime example, but as we know, wildfires are not new, and the worst wildfires have more to do with poor forest management than anything else. Likewise, there is little if any association between extreme weather events and climate change. In that context, it’s also worth noting that cold weather is much deadlier than hot weather. The climate today, and going forward, presents far fewer dangers to humanity than in the past.

I did a lot of dirty, outdoor work in my youth, and it was hot! There were times just as hot as this summer, if not worse, I’d venture to say. Anyone old enough to have lived through the 1970s or even the 1950s should recognize the heatwave Chicken Littles as such.

Fiscal Inflation Is Simple With This One Weird Trick

03 Thursday Feb 2022

Posted by in Fiscal policy, Inflation

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I’ll get to the weird trick right off the bat. Then you can read on if you want. The trick really is perverse if you believe in principles of sound credit and financial stability. To levy a fiscal inflation tax, all the government need do is spend like a drunken sailor and undermine its own credibility as a trustworthy borrower. One way to do that: adopt the policy prescriptions of Modern Monetary Theory (MMT).

A Theory of Deadbeat Government

That’s right! Run budget deficits and convince investors the debt you float will never be repaid with future real surpluses. That doesn’t mean the government would literally default (though that is never outside the realm of possibility). However, given such a loss of faith, something else must give, because the real value government debt outstanding will exceed the real value of expected future surpluses from which to pay that debt. The debt might be in the form of interest-bearing government bonds or printed money: it’s all government debt. Ultimately, under these circumstances, there will be a revised expectation that the value of that debt (bonds and dollars) will be eroded by an inflation tax.

This is a sketch of “The Fiscal Theory of the Price Level” (FTPL). The link goes to a draft of a paper by John Cochrane, which he intends as an introduction and summary of the theory. He has been discussing and refining this theory for many years. In fairness to him, it’s a draft. There are a few passages that could be written more clearly, but on the whole, FTPL is a useful way of thinking about fiscal issues that may give rise to inflation.

Fiscal Helicopters

Cochrane discusses the old allegory about how an economy responds to dollar bills dropped from a helicopter — free money floating into everyone’s yard! The result is the classic “too much money chasing too few goods” problem, so dollar prices of goods must rise. We tend to think of the helicopter drop as a monetary policy experiment, but as Cochrane asserts, it is fiscal policy.

We have experienced something very much like the classic helicopter drop in the past two years. The federal government has effectively given money away in a variety of pandemic relief efforts. Our central bank, the Federal Reserve, has monetized much of the debt the Treasury issued as it “loaded the helicopter”.

In effect, this wasn’t an act of monetary policy at all, because the Fed does not have the authority to simply issue new government debt. The Fed can buy other assets (like government bonds) by issuing dollars (as bank reserves). That’s how it engineers increases in the money supply. It can also “lend” to the U.S. Treasury, crediting the Treasury’s checking account. Presto! Stimulus payments are in the mail!

This is classic monetary seigniorage, or in more familiar language, an inflation tax. Here is Cochrane description of the recent helicopter drop:

“The Fed and Treasury together sent people about $6 trillion, financed by new Treasury debt and new reserves. This cumulative expansion was about 30% of GDP ($21,481) or 38% of outstanding debt ($16,924). If people do not expect that any of that new debt will be repaid, it suggests a 38% price-level rise. If people expect Treasury debt to be repaid by surpluses but not reserves, then we still expect $2,506 / $16,924 = 15% cumulative inflation.”

FTPL, May I Introduce You To MMT

Another trend in thought seems to have dovetailed with the helicopter drop , and it may have influenced investor sentiment regarding the government’s ever-weakening commitment to future surpluses: that would be the growing interest in MMT. This “theory” says, sure, go ahead! Print the money government “must” spend. The state simply fesses-up, right off the bat, that it has no intention of running future surpluses.

To be clear, and perhaps more fair, economists who subscribe to MMT believe that deficits financed with money printing are acceptable when inflation and interest rates are very low. However, expecting stability under those circumstances requires a certain level of investor confidence in the government fisc. Read this for Cochrane’s view of MMT.

Statists like Bernie Sanders, Alexandria Ocasio-Cortez, and seemingly Joe Biden are delighted to adopt a more general application of MMT as intellectual cover for their grandiose plans to remake the economy, fix the climate, and expand the welfare state. But generalizing MMT is a dangerous flirtation with inflation denialism and invites economic disaster.

If This Goes On…

Amid this lunacy we have Joe Biden and his party hoping to find avenues for “Build Back Better”. Fortunately, it’s looking dead at this point. The bill considered in the fall would have amounted to an additional $2 trillion of “infrastructure” spending, mostly not for physical infrastructure. Moreover, according to the Congressional Budget Office, that bill’s cost would have far exceeded $2 trillion by the time all was said and done. There are ongoing hopes for separate passage of free community college, an extended child tax credit for all families, a higher cap for state and local income tax deductions, and a host of other social and climate initiatives. The latter, relegated to a separate bill, is said to carry a price tag of over $550 billion. In addition, the Left would still love to see complete forgiveness of all student debt and institute some form of universal basic income. Hey, just print the money, right? Warm up the chopper! But rest easy, cause all this appears less likely by the day.

Are there possible non-inflationary outcomes from ongoing helicopter drops that are contingent on behavior? What if people save the fresh cash because it’s viewed as a one-time windfall (i.e., not a permanent increase in income)? If you sit on such a windfall it will erode as prices rise, and the change in expectations about government finance won’t be too comforting on that score.

There are many aspects of FTPL worth pondering, such as whether bond investors would be very troubled by yawning deficits with MMT noisemakers in Congress IF the Fed refused to go along with it. That is, no money printing or debt monetization. The burgeoning supply of debt would weigh heavily on the market, forcing rates up. Government keeps spending and interest costs balloon. It is here where Cochrane and critics of FTPL have a sharp disagreement. Does this engender inflation in the absence of debt monetization? Cochrane says yes if investors have faith in the unfaithfulness of fiscal policymakers. Excessive debt is then every bit as inflationary as printing money.

Real Shocks and FTPL

It’s natural to think supply disruptions are primarily responsible for the recent acceleration of inflation, rather than the helicopter drop. There’s no question about those price pressures in certain markets, much of it inflected by wayward policymakers, and some of those markets involve key inputs like energy and labor. Even the median component of the CPI has escalated sharply, though it has lagged broader measures a bit.

Broad price pressures cannot be sustained indefinitely without accommodating changes in the supply of money, which is the so-called “numeraire” in which all goods are priced. What does this have to do with FTPL or the government’s long-term budget constraint? The helicopter drop certainly led to additional money growth and spending, but again, FTPL would say that inflation follows from the expectation that government will not produce future surpluses needed for long-term budget balance. The creation of either new money or government debt, loaded the chopper as it were, is sufficient to accommodate broad price pressures over some duration.

Conclusion

Whether or not FTPL is a fully accurate description of fiscal and monetary phenomena, few would argue that a truly deadbeat government is a prescription for hyperinflation. That’s an extreme, but the motivation for FTPL is the potential abandonment of good and honest governing principles. Pledging an inflation tax is not exactly what anyone means by the full faith and credit of the U.S. government.

Break the Market, Blame It, Then Break It Some More

28 Sunday Nov 2021

Posted by in Energy, Environmental Fascism, Free markets, Uncategorized

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Much of what is labeled market failure is a consequence of government failure, or rather, failure caused by misguided public intervention, not just in individual markets but in the economy more generally. Misguided efforts to correct perceived excesses in pricing are often the problem, but there are myriad cases of regulatory overreach, ham-handed application of taxes and subsidies for various enterprises, and widespread cronyism. But it is often convenient for politicians to appear as if they are doing something, which makes activism and active blame of private enterprise a tempting path. The Biden Administration’s energy crisis offers a case in point. First, a digression on the efficiency of free markets. Skip the next two sections to get straight to Biden’s mess.

Behold the Bounty

I always spent part of the first class session teaching Principles of Economics on some incredible things that happen each and every day. Most college freshmen seem to take them for granted: the endless variety of goods that arrive on shelves each day; the ongoing flow of services, many appearing like magic at the flick of a switch; the high degree of coincidence between specific wants and all these fresh supplies; the variety and flow of raw materials and skills that are brought to bear; the fantastic array of sophisticated equipment deployed to assist in these efforts; and the massive social coordination necessary to accomplish all this. How does it all happen? Who collects all the information on what is wanted, and by whom? On the feasibility of actually producing and distributing various things? What miracle computer processes the vast set of information guiding these decisions and actions? Does some superior intelligence within an agency plan all this stuff?

The answer is simple. The seemingly infinite set of knowledge is marshaled, and all these tasks are performed, by the greatest institution of social cooperation to ever emerge: decentralized, free markets! Buying decisions are guided by individual needs and wants. Production and selling decisions are guided by resource availability and technology. And all sides react to evolving prices. Preferences, resources, and technology are in a constant state of flux, but prices react, signaling producers and consumers to make individual adjustments that correct larger imbalances. It is tempting to describe the process as the evolving solution to a gigantic set of dynamic equations.

The Impossible Conceit

No human planner or government agency is capable of solving this problem as seamlessly and efficiently as markets, nor can they hope to achieve the surplus welfare that redound to buyers and sellers in markets. Central planners or intervening authorities cannot possess the knowledge and coordinating power of the market mechanism. That doesn’t mean markets are “perfect”, of course. Things like external costs and benefits, dominant sellers, and asymmetric information can cause market outcomes to deviate from the competitive “ideal”. Inequities can arise from some of these imperfections as well.

What can be much worse is the damage to market performance caused by government policy. Usually the intent is to “correct” imperfections, and the rationale might be defensible. The knowledge to do it very well is often lacking, however. Taxes, subsidies, regulations, tariffs, quotas, capital controls, and manipulation of interest rates (and monetary and credit aggregates) are very general categories of distortion caused by the public sector. Then there is competition for resources via government procurement, which is frequently graft-ridden or price-insensitive.

Many public interventions create advantages for large sellers, leading to greater market concentration. This might best serve the private political power of the wealthy or might convey advantages to investments that happen to be in vogue among the political class. These are the true roots of fascism, which leverages coercive state power for the benefit of private interests.

Energy Vampires

Now we have the curious case of the Biden Administration and it’s purposeful disruption of energy markets in an effort to incentivize a hurried transition from fossil fuels to renewable energy. As I described in a recent post on stagflation,

“… Biden took several steps to hamstring the domestic fossil fuel industry at a time when the economy was still recovering from the pandemic. This included revoking permits for the Keystone pipeline, a ban on drilling on federal lands and federally-controlled waters in the Gulf, shutting down production on some private lands on the pretext of enforcing the Endangered Species Act, and capping methane emissions by oil and gas producers. And all that was apparently just a start.

As Mark Theisen notes, when you promise to destroy a particular industry, as Joe Biden has, by taxing and regulating it to death, who wants to invest in or even maintain production facilities? Some leftists with apparent influence on the administration are threatening penalties against the industry up to and including prosecution for ‘crimes against humanity’!”

In addition to killing Keystone, there remains a strong possibility that Biden will shut down the Line 5 pipeline in Michigan, and there are other pipelines currently under federal review. Biden’s EPA also conducted a purge of science advisors considered “too friendly” to oil and gas industry. This was intertwined with a “review” of new methane rules, which harm smaller, independent oil and gas drillers disproportionately.

Joe Biden’s “Build Back Better” (BBB) legislation, as clumsy in policy as it is in name, introduces a number of “Green New Deal” provisions that would further disadvantage the production and use of fossil fuels. Hart Energy provides descriptions of various tax changes that appeared in the Treasury’s so-called “Greenbook”, a collection of revenue proposals, many of which appear in the BBB legislation that recently passed in the House. These include rollbacks of various deductions for drilling costs, depletion allowances, and recovery rules, as well as hikes in certain excise taxes as well as taxes on foreign oil income. And all this while granting generous subsidies to intermittent and otherwise uneconomic technologies that happen to be in political favor. This is a fine payoff for cronies having invested significantly in these rent seeking opportunities. While the bill still faces an uphill fight in the Senate, apparently Biden has executive orders, held in abeyance, that would inflict more pain on consumers and producers of fossil fuels.

Biden’s energy policies are obviously intended to reduce supplies of oil, gas, and other fossil fuels. Prices have responded, as Green notes:

“Gas is up an average of 57% this year, with corresponding increases of 44% for diesel and a whopping 60% for fuel oil.”

The upward price pressure is not limited to petroleum: electricity rates are jumping as well. Consumers and shippers have noticed. In fact, while Biden crows about wanting “the rich” to pay for BBB, his energy policies are steeply regressive in their impact, as energy absorbs a much larger share of budgets among the poor than the rich. This is politically suicidal, but Biden’s advisors have chosen a most cynical tact as the reality has dawned on them.

Abusive Victim Blaming

Who to blame? After the predictable results of cramping domestic production and attacking fossil fuel producers, the Biden team naturally blames them for rising prices! “Price gouging” is a charge made by political opportunists and those who lack an understanding of how markets allocate scarce resources. More severe scarcity means that prices must rise to ration available quantities and to incentivize those capable of bringing forth additional product under difficult circumstances. That is how a market is supposed to function, and it mitigates scarcity!

But here comes the mendacious and Bumbling Buster Biden. He wants antitrust authorities at the FTC to investigate oil pricing. Again from Stephen Green:

“… the Biden Administration has decided to launch a vindictive legal campaign against oil producers in order to deflect blame for the results of Biden’s policies: Biden’s Solution to Rising Gas Prices Appears to Be Accusing Oil Companies of Price Gouging.”

There’s nothing quite like a threat to market participants to prevent the price mechanism from performing its proper social function. But a failure to price rationally is a prescription for more severe shortages.

Biden has also ordered the Strategic Petroleum Reserve (SPR) to release 50 million barrels of oil, a move that replaces a total of 2.75 days of monthly consumption in the U.S. The SPR is supposed to be drawn upon only in the case of emergencies like natural disasters, so this draw-down is as irresponsible as it is impotent. In fact, OPEC is prepared to offset the SPR release with a production cut. Biden has resorted to begging OPEC to increase production, which is pathetic because the U.S. was a net exporter of oil not long ago … until Biden took charge.

Conclusion

Properly stated, the challenge mounted against markets as an institution is not that they fall short of “perfection”. It is that some other system would lead to superior results in terms of efficiency and/or equity. Central planning, including the kind exercised by the Biden Administration in it’s hurried and foolish effort to tear down and remake the energy economy, is not even a serious candidate on either count.

Granted, there is a long history of subsidies to the oil and gas sector. I cannot defend those, but the development of the technology (even fracking) largely preceded the fruits of the industry’s rent seeking. At this point, green fuels receive far more subsidies (despite some claims to the contrary). Furthermore, the primacy of fossil fuels was not achieved by tearing down competing technologies and infrastructure. In contrast, the current round of central planning requires destruction of entire sectors of the economy that could otherwise produce efficiently for the foreseeable future, if left unmolested.

The Biden Administration has adopted the radical green agenda. Their playbook calls for a severe tilting of price incentives in favor uneconomic, renewable energy sources, despite the economy’s heretofore sensible reliance on plentiful fossil fuels. It’s no surprise that Biden’s policy is unpopular across the economic spectrum. His natural inclination is to blame a competitive industry victimized by his policy. It’s a futile attempt to avoid accountability, as if he thinks doubling down on the fascism will help convince the electorate that oil and gas producers dreamt up this new, nefarious strategy of overcharging customers. People aren’t that dumb, but it’s typical for the elitist Left presume otherwise.