State Aesthetics: Taxes for Art and Dogma

07 Tuesday Jan 2025

Posted by Nuetzel in Art & Politics, Subsidies

Tags

Agitprop, Americans for the Arts, Arts Education, Arts Funding, Corporation for Public Broadcasting, crowding out, DOGE, Exclusivity, Externalities, National Endowment for the Arts, Propaganda, Public goods, Public Radio, Samuel Andreyev, Subsidies, Thomas Jefferson

In a post a few years ago entitled “The National Endowment for Rich Farts”, I discussed a point that should be rather obvious: federal funding of the arts too often subsidizes the upper class, catering to their artistic tastes and underwriting a means through which they conduct social and professional networking. The topic is back in the news, with reports that the incoming Trump Administration, at the recommendation of the Department of Government Efficiency (DOGE), will attempt to eliminate funding for the Corporation for Public Broadcasting.

Great Big Stuff and Crowding Out

To opponents of federal arts funding, public radio is probably the bête noire of arts organizations due to its left-wing political orientation and the general affluence of its subscriber base. However, public arts funding goes way beyond subsidies for public radio.

Large nonprofits receive the bulk of government arts funding. Despite claims to the contrary, these organizations won’t go broke without the gravy provided by public funding. The federal government contributes about 3% of the revenue taken in by non-profit arts organizations, according to Americans For the Arts. These organizations are already heavily subsidized: their surpluses are tax exempt and private contributions are tax deductible. Tax deductions are worth more to those in high income-tax brackets, and involvement in such visible organizations is highly prized by elites.

Furthermore, there is no evidence that additional government funding “multiplies” private giving. If anything, increases in public funding reduce private giving (and see here).

Public Funds for Private Gain

It’s often argued that government should subsidize the arts because art has the qualities of a public good, but that’s a false premise. A good can be classified as “public” only when its consumption is non-exclusive and non-rivalrous. Can individuals be excluded from enjoying music? Of course. Can they be excluded from viewing a theatrical performance, a film, or any other piece of visual art? Generally yes, and art exhibitions and artistic performances are nearly always subject to paid and limited attendance.

In some contexts art is, or can be made, less excludable. Architecture can be admired (or detested) by anyone on the street. So can public monuments and street art. A concert or play can be performed free of charge, perhaps at a large, outdoor venue. Amplification and large video monitors can make a big difference in terms of non-exclusion. Museums can offer admission to the general public at no charge. And we can broaden the definition of a work to include copies or reproductions that might be available via public display or broadcast (on NPR!).

All these steps will help increase exposure to the arts. But you can’t make it mandatory. People will always self-exclude because they can. So, in which cases should taxpayers bear the costs of art, and of making it less exclusive? On the spectrum of legitimate functions of government, it’s hard to rank this sort of activity highly.

A claim less absurd than the public goods argument is that art has some positive spillover effects, or externalities. It should therefore be subsidized or underwritten with public funds lest it be underprovided. Unfortunately, the spillover effects of a piece of art (where relevant) are not always positive. After all, tastes vary considerably. One man’s art can be another man’s annoyance or provocation. This undermines the case for public funding, at least for art that is controversial in nature.

Perhaps a better interpretation of art externalities is that exposure to the arts has positive spillover effects. Thus, additional art confers benefits to society above and beyond the edification of those exposed to it. Perhaps it makes us nicer and more interesting, but that’s a highly speculative rationale for public funding.

Less questionably, more art and more exposure to the arts does enrich society in ways that have nothing to do with external benefits. Culture and arts are by-products of normal social interactions between private individuals. The benefits of art exposure (and art education) are largely accrued privately. When artistic knowledge is shared to nourish or broaden one’s network, the benefits flow from private social interactions that arise naturally, rather than as a consequence of phantom external benefits.

Public Funding and Agitprop

The selection of recipients and projects for government grants or subsidies is especially prone to influence by entrenched political interests. That is indeed the case when it comes to federal agencies that offer grants for the arts.

The same danger looms when government provides a venue or manages aspects of a presentation of art, including curation of content. It’s an avenue through which art can become politicized. The problem, however, is not so much that a particular work might have political implications. As Samuel Andreyev, a Canadian composer says:

“Like any other subject, it is possible for political subjects to be handled sensitively by an artist, provided there is a strong enough element of abstraction and symbolism so that the work does not become merely journalistic.”

Andreyev makes a good point, but government funding and direction can create incentives to politicize art, encouraging more blatant expressions of political viewpoints at the expense of taxpayers.

I’ve certainly admired art despite subtle political implications with which I differed. One can hardly imagine a treatment of the human condition that would not invite tangential political commentary. Still, politicization of art should always be left as a private exercise, not one over which the government of a free society wields influence.

Do Markets Undervalue Art?

What about the artists themselves? The premise that artists deserve subsidies relies on the questionable presumption that the value of their work exceeds its commercial or market value. Thus, taxpayers are asked to pay handsomely for art that is not valued as highly by private buyers.

Artists who benefit from government arts funding are often well established professionally. Less fortunate artists scrape by, finding what market they can while working side gigs. In fact, many less celebrated artists work at their craft on a part-time basis while earning most of their income from day jobs. Should the government support these artists, or artists having few opportunities to promote their work?

It’s not clear that public funding should override the private market’s basis of valuation for established or unestablished artists. However, some government funding finds its way into less celebrated corners of the art world. This report uses data at the census tract level to show that arts organizations located in low income tracts, while receiving less, still get a disproportionate share of federal grant dollars relative to their share of the population. This finding should be viewed cautiously, as data at this level of aggregation has limitations. The findings do not imply that “starving artists” receive a disproportionate share of those dollars. Nor do they prove that federal grants benefit low-income individuals disproportionately via improved access to the arts. Again, the findings are based on the location of organizations. And again, large organizations receive the bulk of these grants.

Drawing the Line

So where do we draw the line on taxpayer subsidies for the arts? The standard, public-goods justification is false. While externalities may exist, they are not always positive, and it is hardly the state’s proper role to fund art that “challenges” notions about good and bad art. In that vein, just as law tends to be ineffective when it lacks consensus, public arts funding breeds dissent when the art is controversial.

The legitimacy of public arts funding ultimately depends on whether the art itself has a true public purpose. To varying degrees, this might include the architecture and interior design of public buildings, landscaping of parks, as well as certain monuments and statuary. Even within these disciplines, the selection of form, content, and the artists who will execute the work can be controversial. That might be unavoidable, though controversy will be minimized when the content of publicly-funded art remains within cultural norms.

Beyond those limited purposes, funding art at the federal level is difficult to justify. That role simply does not fall within the constitutionally-enumerated powers of the federal government. The tenuous rationale for subsidies implies that art is undervalued, despite the existence of a vibrant private ecosystem for art, including private support foundations and markets. To the extent that public subsidies line the pockets of elites or support art that would otherwise fail a market test, they represent a wasteful misallocation of resources.

Funding art might seem less troublesome at lower levels of government, where elected representatives and policymakers are in more intimate contact with voters and taxpayers. Still, the same economic reservations apply. At local levels, institutions like community orchestras and concerts series might be broadly supported. Publicly-funded museums, theatrical venues, and other facilities might be accepted by voters as well. If parents have educational choices and expect schools to teach art, it should be funded at public schools, so long as the content stays within cultural norms and is age-appropriate. Of course, all of these matters are up to local voters.

The greatest danger of public funding for the arts is that it tends to be utilized as a tool of political propaganda. Having the state select winners and losers in the arts invites politicization, undermining freedom and our system of government. On that point, Thomas Jefferson once made this observation:

“To compel a man to furnish contributions of money for the propagations of opinions which he disbelieves and abhors, is sinful and tyrannical.“

Tangled Up In Green Industrial Policy II: Rewarding Idle Capital

06 Saturday Apr 2024

Posted by Nuetzel in Energy, Global Warming, Industrial Policy

≈ 1 Comment

Tags

AI, Capacity Factors, Carbon Capture, Casey Handmer, Center of the American Experiment, Charles Glasser, crowding out, Dispatchable Power, EV Mandates, Externalities, Heat Island Effect, Hydrocarbons, Idle Capital, IMF, Imposed Cost, Industrial Policy, Institute for Energy Research, Lazard Levelized Costs, Lionel Shriver, Long Tailpipe, Mackinac Center for Public Policy, Malinvestment, Modular Reactors, Natural Gas, Net Zero, Nuclear Fusion, Power Transmission, Production Possibilities, Renewable energy, Simon P. Michaux, Subsidies, Toxicity, Travis Fisher, Wildlife Hazards

A week ago I posted about electrification and particularly EV mandates, one strand of government industrial policy under which non-favored sectors of the economy must labor. This post examines a related industrial policy: manipulation of power generation by government policymakers in favor of renewable energy technologies, while fossil fuels are targeted for oblivion. These interventions are a reaction to an overwrought climate crisis narrative, but they present many obstacles, oversights and risks of their own. Chief among them is whether the power grid will be capable of meeting current and future demand for power while relying heavily on variable resources: wind and sunshine.

Like almost everything I write, this post is too long! Here is a guide to what follows. Scroll down to whatever sections might be of interest:

Malinvestment: Idle capital
Key Considerations to chew on
False Premises: zero CO2? Low cost?
Imposed Cost: what and how much?
Supporting Growth: with renewables?
Resource Constraints: they’re tight!
Technological Advance: patience!
The Presumed Elephant: CO2 costs
Conclusion

Malinvestment

The intermittency of wind and solar power creates a fundamental problem of physically idle capital, which leaves the economy short of its production possibilities. To clarify, capital invested in wind and solar facilities is often idle in two critical ways. First, wind and solar assets have relatively low rates of utilization because of their variability, or intermittency. Second, neither provides “dispatchable” power: it is not “on call” in any sense during those idle periods, which are not entirely predictable. Wind and solar assets therefore contribute less value to the electric grid than dispatchable sources of power having equivalent capacity and utilization.

Is “idle capital” a reasonable characterization? Consider the shipping concerns that are now experimenting with sails on cargo ships. What is the economic value of such a ship without back-up power? Can you imagine them drifting in the equatorial calms for days on end? Even light winds would slow the transport of goods significantly. Idle capital might be bad enough, but a degree of idleness allows flexibility and risk mitigation in many applications. Idle, non–dispatchable capital, however, is unproductive capital.

Likewise, solar-powered signage can underperform or fail over the course of several dark, wintry days, even with battery backup. The signage is more reliable and valuable when it is backed-up by another power source. Again, idle, non-dispatchable capital is unproductive capital.

The pursuit of net-zero carbon emissions via wind and solar power creates idle capital, which increasingly lacks adequate backup power. That should be a priority, but it’s not. This misguided effort is funded from both private investment and public subsidies, but the former is very much contingent on the latter. That’s because the flood of subsidies is what allows private investors to profit from idle capital. Rent-enabled investments like these crowd out genuinely productive capital formation, which is not limited to power plants that might otherwise use fossil fuels.

Creating idle or unemployed physical capital is malinvestment, and it diminishes future economic growth. The surge in this activity began in earnest during the era of negative real interest rates. Today, in an era of higher rates, taxpayers can expect an even greater burden, as can ratepayers whose power providers are guaranteed returns on their regulated rate bases.

Key Consideration

The forced transition to net zero will be futile, but especially if wind and solar energy are the primary focus. Keep the following in mind:

The demand for electricity is expected to soar, and soon! Policymakers have high hopes for EVs, and while adoption rates might fall well short of their goals, they’re doing their clumsy best to force EVs down our throats with mandates. But facilitating EV charging presents difficulties. Lionel Shriver states the obvious: “Going Electric Requires Electricity”. Reliable electricity!
Perhaps more impressive than prospects for EVs is the expected growth in power demand from data centers required by the explosion of artificial intelligence applications across many industries. It’s happening now! This will be magnified with the advent of artificial general intelligence (AGI).
Dispatchable power sources are needed to back-up unreliable wind and solar power to ensure service continuity. Maintaining backup power carries a huge “imposed cost” at the margin for wind and solar. At present, that would entail CO2 emissions, violating the net zero dictum.
Perhaps worse than the cost of backup power would be the cost borne by users under the complete elimination of certain dispatchable power sources. An imposed cost then takes the form of outages. Users are placed at risk of losing power at home, at the office and factories, at stores, in transit, and at hospitals at peak hours or under potentially dangerous circumstances like frigid or hot weather.
Historically, dispatchable power has allowed utilities to provide reliable electricity on-demand. Just flip the switch! This may become a thing of the past.
Wind and solar power are sometimes available when they’re not needed, in which case the power goes unused because we lack effective power storage technology.
Wind and solar power facilities operate at low rates of utilization, yet new facilities are always touted at their full nameplate capacity. Capacity factors for wind turbines averaged almost 36% in the U.S. in 2022, while solar facilities averaged only about 24%. This compared with nuclear power at almost 93%, natural gas (66%), and coal (48%). Obviously, the low capacity factors for wind and solar reflect their variable nature, rather than dispatchable responses to fluctuations in power demand.
Low utilization and variability are underemphasized or omitted by those promoting wind and solar plant in the media and often in discussions of public policy, and no wonder! We hear a great deal about “additions to capacity”, which overstate the actual power-generating potential by factors of three to four times. Here is a typical example.
Wind and solar power are far more heavily subsidized than fossil fuels. This is true in absolute terms and especially on the basis of actual power output, which reveals their overwhelmingly uneconomic nature. From the link above, here are Mitch Rolling and Isaac Orr on this point:
- “In 2022, wind and solar generators received three and eighteen times more subsidies per MWh, respectively, than natural gas, coal, and nuclear generators combined. Solar is the clear leader, receiving anywhere from $50 to $80 per MWh over the last five years, whereas wind is a distant second at $8 to $10 per MWh …. Renewable energy sources like wind and solar are largely dependent on these subsidies, which have been ongoing for 30 years with no end in sight.”
The first-order burden of subsidies falls on taxpayers. The second-order burdens manifest in an unstable grid and higher power costs. But just to be clear, subsidies are paid by governments to producers or consumers to reduce the cost of activity favored by policymakers. However, the International Monetary Fund frequently cites “subsidy” figures that include staff estimates of unaddressed externalities. These are based on highly-simplified models and subject to great uncertainty, of course, especially when dollar values are assigned to categories like “climate change”. Despite what alarmists would have us believe, the extent and consequences of climate change are not settled scientific issues, let alone the dollar cost.
Wind and solar power are extremely land- and/or sea-intensive. For example, Casey Handmer estimates that a one-Gigawatt data center, if powered by solar panels, would need a footprint of 20,000 acres.
Solar installations are associated with a significant heat island effect: “We found temperatures over a PV plant were regularly 3–4 °C warmer than wildlands at night….”
Wind and solar power both represent major hazards to wildlife both during and after construction.
- In addition to the destruction of habitat both on- and offshore, turbine blades create noise, electromagnetism, and migration barriers. Wind farms have been associated with significant bird and bat fatalities. Collisions with moving blades are one thing, but changes to the winds and air pressure around turbines are also a danger to avian species.
- There is a strong likelihood that offshore wind development is endangering whales and dolphins.
- Solar farms present dangers to waterfowl. These creatures are tricked into diving toward what they believe to be bodies of water, only to crash into the panels.
The production of wind and solar equipment requires the intensive use of scarce resources, including environmentally-sensitive materials. Extracting these materials often requires the excavation of massive amounts of rock subject to extensive processing. Mining and processing rely heavily on diesel fuel. Net zero? No.
Wind and solar facilities often present major threats of toxicity at disposal, or even sooner. A recent hail storm in Texas literally destroyed a solar farm, and the smashed panels have prompted concerns not only about solar “sustainability”, but also that harsh chemicals may be leaking into the local environment.
The transmission of power is costly, but that cost is magnified by the broad spatial distribution of wind and solar generating units. Transmission from offshore facilities is particularly complex. And high voltage lines run into tremendous local opposition and regulatory scrutiny.
When wind turbines and solar panels are idle, so are the transmission facilities needed to reach them. Thus, low utilization and the variability of those units drives up the capital needed for power and power transmission.
There is also an acute shortage of transformers, which presents a major bottleneck to grid development and stability.
While zero carbon is the ostensible goal, zero carbon nuclear power has been neglected by our industrial planners. That neglect plays off exaggerated fears about safety. Fortunately, there is a growing realization that nuclear power may be surest way to carbon reductions while meeting growth in power demand. In fact, new data centers will go off-grid with their own modular reactors.
At the Shriver link, he notes the smothering nature of power regulation, which obstructs the objective of providing reliable power and any hope of achieving net zero.
The Biden administration has resisted the substitution of low CO2 emitting power sources for high CO2 emitting sources. For example, natural gas is more energy efficient in a variety of applications than other fuel sources. Yet policymakers seem determined to discourage the production and use of natural gas.

False Premises

Wind and solar energy are touted by the federal government as zero carbon and low-cost technologies, but both claims are false. Extracting the needed resources, fabricating, installing, connecting, and ultimately disposing of these facilities is high in carbon emissions.

The claim that wind and solar have a cost advantage over traditional power sources is based on misleading comparisons. First, putting claims about the cost of carbon aside, it goes without saying that the cost of replacing already operational coal or natural gas generating capacity with new wind and solar facilities is greater than doing nothing.

The hope among net zero advocates is that existing fossil fuel generating plant can be decommissioned as more renewables come on-line. Again, this thinking ignores the variable nature of renewable power. Dispatchable backup power is required to reliably meet power demand. Otherwise, fluctuating power supplies undermine the economy’s productive capacity, leading to declines in output, income, health, and well being. That is costly, but so is maintaining and adding back-up capacity. Costs of wind and solar should account for this necessity. It implies that wind and solar generating units carry a high cost at the margin.

Imposed Costs

A “grid report card” from the Mackinac Center for Public Policy notes the conceptual flaw in comparing the levelized cost (à la Lazard) of a variable resource with one capable of steady and dispatchable performance. From the report, here is the crux of the imposed-cost problem:

“… the more renewable generation facilities you build, the more it costs the system to make up for their variability, and the less value they provide to electricity markets.”

A committment to variable wind and solar power along with back-up capacity also implies that some capital will be idle regardless of wind and solar conditions. This is part of the imposed cost of wind and solar built into the accounting below. But while back-up power facilities will have idle periods, it is dispatchable and serves an insurance function, so it has value even when idle in preserving the stability of the grid. For that matter, sole reliance on dispatchable power sources requires excess capacity to serve an insurance function of a similar kind.

The Mackinac report card uses estimates of imposed cost from an Institute for Energy Research to construct the following comparison (expand the view or try clicking the image for a better view):

The figures shown in this table are somewhat dated, but the Mackinac authors use updated costs for Michigan from the Center of the American Experiment. These are shown below in terms of average costs per MWh through 2050, but the labels require some additional explanation.

The two bars on the left show costs for existing coal ($33/MWh) and gas-powered ($22) plants. The third and fourth bars are for new wind ($180) and solar ($278) installations. The fifth and sixth bars are for new nuclear reactors (a light water reactor ($74) and a small modular reactor($185)). Finally, the last two bars are for a new coal plant ($106) and a natural gas plant ($64), both with carbon capture and storage (CCS). It’s no surprise that existing coal and gas facilities are the most cost effective. Natural gas is by far the least costly of the new installations, followed by the light water reactor and coal.

The Mackinac “report card” is instructive in several ways. It provides a detailed analysis of different types of power generation across five dimensions, including reliability, cost, cleanliness, and market feasibility (the latter because some types of power (hydro, geothermal) have geographic limits. Natural gas comes out the clear winner on the report card because it is plentiful, energy dense, dispatchable, clean burning, and low-cost.

Supporting Growth

Growth in the demand for power cannot be met with variable resources without dispatchable backup or intolerable service interruptions. Unreliable power would seriously undermine the case for EVs, which is already tenuous at best. Data centers and other large users will go off-grid before they stand for it. This would represent a flat-out market rejection of renewable investments, ESGs be damned!

Casey Handmer makes some interesting projections of the power requirements of data centers supporting not just AI, but AGI, which he discusses in “How To Feed the AIs”. Here is his darkly humorous closing paragraph, predicated on meeting power demands from AGI via solar:

“It seems that AGI will create an irresistibly strong economic forcing function to pave the entire world with solar panels – including the oceans. We should probably think about how we want this to play out. At current rates of progress, we have about 20 years before paving is complete.”

Resource Constraints

Efforts to force a transition to wind and solar power will lead to more dramatic cost disadvantages than shown in the Mackinac report. By “forcing” a transition, I mean aggressive policies of mandates and subsidies favoring these renewables. These policies would effectuate a gross misallocation of resources. Many of the commodities needed to fabricate the components of wind and solar installations are already quite scarce, particularly on the domestic U.S. front. Inflating the demand for these commodities will result in shortages and escalating costs, magnifying the disadvantages of wind and solar power in real economic terms.

To put a finer point on the infeasibility of the net zero effort, Simon P. Michaux produced a comparative analysis in 2022 of the existing power mix versus a hypothetical power mix of renewable energy sources performing an equal amount of work, but at net-zero carbon emissions (the link is a PowerPoint summary). In the renewable energy scenario, he calculated the total quantities of various resources needed to achieve the objective over one generation of the “new” grid (to last 20 -30 years). He then calculated the numbers of years of mining or extraction needed to produce those quantities based on 2019 rates of production. Take a look at the results in the right-most column:

Those are sobering numbers. Granted, they are based on 2019 wind and solar technology. However, it’s clear that phasing out fossil fuels using today’s wind and solar technology would be out of the question within the lifetime of anyone currently living on the planet. Michaux seems to have a talent for understatement:

“Current thinking has seriously underestimated the scale of the task ahead.”

He also emphasizes the upward price pressure we’re likely to witness in the years ahead across a range of commodities.

Technological Breakthroughs

Michaux’s analysis assumes static technology, but there may come a time in the not-too-distant future when advances in wind and solar power and battery storage allow them to compete with hydrocarbons and nuclear power on a true economic basis. The best way to enable real energy breakthroughs is through market-driven economic growth. Energy production and growth is hampered, however, when governments strong-arm taxpayers, electricity buyers, and traditional energy producers while rewarding renewable developers with subsidies.

We know that improvements will come across a range of technologies. We’ve already seen reductions in the costs of solar panels themselves. Battery technology has a long way to go, but it has improved and might some day be capable of substantial smoothing in the delivery of renewable power. Collection of solar power in space is another possibility, as the feasibility of beaming power to earth has been demonstrated. This solution might also have advantages in terms of transmission depending on the locations and dispersion of collection points on earth, and it would certainly be less land intensive than solar power is today. Carbon capture and carbon conversion are advancing technologies, making net zero a more feasible possibility for traditional sources of power. Nuclear power is zero carbon, but like almost everything else, constructing plants is not. Nevertheless, fission reactors have made great strides in terms of safety and efficiency. Nuclear fusion development is still in its infancy, but there have been notable advances of late.

Some or all of these technologies will experience breakthroughs that could lead to a true, zero-carbon energy future. The timeline is highly uncertain, but it’s likely to be faster than anything like the estimates in Michaux’s analysis. Who knows? Perhaps AI will help lead us to the answers.

A Presumed Elephant

This post and my previous post have emphasized two glaring instances of government failure on their own terms: a headlong plunge into unreliable renewable energy, and forced electrification done prematurely and wrong. Some would protest that I left the veritable “elephant in the room”: the presumed external or spillover costs associated with CO2 emissions from burning fossil fuels. Renewables and electrification are both intended to prevent those costs.

External costs were not ignored, of course. Externalities were discussed explicitly in several different contexts such as the mining of new materials, EV tire wear, the substitution of “cleaner” fuels for others, toxicity at disposal, and the exaggerated reductions in CO2 from EVs when the “long tailpipe” problem is ignored. However, I noted explicitly that estimates of unaddressed externalities are often highly speculative and uncertain, and especially the costs of CO2 emissions. They should not be included in comparisons of subsidies.

Therefore, the costs of various power generating technologies shown above do not account for estimates of externalities. If you’re inclined, other SCC posts on the CO2 “elephant” can be found here.

Conclusion

Power demand is expected to soar given the coming explosion in AI applications, and especially if the heavily-subsidized and mandated transition to EVs comes to pass. But that growth in demand will not and cannot be met by relying on renewable energy sources. Their variability implies substantial idle capacity, higher costs, and service interruptions. Such a massive deployment of idle capital would represents an enormous waste of resources, but the sad fact is it’s been underway for some time.

In the years ahead, the net-zero objective will prove representative of a bumbling effort at industrial planning. Costs will be driven higher, including the cost inflicted by outages and environmental damage. Ratepayers, taxpayers, and innocents will share these burdens. Travis Fisher is spot on when he says the grid is becoming a “dangerous liability” thanks to wounds inflicted by subsidies, regulations, and mandates.

As Charles Glasser put it on Instapundit:

“The National Electrical Grid is teetering on collapse. The shift away from full-time available power (like fossil fuels, LNG, etc.) to so-called ‘green’ sources has deeply impacted reliability.”

“Also, as more whale-killing off-shore wind farms are planned, the Biden administration forgot to plan for the thousands of miles of transmission lines that will be needed. And in a perfect example of leftist autophagy, there is considerable opposition from enviro-groups who will tie up the construction of wind farms and transmission lines in court for decades.”

Meanwhile, better alternatives to wind and solar have been routinely discouraged. The substantial reductions in carbon emissions achieved in the U.S. over the past 15 years were caused primarily by the substitution of natural gas for coal in power generation. Much more of that is possible. The Biden Administration, however, wishes to prevent that substitution in favor of greater reliance on high-cost, unreliable renewables. And the Administration wishes to do so without adequately backing up those variable power sources with dispatchable capacity. Likewise, nuclear power has been shunted aside, despite its safety, low risk, and dispatchability. However, there are signs of progress in attitudes toward bringing more nuclear power on-line.

Industrial policy usually meets with failure, and net zero via wind and solar power will be no exception. Like forced electrification, unreliable power fails on its own terms. Net zero ain’t gonna happen any time soon, and not even by 2050. That is, it won’t happen unless net zero is faked through mechanisms like fraudulent carbon credits (and there might not be adequate faking capacity for that!). Full-scale net-zero investment in wind and solar power, battery capacity, and incremental transmission facilities will drive the cost of power upward, undermining economic growth. Finally, wind and solar are not the environmental panacea so often promised. Quite the contrary: mining of the necessary minerals, component fabrication, installation, and even operation all have negative environmental impacts. Disposal at the end of their useful lives might be even worse. And the presumed environmental gains … reduced atmospheric carbon concentrations and lower temperatures, are more scare story than science.

Postscript: here’s where climate alarmism has left us, and this is from a candidate for the U.S. Senate (she deleted the tweet after an avalanche of well-deserved ridicule):

Lords of the Planetary Commons Insist We Banish Sovereignty, Growth

29 Thursday Feb 2024

Posted by Nuetzel in Central Planning, Environmental Fascism, Global Warming, Liberty

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Anthropocene, Beamed Solar Power, Carbon Capture, Carbon Forcings, Cliff Mass, Common Pool Resources, Elinor Ostrom, Externalities, Fusion Power, Geoengineering, Geothermal Power, global warming, Heat Islands, Interspecies Justice, IPCC, Lula Da Silva, Munger Test, Nuclear power, Orbital Solar Collection, Paris Climate Accords, Planetary Commons, Polycentrism, Private Goods, Property Rights, Public goods, Redistribution, Solar Irradiance, Spillovers, Tipping points

We all share Planet Earth as our home, so there’s a strong sense in which it qualifies as a “commons”. That’s one sensible premise of a new paper entitled “The planetary commons: A new paradigm for safeguarding Earth-regulating systems in the Anthropocene”. The title is a long way of saying that the authors desire broad-based environmental regulation, and that’s what ultimately comes across.

First, a preliminary issue: many resources qualify as commons in the very broadest sense, yet free societies have learned over time that many resources are used much more productively when property rights are assigned to individuals. For example, modern agriculture owes much to defining exclusive property rights to land so that conflicting interests don’t have to compete (e.g,, the farmer and the cowman). Federal land is treated as a commons, however. There is a rich history on the establishment of property rights, but within limits, the legal framework in place can define whether a resource is treated as a commons, a club good, or private property. The point here is that there are substantial economic advantages to preserving strong property rights, rather than treating all resources as communal.

The authors of the planetary commons (PC) paper present a rough sketch for governance over use of the planet’s resources, given their belief that a planetary crisis is unfolding before our eyes. The paper has two main thrusts as I see it. One is to broadly redefine virtually all physical resources as common pool interests because their use, in the authors’ view, may entail some degree of external cost involving degradation of the biosphere. The second is to propose centralized, “planetary” rule-making over the amounts and ways in which those resources are used.

It’s an Opinion Piece

The PC paper is billed as the work product of a “collaborative team of 22 leading international researchers”. This group includes four attorneys (one of whom was a lead author) and one philosopher. Climate impact researchers are represented, who undoubtedly helped shape assumptions about climate change and its causes that drive the PC’s theses. (More on those assumptions in a section below.) There are a few social scientists of various stripes among the credited authors, one meteorologist, and a few “sustainability”, “resilience”, and health researchers. It’s quite a collection of signees, er… “research collaborators”.

Grabby Interventionists

The reasoning underlying a “planetary commons” (PC) is that the planet’s biosphere qualifies as a commons. The biosphere must include virtually any public good like air and sunshine, any common good like waterways, or any private good or club good. After all, any object can play host to tiny microbes regardless of ownership status. So the PC authors characterization of the planet’s biosphere as a commons is quite broad in terms of conventional notions of resource attributes.

We usually think of spillover or external costs as arising from some use of a private resource that imposes costs on others, such as air or water pollution. However, mere survival requires that mankind exploit both public and non-public resources, acts that can always be said to impact the biosphere in some way. Efforts to secure shelter, food, and water all impinge on the earth’s resources. To some extent, mankind must use and shape the biosphere to succeed, and it’s our natural prerogative to do so, just like any other creature in the food chain.

Even if we are to accept the PC paper’s premise that the entire biosphere should be treated is a commons, most spillovers are de minimus. From a public policy perspective, it makes little sense to attempt to govern over such minor externalities. Monitoring behavior would be costly, if not impossible, at such an atomistic level. Instead, free and civil societies rely on a high degree of self-governance and informal enforcement of ethical standards to keep small harms to a minimum.

Unfortunately, the identification and quantification of meaningful spillover costs is not always clear-cut. This has led to an increasingly complex regulatory environment, an increasingly litigious business environment, and efforts by policymakers to manage the detailed inputs and outputs of the industrial economy.

All of that is costly in its own right, especially because the activities giving rise to those spillovers often enable large welfare enhancements. Regulators and planners face great difficulties in estimating the costs and benefits of various “correctives”. The very undertaking creates risk that often exceeds the cost of the original spillover. Nevertheless, the PC paper expands on the murkiest aspects of spillover governance by including “… all critical biophysical Earth-regulating systems and their functions, irrespective of where they are located…” as part of a commons requiring “… additional governance arrangements….”

Adoption of the PC framework would authorize global interventions (and ultimately local interventions, including surveillance) on a massive scale based on guesswork by bureaucrats regarding the evolution of the biosphere.

Ostrom Upside Down

Not only would the PC framework represent an expansion of the grounds for intervention by public authorities, it seeks to establish international authority for intervention into public and private affairs within sovereign states. The authors attempt to rationalize such far-reaching intrusions in a rather curious way:

“Drawing on the legacy of Elinor Ostrom’s foundational research, which validated the need for and effectiveness of polycentric approaches to commons governance (e.g., ref. 35, p. 528, ref. 36, p. 1910), we propose that a nested Earth system governance approach be followed, which will entail the creation of additional governance arrangements for those planetary commons that are not yet adequately governed.”

Anyone having a passing familiarity with Elinor Ostrom’s work knows that she focused on the identification of collaborative solutions to common goods problems. She studied voluntary and often strictly private efforts among groups or communities to conserve common pool resources, as opposed to state-imposed solutions. Ostrom accepted assigned rights and pricing solutions to managing common resources, but she counseled against sole reliance on market-based tools.

Surely the PC authors know they aren’t exactly channeling Ostrom:

“An earth system governance approach will require an overarching global institution that is responsible for the entire Earth system, built around high-level principles and broad oversight and reporting provisions. This institution would serve as a universal point of aggregation for the governance of individual planetary commons, where oversight and monitoring of all commons come together, including annual reporting on the state of the planetary commons.”

Polycentricity was used by Ostrom to describe the involvement of different, overlapping “centers of authority”, such as individual consumers and producers, cooperatives formed among consumers and producers, other community organizations, local jurisdictions, and even state or federal regulators. Some of these centers of authority supersede others in various ways. For example, solutions developed by cooperatives or lower centers of authority must align with the legal framework within various government jurisdictions. However, as David Henderson has noted, Ostrom observed that management of pooled resources at lower levels of authority was generally superior to centralized control. Henderson quotes Ostrom and a co-author on this point:

“When users are genuinely engaged in decisions regarding rules affecting their use, the likelihood of them following the rules and monitoring others is much greater than when an authority simply imposes rules.”

The authors of the PC have something else in mind, and they bastardize the spirit of Ostrom’s legacy in the process. For example, the next sentence is critical for understanding the authors’ intent:

“If excessive emissions and harmful activities in some countries affect planetary commons in other areas—for example, the melting of polar ice—strong political and legal restrictions for such localized activities would be needed.”

Of course, there are obvious difficulties in measuring impacts of various actions on polar ice, assigning responsibility, and determining the appropriate “restrictions”. But in essence, the PC paper advocates for a top-down model of governance. Polycentrism is thus reduced to “you do as we say”, which is not in the spirit of Ostrom’s research.

Planetary Governance

Transcending national sovereignty on questions of the biosphere is key to the authors’ ambitions. At a bare minimum, the authors desire legally-binding commitments to international agreements on environmental governance, unlike the unenforceable promises made for the Paris Climate Accords:

“At present, the United Nations General Assembly, or a more specialized body mandated by the Assembly, could be the starting point for such an overarching body, even though the General Assembly, with its state-based approach that grants equal voting rights to both large countries and micronations, represents outdated traditions of an old European political order.”

But the votes of various “micronations” count for zilch when it comes to real “claims” on the resources of other sovereign nations! Otherwise, there is nothing “voluntary” about the regime proposed in the PC paper.

“A challenge for such regimes is to duly adapt and adjust notions of state sovereignty and self-determination, and to define obligations and reciprocal support and compensation schemes to ensure protection of the Earth system, while including comprehensive stewardship obligations and mandates aimed at protecting Earth-regulating systems in a just and inclusive way.”

So there! The way forward is to adopt the broadest possible definition of market failure and global regulation of any and all private activity touching on nature in any way. And note here a similarity to the Paris Accords: achieving commitments would fall to national governments whose elites often demonstrate a preference for top-down solutions.

Ah Yes, Redistribution

It should be apparent by now that the PC paper follows a now well-established tradition in multi-national climate “negotiations” to serve as subterfuge for redistribution (which, incidentally, includes the achievement of interspecies justice):

“For instance, a more equal sharing of the burdens of climate stabilization would require significant multilateral financial and technology transfers in order not to harm the poorest globally (116).”

The authors insist that participation in this governance would be “voluntary”, but the following sentence seems inconsistent with that assurance:

“… considering that any move to strengthen planetary commons governance would likely be voluntarily entered into, the burdens of conservation must be shared fairly (115).”

Wait, what? “Voluntary” at what level? Who defines “fairness”? The authors approvingly offer this paraphrase of the words of Brazilian President Lula da Silva,

“… who affirmed the Amazon rainforest as a collective responsibility which Brazil is committed to protect on behalf of all citizens around the world, and that deserves and justifies compensation from other nations (117).”

Let Them Eat Cake

Furthermore, PC would require de-growth and so-called “sufficiency” for thee (i.e., be happy with less), if not for those who’ll design and administer the regime.

“… new principles that align with novel Anthropocene dynamics and that could reverse the path-dependent course of current governance. These new principles are captured under a new legal paradigm designed for the Anthropocene called earth system law and include, among others, the principles of differentiated degrowth and sufficiency, the principle of interconnectivity, and a new planetary ethic (e.g., principle of ecological sustainability) (134).”

If we’re to take the PC super-regulators at their word, the regulatory regime would impinge on fertility decisions as well. Just who might we trust to govern humanity thusly? If we’re wise enough to apply the Munger Test, we wouldn’t grant that kind of power to our worst enemy!

Global Warmism

The underlying premise of the PC proposal is that a global crisis is now unfolding before our eyes: anthropomorphic global warming (AGW). The authors maintain that emissions of carbon dioxide are the cause of rising temperatures, rapidly rising sea levels, more violent weather, and other imminent disasters.

“It is now well established that human actions have pushed the Earth outside of the window of favorable environmental conditions experienced during the Holocene…”

“Earth system science now shows that there are biophysical limits to what existing organized human political, economic, and other social systems can appropriate from the planet.”

For a variety of reasons, both of these claims are more dubious than one might suppose based on popular narratives. As for the second of these, mankind’s limitless capacity for innovation is a more powerful force for sustainability than the authors would seem to allow. On the first claim, it’s important to note that the PC paper’s forebodings are primarily based on modeled, prospective outcomes, not historical data. The models are drastically oversimplified representations of the earth’s climate dynamics driven by exogenous carbon forcing assumptions. Their outputs have proven to be highly unreliable, overestimating warming trends almost without exception. These models exaggerate climate sensitivity to carbon forcings, and they largely ignore powerful natural forcings such as variations in solar irradiance, geological heating, and even geological carbon forcings. The models are also notorious for their inadequate treatment of feedback effects from cloud cover. Their predictions of key variables like water vapor are wildly in error.

The measurement of the so-called “global temperature” is itself subject to tremendous uncertainty. Weather stations come and go. They are distributed very unevenly across land masses, and measurement at sea is even sketchier. Averaging all these temperatures would be problematic even if there were no other issues… but there are. Individual stations are often sited poorly, including distortions from heat island effects. Aging of equipment creates a systematic upward bias, but correcting for that bias (via so-called homogenization) causes a “cooling the past” bias. It’s also instructive to note that the increase in global temperature from pre-industrial times actually began about 80 years prior to the onset of more intense carbon emissions in the 20th century.

Climate alarmists often speak in terms of temperature anomalies, rather than temperature levels. In other words, to what extent do temperatures differ from long-term averages? The magnitude of these anomalies, using the past several decades as a base, tend to be anywhere from zero degrees to well above one degree Celsius, depending on the year. Relative to temperature levels, the anomalies are a small fraction. Given the uncertainty in temperature levels, the anomalies themselves are dwarfed by the noise in the original series!

Pick Your Own Tipping Point

It seems that “tipping point” scares are heavily in vogue at the moment, and the PC proposal asks us to quaff deeply of these narratives. Everything is said to be at a tipping point into irrecoverable disaster that can be forestalled only by reforms to mankind’s unsustainable ways. To speak of the possibility of other causal forces would be a sacrilege. There are supposed tipping points for the global climate itself as well as tipping points for the polar ice sheets, the world’s forests, sea levels and coastal environments, severe weather, and wildlife populations. But none of this is based on objective science.

For example, the 1.5 degree limit on global warming is a wholly arbitrary figure invented by the IPCC for the Paris Climate Accords, yet the authors of the PC proposal would have us believe that it was some sort of scientific determination. And it does not represent a tipping point. Cliff Mass explains that climate models do not behave as if irreversible tipping points exist.

Consider also that there has been absolutely no increase in the frequency or intensity of severe weather.

Likewise, the rise of sea levels has not accelerated from prior trends, so it has nothing to do with carbon forcing.

One thing carbon forcings have accomplished is a significant greening of the planet, which if anything bodes well for the biosphere

What about the disappearance of the polar ice sheets? On this point, Cliff Mass quotes Chapter 3 of the IPCC’s Special Report on the implications of 1.5C or more warming:

“there is little evidence for a tipping point in the transition from perennial to seasonal ice cover. No evidence has been found for irreversibility or tipping points, suggesting that year-round sea ice will return given a suitable climate.”

The PC paper also attempts to connect global warming to increases in forest fires, but that’s incorrect: there has been no increasing trend in forest fires or annual burned acreage. If anything, trends in measures of forest fire activity have been negative over the past 80 years.

Concluding Thoughts

The alarmist propaganda contained in the PC proposal is intended to convince opinion leaders and the public that they’d better get on board with draconian and coercive steps to curtail economic activity. They appeal to the sense of virtue that must always accompany consent to authoritarian action, and that means vouching for sacrifice in the interests of environmental and climate equity. All the while, the authors hide behind a misleading version of Elinor Ostrom’s insights into the voluntary and cooperative husbandry of common pool resources.

One day we’ll be able to produce enough carbon-free energy to accommodate high standards of living worldwide and growth beyond that point. In fact, we already possess the technological know-how to substantially reduce our reliance on fossil fuels, but we lack the political will to avail ourselves of nuclear energy. With any luck, that will soften with installations of modular nuclear units.

Ultimately, we’ll see advances in fusion technology, beamed non-intermittent solar power from orbital collection platforms, advances in geothermal power, and effective carbon capture. Developing these technologies and implementing them at global scales will require massive investments that can be made possible only through economic growth, even if that means additional carbon emissions in the interim. We must unleash the private sector to conduct research and development without the meddling and clumsy efforts at top-down planning that typify governmental efforts (including an end to mandates, subsidies, and taxes). We must also reject ill-advised attempts at geoengineered cooling that are seemingly flying under the regulatory radar. Meanwhile, let’s save ourselves a lot of trouble by dismissing the interventionists in the planetary commons crowd.

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

28 Sunday Nov 2021

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

≈ 2 Comments

Tags

Antitrust, Asymmetric Information, Build Back Better, Capital Controls, central planning, Endangered Species Act, Energy Policy, Externalities, Fossil fuels, Fracking, FTC, Government Failure, Green New Deal, Greenbook, Hart Energy, Industrial Policy, Industry Concentration, Joe Biden, Keystone XL Pipeline, Knowledge Problem, Line 5 Pipeline, Mark Theisen, Market Failure, Monetary policy, OPEC, Price Gouging, Principles of Economics, Quotas, Regulatory Overreach, Stephen Green, Strategic Petroleum Reserve, Subsidies, Tariffs, Taxes, The Fatal Conceit

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.

COVID Externalities: the Costs and Benefits of Intervention

13 Sunday Dec 2020

Posted by Nuetzel in Coronavirus, Public Health, Social Costs

≈ 1 Comment

Tags

Cost-Benefit Analysis, Covid-19, Externalities, Friedrich Hayek, Intervention, Knowledge Problem, Mutual Risks, Non-Pharmaceutical interventions, Public Health, Stringency Index, University of Oxford

This post offers a simple representation of the argument against public non-pharmaceutical interventions (NPIs) to subdue the COVID-19 pandemic. The chart below features two lines, one representing the presumed life-saving benefits of lockdown measures or NPI stringency, and another representing the costs inflicted by those measures. The values on the axes here are not critical, though measures of stringency exist (e.g., the University of Oxford Stringency Index) and take values from zero to 100.

The benefits of lives saved due to NPI stringency are assigned a value on the vertical axis, as are the costs of lives lost due to deferred health care, isolation, and other stressors caused by stringency. In addition, there are the more straightforward losses caused by suspending economic activity, which should be included in costs.

One can think of the benefits curve as representing gains from forcing individuals, via lockdown measures, to internalize the external costs of risk inflicted on others. However, this curve captures only benefits incremental to those achieved through voluntary action. Thus, NPI benefits include only extra gains from coercing individuals to internalize risks, while losses from NPI stringency are captured by the cost curve.

My contention is that the benefits of stringency diminish and may in fact turn down at some point, and that costs always increase in the level of stringency. In the chart, for what it’s worth, the “optimal” level of stringency would be at a value of 2, where the difference between total benefits and total costs is maximized (and where the benefits of incremental stringency are equal to the marginal costs or losses). However, I am not convinced that the benefits of lockdown measures ever exceed costs, as they do in the chart above. That is, voluntary action may be sufficient. But if the benefits of NPIs do exceed costs, it’s likely to be only at low levels of stringency.

To the extent that people are aware of the pandemic and recognize risk, the external costs of possible infectiousness are already internalized to some degree. Moreover, there is mutual risk in most interactions, and all individuals face risks that are proportional to those to which they expose others: if your contacts are more varied and your interactions are more frequent and intimate, you face correspondingly higher risks yourself. After all, in a pandemic, an individual’s failure to exercise caution may lead to a very hard internalization of costs if an infection strikes them. This mutuality is an element absent from most situations involving externalities. And to the extent that you take voluntary precautions, you and your contacts both benefit. Nevertheless, I concede that there are individuals who face less risk themselves (the young or healthy) but who might behave recklessly, and they might not internalize all risk for which they are responsible. Yes, stringency may have benefits, but that does not mean it has net benefits.

Even if there is some meaningful point at which NPIs are “optimized”, government does not possess the knowledge required to find that point. It lacks detailed knowledge of both costs and benefits of NPIs. This is a manifestation of the “knowledge problem” articulated by Friedrich Hayek, which hampers all efforts at central planning. In contrast, individual actors know their own tolerance for risk, and they surely have some sense of the risks they create in their normal course of affairs. And again, there is a strong degree of proportionality and voluntary internalization of mutual risks.

While relying on voluntary action is economically inefficient relative to an ideal, full-information and perfectly altruistic solution, it is at least based on information that individuals possess: their own risk profile and risk preferences. In contrast, government does not possess information necessary to impose rules in an optimal way, and those rules are rife with unintended consequences and costs inflicted on individuals.

My next post will present empirical evidence of the weakness of lockdown measures in curbing the coronavirus as well as the high costs of those measures. The coronavirus is a serious infection, but it is not terribly deadly or damaging to the longer-term health of the vast majority of people. This, in and of itself, should be sufficient to demonstrate that the array of non-pharmaceutical interventions imposed in the U.S. and abroad were and are not worthwhile. People are capable of assessing risks for themselves. The externality argument, that NPIs are necessary because people do not adequately assess the risk they pose to others, relies on an authority’s ability to assess that risk, and they invariably go overboard on interventions for which they underestimate costs. COVID is not serious enough to justify a surrender of our constitutional rights, and like every concession to government authority, those rights will be difficult to recover.

Private Social Distancing, Private Reversal

04 Monday May 2020

Posted by Nuetzel in Liberty, Pandemic, Uncategorized

≈ 1 Comment

Tags

Andrew Cuomo, Anthony Fauci, Apple Mobility, Bill De Blasio, Centre for Economic Policy Research, Donald Trump, Externalities, Forbes, Foursquare, Heterogeneity, John Koetsier, Laissez Faire, Lockdowns, Nancy Pelosi, Points of Interest, Private Governance, Safegraph, Social Distancing, Social Welfare, Stay-at-Home Orders, Vitamin D, Wal Mart, WHO

My original post on the dominance of voluntary social distancing over the mandated variety appears below. That dominance is qualified by the greater difficulty of engaging in certain activities when they are outlawed by government, or when the natural locations of activities are declared off-limits. Nevertheless, as with almost all regulation, people make certain “adjustments” to suit themselves (sometimes involving kickbacks to authorities, because regulation does nothing so well as creating opportunities for graft). Those “adjustments” often lead to much less desirable outcomes than the original, unregulated state. In the case of a pandemic, however, it’s tempting to view such unavoidable actions as a matter of compromise.

I say this now because the voluntary social distancing preceding most government lockdown orders in March (discussed in the post below) is subject to a degree of self-reversal. Apple Mobility Data suggests that something like that was happening throughout much of April, as shown in the chart at the top of this post. Now, in early May, the trend is likely to continue as some of the government lockdown mandates are being lifted, or at least loosened.

An earlier version of the chart above appeared in a Forbes article entitled, “Apple Data Shows Shelter-In-Place Is Ending, Whether Governments Want It To Or Not“. The author, John Koetsier, noted the Apple data are taken from map searches, so they may not be reliable indicators of actual movement. But he also featured some charts from Foursquare, which showed actual visits to various kinds of destinations, and some of theoe demonstrate the upward trend in activity.

In the original post below, I used SafeGraph charts lifted from a paper I described there. The four charts below are available on the SafeGraph website, which offered the services of the friendly little robot in the lower right-hand corner, but I demurred. You’ll probably need to click on the image to read the detail. They show more granular information by industry, brand, region, and restaurant categories. The upward trends are evident in quite a few of the series.

I should qualify my interpretation of the charts above and those in my original post: First, nine states did not have stay-at-home orders, though a few of those had varying restrictions on individuals and on the operation of “non-essential” businesses. The five having no orders of any kind (that I can tell) are lightly-populated, very low-density states, so the vast majority of the U.S. population was subject to some sort of lockdown measure. Second, eight states began to ease or lift orders in the last few days of April, Georgia and Colorado being the largest. Therefore, at the tail end, a small part of the increase in activity could be related to those liberalizations. Then again, it might have happened anyway.

The authoritarian impulse to shut everything down was largely unnecessary, and it did not accomplish much that voluntary distancing hadn’t accomplished already (again, see below). Healthy people need to stop cowering and take action. That includes the non-elderly and those free of underlying health conditions. Sure, take precautions, keep your distance, but get out of your home if you can. Get some sunny Vitamin D.

Committing yourself to the existence of a shut-in is not healthy, not wise, and it might destroy whatever wealth you possess if you are a working person. The data above show that people are recognizing that fact. As much as the Left wishes it were so, government seldom “knows better”. It is least effective when it uses force to suppress voluntary behavior; it is most effective when it follows consensus, and especially when it protects the rights of individuals to make their own choices where no consensus exists.

Last week’s post follows:

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

How much did state and local governments accomplish when they decided to issue stay-at-home orders? Perhaps not much. That’s the implication of data presented by the authors of “Internal and external effects of social distancing in a pandemic” (starts on page 22 in the linked PDF). Social distancing began in the U.S. in a series of voluntary, private actions. Government orders merely followed and, at best, reinforced those actions, but often in ham-handed ways.

The paper has a broader purpose than the finding that social distancing is often a matter of private initiative. I’ll say a bit more about it, but you can probably skip the rest of this paragraph without loss of continuity. The paper explores theoretical relationships between key parameters (including a social distancing construct) and the dynamics of a pandemic over time in a social welfare context. The authors study several alternatives: a baseline in which behavior doesn’t change in any way; a “laissez faire” path in which actions are all voluntary; and a “socially optimal” path imposed by a benevolent and all-knowing central authority (say what???). I’d offer more details, but I’ll await the coming extension promised by the authors to a world in which susceptible populations are heterogenous (e.g., like Covid-19, where children are virtually unaffected, healthy working age adults are roughly as at-risk as they are to the flu, and a population of the elderly and health-compromised individuals for which the virus is much more dangerous than the flu). In general, the paper seems to support a more liberalized approach to dealing with the pandemic, but that’s a matter of interpretation. Tyler Cowen, who deserves a hat-tip, believes that reading is correct “at the margin”.

Let’s look at some of the charts the authors present early in the paper. The data on social distancing behavior comes from Safegraph, a vendor of mobility data taken from cell phone location information. This data can be used to construct various proxies for aggregate social activity. The first chart below shows traffic at “points of interest” (POI) in the U.S. from March 8 to April 12, 2020. That’s the blue line. The red line is the percentage of the U.S. population subject to lockdown orders on each date. The authors explain the details in the notes below the chart:

Clearly POI visits were declining sharply before any governments imposed their own orders. The next two charts show similar declines in the percent of mobile devices that leave “home” each day (“home” being the device’s dominant location during nighttime hours) and the duration over which devices were away from “home”, on average.

So all of these measures of social activity began declining well ahead of the government orders. The authors say private social distancing preceded government action in all 50 states. POI traffic was down almost 40% by the time 10% of the U.S. population was subject to government orders, and those early declines accounted for the bulk of the total decline through April 12. The early drops in the two away-from-home measures were 15-20%, again accounting for well over half of the total decline.

The additional declines beyond that time, to the extent they can be discerned, could be either trends that would have continued even in the absence of government orders or reinforcing effects the orders themselves. This does not imply that lockdown orders have no effects on specific activities. Rather, it means that those orders have minor incremental effects on measures of aggregate social activity than the voluntary actions already taken. In other words, the government lockdowns are largely a matter of rearranging the deck chairs, or, that is to say, their distribution.

Many private individuals and institutions acted early in response to information about the virus, motivated by concerns about their own safety and the safety of family and friends. The public sector in the U.S. was not especially effective in providing information, with such politicos as President Donald Trump, Nancy Pelosi, Andrew Cuomo, Bill De Blasio, and the mayor of New Orleans minimizing the dangers into the month of March, and some among them encouraging people to get out and celebrate at public events. Even Anthony Fauci minimized the danger in late February (not to mention the World Health Organization). In fact, “the scientists” were as negligent in their guidance as anyone in the early stages of the pandemic.

When lockdown orders were issued, they were often arbitrary and nonsensical. Grocery stores, liquor stores, and Wal Mart were allowed to remain open, but department stores and gun shops were not. Beaches and parks were ordered closed, though there is little if any chance of infection outdoors. Lawn care services, another outdoor activity, were classified as non-essential in some jurisdictions and therefore prohibited. And certain personal services seem to be available to public officials, but not to private citizens. The lists of things one can and can’t buy truly defies logic.

In March, John W. Whitehead wrote:

“We’re talking about lockdown powers (at both the federal and state level): the ability to suspend the Constitution, indefinitely detain American citizens, bypass the courts, quarantine whole communities or segments of the population, override the First Amendment by outlawing religious gatherings and assemblies of more than a few people, shut down entire industries and manipulate the economy, muzzle dissidents, ‘stop and seize any plane, train or automobile to stymie the spread of contagious disease,’…”

That is fearsome indeed, and individuals can accomplish distancing without it. If you are extremely risk averse, you can distance yourself or take other precautions to remain protected. You can either take action to isolate yourself or you can decide to be in proximity to others. The more risk averse among us will internalize most of the cost of voluntary social distancing. The less risk averse will avoid that cost but face greater exposure to the virus. Of course, this raises questions of public support for vulnerable segments of the population for whom risk aversion will be quite rational. That would certainly be a more enlightened form of intervention than lockdowns, though support should be offered only to those highly at-risk individuals who can’t support themselves.

Christopher Phelan writes of three rationales for the lockdowns: buying time for development of a vaccine or treatments; reducing the number of infected individuals; and to avoid overwhelming the health care system. Phelan thinks all three are of questionable validity at this point. A vaccine might never arrive, and Phelan is pessimistic about treatments (I have more hope in that regard). Ultimately a large share of the population will be infected, lockdowns or not. And of course the health care system is not overwhelmed at this point. Yes, those caring for Covid patients are under a great stress, but the health care system as a whole, and patients with other maladies, are currently suffering from massive under-utilization.

If you wish to be socially distant, you are free to do so on your very own. Individuals are quite capable of voluntary risk mitigation without authoritarian fiat, as the charts above show. While private actors might not internalize all of the external costs of their activities, government is seldom capable of making the appropriate corrections. Coercion to enforce the kinds of crazy rules that have been imposed during this pandemic is the kind of abuse of power the nation’s founders intended to prevent. Reversing those orders can be difficult, and the precedent itself becomes a threat to future liberty. Nevertheless, we see mounting efforts to resist by those who are harmed by these orders, and by those who recognize the short-sighted nature of the orders. Private incentives for risk reduction, and private evaluation of the benefits of social and economic activity, offer superior governance to the draconian realities of lockdowns.

Social Distancing Largely a Private Matter

26 Sunday Apr 2020

Posted by Nuetzel in Liberty, Pandemic, Uncategorized

≈ 1 Comment

Tags

Andrew Cuomo, Anthony Fauci, Bill De Blasio, Centre for Economic Policy Research, Donald Trump, Externalities, Heterogeneity, Laissez Faire, Lockdowns, Nancy Pelosi, Points of Interest, Private Governance, Safegraph, Social Distancing, Social Welfare, Stay-at-Home Orders, Wal Mart, WHO

In March, John W. Whitehead wrote:

Relieving the U.S. Public Toilet Shortage: User Fees

12 Wednesday Dec 2018

Posted by Nuetzel in Price Mechanism, Social Costs

≈ 1 Comment

Tags

Alex Tabarrok, Broadway, Charmin Van-GO, CityLab, Cross Subsidies, EBT Cards, Externalities, Free Ridership, Internalized Costs, Pay Toilet Bans, Pay Toilets, Price mechanism, Public Restrooms, Public Urination, Sophie House, Toilet Sharing, Urinetown, User Fees

The musical comedy Urinetown opened in 2001 and ran for 965 performances, not a bad run by Broadway standards. The show, which is still performed in theaters around the country, is a melodramatic farce: a town tries to deal with a water shortage by mandating that all townspeople use pay toilets controlled by a malevolent private utility. Despite the play’s premise, pay toilets are a solution to the very real problem of finding decent facilities, or any facility, in which to relieve oneself in public places. Anyone who has ever strolled the streets of a city has encountered this problem from time-to-time. But in the U.S., where local budgets are typically strapped, the choice is often between scarce and decrepit free toilets or no toilets at all. Otherwise, those seeking relief must rely on the kindness business owners or pass laws allowing non-patrons to commandeer businesses’ bathrooms at will. Toilets with user fees, however, are an alternative that should get more emphasis.

In part, the theme of Urinetown reflects a longstanding notion among anti-capitalists that pay toilets are a disgustingly unfair solution to these urgent needs. One can imagine the logic: everyone has a need and a right to make waste, so we should all have access to sparkling public toilets for free! There is also the presumed misogyny of charging at stalls but not urinals (which are cheaper to maintain, after all), but overcoming that problem should not present a great technical hurdle. And surely pay toilets could be made to accept EBT cards, or locally-issued pee-for-free cards for the homeless.

Yes, we all make waste. However, most of us are so modest and fastidious that we quite literally “internalize the externality” we’d otherwise impose on others were we to seek relief in the street or behind trees in the park. We hold it and sometimes incur high costs in search of a restroom. Those are costs many of us would willingly pay to avoid.

As Alex Tabarrok says in “Legalize Pay Toilets“, outrage over pay toilets, very much like the kind expressed in Urinetown, is what led to outright bans on pay toilets in America during the 1970s (also see Sophie House’s discussion of the need for pay toilets at Citylab). According to Tabarrok, “In 1970 there were some 50,000 pay toilets in America and by 1980 there were almost none.” Many travelers know, however, that pay toilets are fairly commonplace in Europe.

In the wake of pay-toilet bans in America, and without the flow of revenue, those one-time pay toilets were not well-maintained nor replaced. In that sense, hostility to the concept of pay toilets is responsible for the paucity and abysmal condition of most public restrooms today. Public restrooms are often plagued by a tragedy of the commons. And when you do see a “free” public restroom in relatively good condition (in an airport, on a turnpike, or elsewhere), it is usually because its costs are cross-subsidized by payments for other goods and services offered in those facilities. It’s not as if you don’t pay for the bathrooms.

There is no question of a willingness to pay, but legal obstacles to pay toilets remain. Pay toilets are still very uncommon. New York City actually decriminalized public urination a few years ago, an odd way to deal with the shortage of restrooms. Some cities, such as Philadelphia, have initiated efforts to bring back pay toilets, but they have made little headway. Just last year, the toilet paper producer Charmin ran a successful publicity campaign in New York City by testing a mobile toilet-sharing service (à la Uber ride-sharing) called Charmin Van-GO. The company described the test as a big success in terms of publicity, but apparently the service has not been offered on a continuing basis.

The economic problem posed by full bladders and bowels on the public square can be solved with relative efficiency using the price mechanism: pay toilets. The flow of revenue can defray the costs of restrooms and their maintenance, easing the strain on public budgets and covering the cost of keeping them clean. Pay toilets can be provided publicly or built and operated by private providers. Pricing the use of toilets, whether offered publicly or privately, helps focus resources at the point of need. Free public toilets, in contrast, are scarce and typically unsanitary. Funding public restrooms through taxation, rather than user fees, involves a loss of efficiency because taxpayers are often distinct from actual users. Forcing purveyors of food and drink (or anything of value) to offer bathroom access to “free riders” creates another obvious source of inefficiency. Allowing the use of EBT cards at pay toilets, while overcoming certain objections, would also involve inefficiencies, but at least they’d be limited to subsidies for a small proportion of the bathroom-going public. Given the alternatives under the status quo, our cities would be far more pleasant if they were flush with pay toilets.

The Socially Seductive Tax Deduction

20 Monday Nov 2017

Posted by Nuetzel in Taxes

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Edward Glaeser, Externalities, Home ownership, Jesse Shapiro, Medical Expense Deduction, Mortgage Interest Deduction, NBER, SALT, State & Local Tax Deduction, Student Loan Interest Deduction, Tax Deductions, Tax Foundation, Tax Reform

deductions desert

The rat’s nest that is the federal income tax code is a testament to the counter-productive nature of central economic planning. Not only does the tax code force citizens to waste time and other resources on compliance activities. It also encourages us to direct resources into uses that would not be worthwhile in the absence of tax incentives, uses that are not worthwhile in a societal context.

A general rationale for many provisions of the tax code is that they serve some “worthwhile” public purpose. A special tax provision is created to subsidize activities contributing to that purpose. Since that reduces the flow of revenue, tax rates must increase as an offset. However, high tax rates are damaging to economic health in and of themselves. They blunt incentives and drive wedges between the values and rewards that guide all economic decisions.

The competing tax plans under debate in the House and Senate would eliminate or pare back deductions to varying degrees, enabling a reduction in tax rates. I applaud steps in that direction, though a consequence of doing so piecemeal is to invite later tinkering of the sort that got us into this mess in the first place. Both the House and Senate bills are piecemeal. Here is a run-down of some of the deductions that are under review in the GOP plans:

State and Local Tax (SALT) Deductions: this deduction prevents the imposition of federal “taxes on taxes”, which is a worthwhile consideration. However, SALT also gives lower levels of government a “discount” on tax burdens they impose on their citizens, thereby forcing that burden to be shared by members of other jurisdictions. According to the Tax Foundation:

“The deduction favors high-income, high-tax states like California and New York, which together receive nearly one-third of the deduction’s total value nationwide. Six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of the deduction.“

Defenders of this deduction note peremptorily that it is used by taxpayers in all fifty states, as if that should come as a surprise. Well of course it is! And those who are taxed most heavily benefit the most from this deduction, and those benefits are most concentrated in high-tax states. The House GOP bill would limit the SALT deduction to $10,000, while the Senate version would eliminate it entirely.

Mortgage Interest (MI) Deduction: Long ago, the idea took hold that ownership of a home was of greater inherent value than mere occupancy. It’s obviously true that owners have greater rights than renters over use of a property. Those benefits are internalized, and owner-occupants might well be more inclined than renters to take pride in, care for, and improve a property. That suggests a social or external benefit from home ownership, one that at least benefits others in the vicinity of a given property.

The MI deduction creates an incentive for debt-financed home ownership, but only for the minority of taxpayers who can benefit from itemizing deductions. It therefore tends to subsidize the housing choices of those at higher levels of income and those with larger homes. It has contributed little, if anything, to the homeownership rate. Here are Edward Glaeser and Jesse Shapiro describing the findings of their NBER Working Paper:

“Externalities from living around homeowners are far too small to justify the deduction. … the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership since it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series which shows that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.“

This deduction has fostered a massive over-investment in housing relative to other assets and forms of consumption. The House tax bill would allow a deduction on interest payments for up to $500,000 of mortgage debt, but this limit would apply only to new mortgages. The Senate bill would not alter the deduction in any way. These steps are severely limited in their reform ambitions.

Medical Expense Deduction: To take this deduction, you must 1) be an itemizer; and 2) have eligible medical expenses exceeding 10% of adjusted gross income (AGI). Then, you can deduct only the excess above 10%. A relatively small percentage of taxpayers actually take this deduction, mostly wealthy, older individuals or couples. It can be argued that the deduction encourages overuse of medical resources in some cases, but there are certainly others in which it provides relief from the hardship of an illness requiring expensive care. On the other hand, the deduction might serve to discourage the purchase of supplemental Medicare coverage by individuals who can afford it but are willing to bet that they won’t need it. Part of that bet is covered by the deduction.

The House bill would repeal this deduction in its entirety. The Senate bill would leave it untouched.

Student Loan Interest Deduction: Currently, up to $2,500 of student loan interest can be deducted “above the line” by non-itemizers, but only if their AGI is within certain limits. Higher education is often claimed to have social (external) benefits. To some extent, the student loan interest deduction helps bring the cost of an eduction to within reach of a broader swath of the citizenry. These considerations provide the rationale for public subsidies for funding tuition and other costs with debt. The tax deduction is only one of many forms of education subsidies. Another is provided by the below-market rates at which students are able to borrow from the federal government.

The social benefits of higher education are strongly associated with the value it adds for the individual. It can be argued that as a society, we may have pushed college education well beyond that point. A large number of indebted students decide, too late, that continued enrollment has little value, so they drop out and often default on their federally-subsidized debt. Moreover, these loan subsidies stimulate the demand for college education, which leads to a certain amount of escalation in tuition and fees. These ill effects make elimination of this deduction a tempting way to broaden the income-tax base, enabling a reduction in tax rates.

The House bill eliminates the deduction for student loan interest, but the Senate bill leaves it intact.

Conclusion: There are plenty of shortcomings in both the House and Senate versions of tax reform. Three liberalizing goals of reform are tax simplification, elimination of provisions that benefit special interests, and of course lower rates. Most of the complexities in the tax code benefit special interests in one way or another. The deductions discussed above fall into that category and necessitate higher tax rates on personal income. That in turn makes the deductions more valuable to those who claim them. In terms of the liberalizing goals of reform, the House tax bill is wider ranging than the Senate version, though the Senate bill’s complete elimination of the SALT deduction is better.

Subsidies Are For Suckled Statists

07 Sunday Dec 2014

Posted by Nuetzel in Uncategorized

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Externalities, Free Beacon, George Soros, Government Failure, Koch Brothers, Michael Bloomberg, Political contributions, public subsidies, rent seeking, Tom Steyer

Who told Congress the following? “We oppose ALL subsidies, whether existing or proposed, including programs that benefit us, which are principally those that are embedded in our economy, such as mandates.”

And this? “[We don’t] view these as ‘benefits’ even if they are in industries we’re in. They are wasteful and market distorting, and allow other firms to run businesses that aren’t making money any other way.”

This principled stand against one major type of crony capitalism was taken by none other than Koch Industries. According to this Free Beacon article:

“The company owned by billionaire philanthropists Charles and David Koch, as well as groups frequently associated with the fraternal libertarians, are pushing Congress to let 55 tax breaks expire, including several that provide billions in tax relief for corporations such as Koch Industries.”

They are similarly opposed to regulatory cronyism that restrains competition and the sort of public largess favoring lucrative contract awards for large corporate entities. These are the same Koch brothers typically demonized by the Left (but not always), as if their political contributions were an effort to garner public subsidies. Clearly that is not the case. Moreover, Left-leaning billionaires such as Tom Steyer, Michael Bloomberg and George Soros are far more prolific political contributors than the Koch brothers. And what do these corporatists want for their money? Surely not a smaller government; they’d like a big fat administrative state from which their many corporate interests can suckle.

Some kinds of subsidies are transparently wasteful, such as tax breaks for already-profitable businesses or bailouts to firms that have made bad decisions, or to firms in dying industries. More fundamentally, all public subsidies circumvent the unforgiving cost-benefit calculus imposed by the market, misdirecting resources via signals distorted by the visible fists of government. This often allows activity to continue that would otherwise be judged wasteful or unsustainable, or excessive investment of resources into particular activities. Self-interested politicians and public officials, however, often justify these subsidies by asserting the existence of external benefits unrecognized by market valuations. Too often, these assertions rely on value judgements. Regardless, the supposed benefits are never easily measured. Our experience with pervasive cronyism and waste in government should always lead us to insist on a skeptical evaluation of proposed subsidies. Rent-seeking behavior is usually at the root of such initiatives.

Sacred Cow Chips

Tag Archives: Externalities

State Aesthetics: Taxes for Art and Dogma

Tangled Up In Green Industrial Policy II: Rewarding Idle Capital

Lords of the Planetary Commons Insist We Banish Sovereignty, Growth

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

The Socially Seductive Tax Deduction

Subsidies Are For Suckled Statists