Tag Archives: Warren Meyer

Trump’s Payroll Tax Ploy

15 Tuesday Sep 2020

Posted by in Fiscal policy, Taxes

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President Trump’s memorandum to Treasury Secretary Steve Mnuchin on payroll tax deferral is bad economic policy, but it might ultimately prove useful as a political weapon. The memo, released in August, instructed the Treasury to allow employers to suspend withholding of the employee’s share of FICA taxes (6.2%) until the end of the year, but it does not forgive the taxes. Only Congress (with the President’s signature) can eliminate the tax obligation. There are several reasons I don’t like it:

  1. Assuming the tax obligation is forgiven, it would provide some relief to those who are already employed (and earning less than $4,000 every two weeks), but not to the unemployed. Thus, as relief from coronavirus-induced job losses, this doesn’t cut it.
  2. It does not reduce the cost of hiring, as would a permanent reduction in the employer’s share, so it does not improve hiring incentives.
  3. The deferral creates uncertainty: will the tax bill be forgiven? If not, will the employee be on the hook? Or the employer? What if an employee leaves the company having received a deferral?
  4. The measure will not be an effective stimulus to spending. It is not an addition to workers’ permanent income since it is a temporary “holiday”. Income perceived as temporary adds little to consumer spending. And it doesn’t constitute a temporary tax break unless employers participate (see below), and even then only if Trump is re-elected and if Congress agrees to forgive the tax.
  5. Trump suggested that the tax will be forgiven if he is re-elected. It’s a rather unsavory proposition: create an immediate tax benefit paired with a matching future obligation with forgiveness contingent upon re-election!
  6. Long-term funding of Social Security is already problematic. Adding a payroll tax holiday on top of that, assuming the taxes are forgiven, only aggravates the situation. Yes, I can imagine various “long-game” reform proposals that might attempt to leverage such a break, but I consider that highly unlikely.

It’s no surprise that a number of large employers are not participating in the tax deferral. such as CVS, JP Morgan Chase, UPS, Home Depot, and Wells Fargo.

Small employers have an even bigger problem to the extent that they lack sophisticated accounting systems to handle such deferrals. Here’s Warren Meyers’ take on the payroll tax suspension:

“We have 400 employees today, but since we are a summer seasonal business we will have fewer than 100 in January. If there is a catch-up repayment in January (meaning Congress chooses not to forgive the taxes altogether), most of my employees who would need to repay the tax will be gone. Do you think the government is just going to say, ‘oh well, I guess we lost that money’? Hah! You don’t know how the government works with tax liens. My guess is that for every employee no longer on the payroll for whom back employment taxes need to be collected, the government is going to say our company is responsible for those payments instead. We could be out hundreds of thousands of extra dollars. President Biden will just say, ‘well I guess you should not have participated in a Trump program.’

So this is the vise we are in: Either we participate in the program, and risk paying a fortune in extra taxes at some future date, or we don’t participate, and have every employee screaming at us for deducting payroll taxes when President Trump told them they did not have to pay it anymore. And what happens if Congress does come along later and forgive the taxes, what kind of jerk am I for not allowing my employees to benefit from the tax break?

A payroll tax rollback was considered for the Republican stimulus packages that failed in Congress this summer, but that provision was said to be “negotiable”. In any case, nothing passed. Surely Trump’s economic advisors know that the economics of the payroll tax memo are lousy, even if Trump doesn’t get it.

I can’t decide whether the whole thing is Machiavellian or just a goof. Perhaps Trump is so eager to be seen as a tax cutter that he is willing to gloss over the distinction between a tax cut and a deferral. If the taxes owed are not forgiven, it won’t be on his watch. And Trump might believe he can weaponize the payroll tax deferral against obstinate Democrats in Congress as well as Joe Biden. Maybe he can.

TikTok Tax: The Heavy Wants a Cut

05 Wednesday Aug 2020

Posted by in Industrial Policy, Regulation, Trump Administration

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I have a certain ambivalence toward Donald Trump, and I could go on and on about why it’s so “complicated” for me. One thing for which I’ve credited the Trump Administration is its effort to “deconstruct the administrative state”, as Steve Bannon so aptly put it shortly after the 2016 election. Of course, the progress thus far hasn’t always lived up to my hopes, but the effort to deregulate continues. And after all, the regulatory state is deeply entrenched and difficult to uproot.

Then my eyes glazed over as Trump floated an idea so bad, an intervention so awful, that I can hardly gather it in! It has to do with TikTok, the Chinese video sharing service that has gained popularity worldwide. Crazy as this might sound, it’s not so much Trump’s threat to shut down TikTok’s U.S. operations. Like most libertarians, I’d find that appalling in and of itself, except for the legitimate data security issues at stake. The company’s ties to the Chinese Communist Party (CCP) are a national security concern and an ethical blot on the company, given the CCP’s brutal treatment of Muslim Uighurs, its roughshod treatment of Hong Kong, and its threats to Taiwan. In any case, at least Trump said he’s amenable to a sale of the company’s U.S. operations to a domestic firm. Several large tech firms have expressed strong interest, including Microsoft. So, while any government imposed shutdown or forced sale makes me squirm, it’s not my main issue here.

What really stunned me was to hear Trump say the U.S. Treasury must get a cut of the deal! This is “Hall-of-Fame” statism. Where in the hell does the U.S. government get a legitimate financial claim to the value of any private business that changes hands? Well, Trump seems to think the federal government is adding value as the heavy:

“But if you buy [TicTok], the United States, which is making it possible to buy, because without us they can’t do anything, should be compensated.”

Yes, the buyer would be the beneficiary of a shakedown, and the demand is another poke in the eye to the Chinese. Of course, it might well threaten the transaction, and I’m not even sure it’s in Trump’s interest politically. But that’s not even the worst of it: as Warren Meyer explains, it would be hard to think of a better way to weaponize financial regulation than having the Treasury at the bargaining table in private negotiations for corporate control:

“Already there are too many regulatory hurdles to doing about anything, and Trump wants agencies to use regulatory approvals to hold up corporations for payments. And you can be sure this is a precedent the Democrats will be only too happy to latch onto — want a pipeline built, where’s our vig? Who wants [this to be] the first Trump decision AOC comes out in support of? The Republican Party sure has come a long way in my lifetime.”

The Left would certainly love to exercise this kind of coercion as a revenue source, as a cudgel of industrial policy to wield against disfavored firms and industries, and as a way to favor cronies. It’s a ready extension of Barack Obama’s deranged “You-didn’t-build-that” theme.

Is this one of trade advisor Peter Navarro‘s brainstorms? I was relieved to see Trump economic advisor Larry Kudlow cast some doubt on whether the government would follow through on Trump’s idea:

“‘I don’t know if that’s a key stipulation. …. A lot of options here,’ Kudlow told ‘Varney & Co.’ on Tuesday. ‘Not sure it’s a specific concept that will be followed through.’“

I think Trump would really like to kill TikTok. Maybe his grudge is driven in part by the presumptive role that TikTok played in his under-attended Tulsa rally. But there are domestic competitors to TikTok, so consumers will have alternatives. The most popular of those seems to be another Chinese app called Likee. In any case, downloads of other video sharing apps have spiked over the past few weeks. If Trump’s real aim is simply to shut down TikTok in the U.S., I’d almost rather see him do that than start making a practice of horse trading with cronies over shares of corporate booty.

Amazon Fire Fraud

03 Tuesday Sep 2019

Posted by in Forest Fires, Global Greening

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Leftist activists recently pounced on another opportunity to mischaracterize events, this time in the Amazon Basin, where recent fires were held to be unprecedented. The fires were also characterized as evidence of a massive conspiracy between capitalists and the new government of President Jair Bolsonaro to open the rain forest to commercial exploitation. Warren Meyer squares away the facts at this Coyote Blog post, which is where I found the chart above. Forest clearing in Brazil has been much lower over the past 10 years than during period 1988-2008. It stepped-up somewhat during the first half of 2019, but it still ran at a rate well below 2008. A key reason for the increase is fascinating, but I’ll merely tease that for now.

As for the fires, Meyer provides the following quote about this year’s fires from NASA in a statement accompanying a satellite photo:

“As of August 16, 2019, satellite observations indicated that total fire activity in the Amazon basin was slightly below average in comparison to the past 15 years. Though activity has been above average in Amazonas and to a lesser extent in Rondônia, it has been below average in Mato Grosso and Pará, according to the Global Fire Emissions Database.“

So what was the cause of all the alarm? Meyer points to a August 22 story in the Washington Post, though WaPo might not have been the first. The article was either poorly researched and “fact checked” or it was a deliberate attempt to raise alarm. The sloppy story was picked up elsewhere, of course, and distorted memes spread on social media condemning the Brazilian government and capitalism generally.

The burning that is taking place has been started by farmers preparing land for crops, a process that occurs every year. Meyer quotes the New York Times on this point, which noted that very little of the burning was taking place in old-growth forests.

What’s really ironic and crazy about all this is that U.S. environmental policy is responsible for some of the burning that is taking place in the Amazon. Meyer notes that U.S. ethanol mandates have subsidized a years-long trend of increased sugar cane production in the Amazon Basin. Of course, burning is a regular part of the normal sugar cane harvest. Moreover, that production has contributed to land clearance, offsetting some of the forces that have brought the rate of deforestation in Brazil down overall.

The whole episode dovetails with the ongoing narrative that fires are burning out of control across the globe due to climate change. We heard similar propaganda last year after several large fires in California. Michael Shellenberger does his best to set the record straight, demonstrating that the annual land area burned worldwide has declined by 25% since 2003. He contrasts that record with the hopelessly errant reporting by major media organizations.

As P.T. Barnum once said, a sucker’s born every minute. He might as well have been talking about the armies of well-meaning but gullible greenies who fall for every scare story told by the likes of Al Gore and Leonardo DiCaprio. And scare stories are exactly what these tales of a global conflagration amount to. Meanwhile, as Alexander Hammond explains, global reforestation has taken hold. In what is apparently a paradox to some, this is largely the result of economic growth. Hammond discusses the logical connections between economic development and environmental goods, including reforestation and biodiversity. The bottom line is that the best policies for reforestation are not those imposing obstacles to growth, as the environmental Left would have it. Rather, it is policies that promote development and income growth, which are generally more compatible with individual liberty, that will encourage growth in the world’s forests.

The EU Chokes the Free Flow of Information

14 Sunday Apr 2019

Posted by in Censorship, Free Speech

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The European Union wants to force me to pay “news sites” for links with “snippets” of content I might quote on this blog, and it wants the WordPress platform to flag and censor anything that might qualify as copyright infringement. The EU also wants search engines like Google and platforms like Facebook to pay for links and “snippets” or else censor them. Most members in the EU Parliament apparently think the best way to regulate information services is to choke off the flow of information. As Warren Meyer says, if you weren’t for Brexit, this single EU action might well convert you (though British statists have their own designs on censorship, Brexit or not). And if you think government involvement won’t ruin the internet, think again.

These restrictive demands are the essence of two controversial provisions of the so-called European Copyright Directive (ECD) passed by the EU Parliament on March 26th. My summary here leaves out lots of detail, but be assured that administering the Directive will require a massive regulatory apparatus:

The Link Tax: If you link to a source and quote a “snippet” of text from that source, you will have to obtain a license from the source, or else the link you use may be blocked. Keep in mind the rule applies despite full attribution to the original source! It remains to be seen how these licenses will be negotiated, but it will almost certainly impose costs on users.

Censorship Machines: Platforms will be required to monitor and assess everything posted for possible copyright infringement. That will require the development of automated “filters” to flag and remove material that might be in violation. That’s a stark change in the treatment of speech on platforms that, heretofore, have not been required to police their users. The responsibility was on those holding copyrights to go after unauthorized use with takedown notices.

Cory Doctorow of the Electronic Frontier Foundation (EFF) wrote an informative position paper on the ECD a week before the vote. He has been an active and articulate opponent of the legislation. Here are some of his comments (his emphasis):

“… text that contains more than a ‘snippet’ from an article are covered by a new form of copyright, and must be licensed and paid by whoever quotes the text …[the ECD] has a very vague definition of ‘news site’ and leaves the definition of ‘snippet’ up to each EU country’s legislature. … no exceptions to protect small and noncommercial services, including Wikipedia but also your personal blog. The draft doesn’t just give news companies the right to charge for links to their articles—it also gives them the right to ban linking to those articles altogether, (where such a link includes a quote from the article) so sites can threaten critics writing about their articles.”

The ECD seems intended as a gift to large news organizations, but it will discourage the free exposure now given to those news sites on the internet. It’s therefore not clear that the ECD will generate much incremental cash flow for news sites or other content providers. However, collecting the new license revenue will come at some expense, so it won’t be of much help to smaller “rights holders”. Therefore, the rule is likely to benefit large platforms and news outlets disproportionately, as they are in a better position to negotiate licenses for the use of material.

As for censorship machines, perhaps rights holders prefer a shift in the burden of policing the use of copyrighted material away from themselves and to the platforms. Some might suggest that it will achieve efficiencies, but that seems unlikely. These filters are costly and are likely to suffer from an excess of false positives. Moreover, the ECD creates risks that demand conservatism on the part of the platforms, so their censorship machines will systematically side against users. There is also a reasonable possibility that filters will be used to control political speech.

All of this is contrary to the doctrine of fair use, as codified and practiced in the U.S. This involves four conditions giving fairly broad latitude to users, described at the last link by Stan Adams:

“The relevant statutory provision (17 U.S.C. § 107) describes four factors to consider when determining whether a particular use of a work is “fair”: the purpose and character of the use; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the work as a whole; and the effect of the use on the potential market for, or value of, the original work.”

Copyright protection has never been absolute nor intended to guarantee perfect exclusivity. Ever lend a book to a friend? Ever heard a cover band perform pop hits? Ever offered a quote to forward a written argument? All of this falls broadly under fair use, and much of it serves to promote the economic interests of rights holders, as opposed to infringing on the market for their original work. The EU, however, has no provisions for fair use in its copyright laws (though EU countries may have limitations and exclusions to copyright protection).

It’s bad enough that Europeans will suffer the consequences of this ill-considered piece of legislation, but can the platforms be counted upon to apply their censorship machines only to select geographies? Adams encapsulates the difficulties the ECD presents to users elsewhere:

“… the rest of the world must rely on private companies to ensure that the EU’s misguided copyright policies do not restrict freedoms enjoyed elsewhere in the world.”

Internet regulations in Europe and the U.S. seem to be following different cronyist disease vectors. The ECD favors large news organizations at the expense of social media platforms, and ultimately consumers and the cause of free speech. The large tech platforms are of course equipped to survive, but perhaps not small ones. In the U.S., we have Mark Zuckerberg begging for regulation of Facebook, including the regulation of speech. That’s a spectacularly bad idea for public policy. It too would disadvantage smaller competitors in the social media space. Ultimately, in Europe and the U.S, these steps will come at the expense of consumers, possibly in higher monetary costs, but definitely in restrained trade in online services and in the marketplace of ideas. So goes the cause of free speech when government has the power to regulate the flow of information.

For further reading on the ECF, see Catarina Midoes: “Is this blog post legal (under new EU copyright law)?” She discusses how different factions view the ECD, gives additional perspective on the controversial provisions, and discusses some potential unintended consequences. Also see Scott Shackford’s “Hide Those Meme’s Folks…”

 

A Carbon Tax Would Be Fine, If Only …

01 Friday Mar 2019

Posted by in Environment, Global Warming, Taxes

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I’ve opposed carbon taxes on several grounds, but I admit that it might well be less costly as a substitute for the present mess that is U.S. climate policy. Today, we incur enormous costs from a morass of energy regulations and mandates, prohibitions on development of zero-carbon nuclear power, and subsidies to politically-connected industrialists investing in corn ethanol, electric cars, and land- and wildlife-devouring wind and solar farms. (For more on these costly and ineffective efforts, see Michael Shellenberger’s “Why Renewables Can’t Save the Planet” in Quillette.) Incidentally, the so-called Green New Deal calls for a complete conversion to renewables in unrealistically short order, but with very little emphasis on a carbon tax.

The Carbon Tax

Many economists support the carbon tax precisely because it’s viewed as an attractive substitute for many other costly policies. Some support using revenue from the tax to pay a flat rebate or “carbon dividend” to everyone each year (essentially a universal basic income). Others have pitched the tax as a revenue-neutral replacement for other taxes that are damaging to economic growth, such as payroll taxes or taxes on capital. Economic growth would improve under the carbon tax, or so the story goes, because the carbon tax is a tax on a “bad”, as opposed to taxes on “good” factors of production. I view these ideas as politically naive. If we ever get the tax, we’ll be lucky to get much regulatory relief in the bargain, and the revenue is not likely to be offset by reductions in other taxes.

But let’s look a little closer at the concept of the carbon tax, and I beg my climate-skeptic friends to stick with me for a few moments and keep a straight face. The tax is a way to attach an explicit price to the use of fuels that create carbon emissions. The emissions are said to inflict social or external costs on other parties, costs which are otherwise ignored by consumers and businesses in their many decisions involving energy use. The carbon tax is a so-called Pigouvian tax: a way to “internalize the externality” by making fossil fuels more expensive to burn. The tax itself involves no prohibitions on behavior of any kind. Certain behaviors are taxed to encourage more “desirable” behavior.

Setting the Tax

But what is the appropriate level of the tax? At what level will it approximate the true “social cost of carbon”? Any departure from that cost would be sub-optimal. Robert P. Murphy contrasts William D. Nordhaus’ optimal carbon tax with more radical levels, which Nordhaus believes would be needed to meet the goals of the United Nation’s Intergovernmental Panel on Climate Change (IPCC). Nordhaus won the 2018 Nobel Prize in economics for his work on climate change. Whatever one might think of the real risks of climate change, Nordhaus’ clearly recognizes the economic downsides to mitigating against those risks.

Nordhaus has estimated that the social cost of carbon will be $44/ton in 2025 (about $0.39 per gallon of gas). He claims that a carbon tax at that level would limit increases in global temperature to 3.5º Celsius by 2100. He purports to show that the costs of a $44 carbon tax in terms of reduced economic output would be balanced by the gains from limiting climate warming. Less warming would require a higher tax with fewer incremental rewards, and even more incremental lost output. The costs of the tax would then outweigh benefits. For perspective, according to Nordhaus, a stricter limit of 2.5º C implies a carbon tax equivalent to $2.50 per gallon of gas. The IPCC, however, prescribes an even more radical limit of 1.5º C. That would inflict a huge cost on humanity far outweighing the potential benefits of less warming.

A Carbon Tax, If…

Many economists have come down in favor of a carbon tax under certain qualifications: revenue-neutrality, a “carbon dividend”, or as a pre-condition to deregulation of carbon sources and de-subsidization of alternatives. John Cochrane discusses a carbon tax in the context of the “Economists’ Statement on Carbon Dividends” (Cochrane’s more recent thoughts are here):

“It’s short, sweet, and signed by, as far as I can tell, every living CEA chair, every living Fed Chair, both Democrat and Republican, and most of the living Nobel Prize winners. … It offers four principles 1. A carbon tax, initially $40 per ton. 2. The carbon tax substitutes for regulations and subsidies and (my words) the vast crony-capitalist green boondoggle swamp, which is chewing up money and not saving carbon. 3. Border adjustment like VAT have [sic] 4. ‘All the revenue should be returned directly to U.S. citizens through equal lump-sum rebates.'”

Rather than a carbon dividend, Warren Meyer proposes that a carbon tax be accompanied by a reduction in the payroll tax, an elimination of all subsidies, mandates, and prohibitions, development of more nuclear power-generating capacity, and contributions to a cleanup of Chinese and Asian coal-power generation. That’s a lot of stuff, and I think it exceeds Meyer’s normal realism with respect to policy issues.

My Opposition

Again, I oppose the adoption of a carbon tax for several reasons, despite my sympathy for the logic of Pigouvian taxation of externalities. At the risk of repeating myself, here I elaborate on my reasons for opposition:

Government Guesswork: First, Nordhaus’ estimates notwithstanding, we do not and cannot know the climate/economic tradeoffs with any precision. We can barely measure global climate, and the history of what measures we have are short and heavily manipulated. Models purporting to show the relationship between carbon forcing and global climate climate change are notoriously unreliable. So even if we can agree on the goal (1.5º, 2.5º, 3.5º), and we won’t, the government will get the tradeoffs wrong. I took the following from a comment on Cochrane’s blog, a quote from A.C. Pigou himself:

“It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.”

Political Hazards: Second, we won’t get the hoped-for political horse trade made explicit in the “Economists’ Statement …” discussed above. As a political matter, the setting of the carbon tax rate will almost assuredly get us a rate that’s too high. Experiences with carbon taxes in Australia, British Columbia, and France have been terrible thus far, sowing widespread dissatisfaction with the resultant escalation of energy prices.

Economic Growth: Neither is it a foregone conclusion that a revenue-neutral carbon tax will stimulate economic growth, and it might actually reduce output. As Robert P. Murphy explains in another post, the outcome depends on the structure of taxes prior to the change. The substitution of the carbon tax will increase output only if it replaces taxes on a factor of production (labor or capital) that is overtaxed prior to the change. That undermines a key selling point: that the carbon tax would necessarily produce a “double dividend”: a reduction in carbon emissions and higher economic growth. Nevertheless, I’d allow that revenue neutrality combined with elimination of carbon regulation and “green” subsidies would be a good bet from an economic growth perspective.

Overstated Risks: Finally, I oppose carbon taxes because I’m unconvinced that the risk and danger of global warming are as great as even Nordhaus would have it. In other words, the external costs of carbon don’t amount to much. Our recorded temperature history is extremely short and is therefore not a reliable guide to the long-term nature of the systemic relationships at issue. Even worse, temperature records are manipulated to exaggerate the trend in temperatures (also see here, here and here). There is no evidence of an uptrend in severe weather events, and the dangers of sea level rise associated with increasing carbon concentrations also have been greatly exaggerated. Really, at some point one must take notice of the number of alarming predictions and doomsday headlines from the past that have not been borne out even remotely. Furthermore, higher carbon concentrations and even warming itself would be of some benefit to humanity. In addition to a greener environment, the benefits include more rapid economic growth, improved agricultural yields, and a reduction in the salient danger of cold-weather deaths.

Economic Development: The use of fossil fuels has helped to enable strong growth in incomes in developed economies. It has also given us energy alternatives such as nuclear power as well as research into other alternatives, albeit with very mixed success thus far. And while a carbon tax would create an additional incentive to develop such alternatives, a U.S. tax would not accomplish much if any global temperature reduction. Such a tax would have to be applied on a global scale. Talk about a political long-shot! Increasing the price of carbon emissions also has enormous downsides for the less developed world. These fragile economies would benefit greatly from development of fossil fuel energy, enabling reductions in poverty and the income growth necessary to someday join in the prosperity of the developed economies. This, along with liberalization of markets, is the affordable way to bring economic success to these countries, which in turn will enable them to consider the energy alternatives that might come to fruition by that time. Fighting the war on fossil fuels in the underdeveloped world is nothing if not cruel.

 

The Fast Trains That Can’t

17 Sunday Feb 2019

Posted by in Air Travel, infrastructure

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High-speed rail will remain a pipe-dream in the U.S. except for the development of a few limited routes. However, statists continue to push for large-scale adoption. That would represent a triumph of big government, if realized, and it is very appealing to the public imagination. But high-speed rail (HSR) is something of a fraud. Projected fares do not include the massive capital costs required to build it, which must be funded by taxpayers. Like most big public projects, HSR presents ample opportunities for graft by privileged insiders. And apparently it’s easy to rationalize HSR by repeating the questionable mantra that it is environmentally superior to autos or even air travel.

California recently confronted the harsh reality of HSR costs by scaling back its ambitious plans to a single line traversing a portion of the central valley. Now, the federal government has acknowledged that the state has violated the terms of past federal grants, essentially for non-performance. Those grants totaled $2.5 billion, and another grant of almost $1 billion might be withheld. Better not to throw good money after bad.

Megan McArdle wisely debunks the viability of HSR in the U.S. based on four potent factors: distance, wealth, legal obstacles, and cost. Unlike Europe, Japan and even the eastern Chinese seaboard, the distances involved in the U.S. make widespread development of HSR infrastructure quite challenging. Even on shorter routes, the U.S. has too much valuable property in and between population centers that would have to be repurposed for placement of relatively straight-line routes to facilitate high speeds. An authoritarian government can commandeer property, but wresting property from private owners in the U.S. is not straightforward, even when obtrusive bureaucrats attempt to invoke eminent domain. McArdle says:

“… the U.S. legal system offers citizens an unparalleled number of veto points at which they can attempt to block government projects. Any infrastructure project bigger than painting a schoolhouse thus has to either fight out the reviews and court cases for years, or buy off the opponents, or more likely, both.”

Another downside for HSR: the cost of installing and operating U.S. infrastructure is inflated by a number of factors, including high U.S. wage levels, unions, overlapping regulatory agencies, and the distances and other cost factors discussed earlier. Even worse, the extensive planning and lengthy time lines of such a project virtually assure cost overruns, as California has learned the hard way. So high-speed rail has a lot going against it.

Warren Meyer raises another issue: rail in the U.S. is dominated by freight, and it is very difficult for freight and passenger traffic to share the same system. That means freight traffic cannot be used to help defray the cost of installing HSR. Meyer makes an interesting comparison between the efficiency of passenger trains relative to freight: much more energy is needed to pull a heavy passenger train car than to pull the actual passengers inside. In contrast, the cargo inside a typical freight car weighs far more than the car itself. But the efficiency of freight transportation in the U.S. seems to have no allure for many critics of U.S. transportation policy.

“Freight is boring and un-sexy. Its not a government function in the US. So intellectuals tend to ignore it, even though it is the far more important, from and energy and environmental standpoint, portion of transport to put on the rails. … We have had huge revolutions in transportation over the last decades during the same period that European nations were sinking billions of dollars into pretty high-speed passenger rails systems for wealthy business travelers.”   

Comparisons of efficiency across modes of passenger transportation are typically limited to operating costs, including energy costs, per passenger mile. That narrow focus yields a distorted view of the relative advantages of different passenger modes. In particular, the massive incremental capital costs of HSR are often ignored. Moreover, weight must be assigned to the very real economic costs of passenger time, not to mention the external costs imposed on the viability of farmland, nearby property owners, and wildlife.

In the long-term, all modes of transportation have infrastructure costs, but HSR lines don’t yet exist in this country. It is therefore relevant to ask whether the cost comparison is intended to address an ongoing transportation need or an incremental need. HSR is often promoted as a replacement for other modes of transportation, so the lack of an installed base of infrastructure is a huge incremental cost relative to modes already in place.

Air travel has some obvious advantages over high-speed trains. First, it requires much less support infrastructure, and a significant base of that capital is already installed. Again, the massive, up-front infrastructure costs of HSR are incremental. Also, airports tend to be well-integrated with local transportation options. New passenger train terminals would require additional investment in local ground transportation such as light rail or subway extensions, highway access, and the like. In addition, planes require less passenger time than trains over lengthy routes.

How about autos vs. HSR? Autos have the pre-installed base of road infrastructure. They provide hard-to-value flexibility for the traveler as well, but parking costs must be dealt with, and cars have extremely high accident rates. Travel time is a disadvantage for autos relative to HSR, even at moderate distances. In terms of operating costs, however, autos are not necessarily at a disadvantage: they weigh much less per passenger than trains, but that advantage is offset by trains’ low “rolling resistance” and other factors. The best choice for travelers would vary with the value they place on their time, specific plans at the destination, preference for flexibility, and the operating costs of their vehicle relative to the high-speed train fare.

Supporters of HSR contend that it is less costly to the environment than other modes of transportation. That case is easier to make if you focus solely on operating costs and exclude the impact of generating the electricity needed to power trains, which will require emissions of greenhouse gases for many years to come. A second fundamental omission is the environmental cost of the rail infrastructure itself. It’s very existence is disruptive to local environments, but perhaps most importantly, producing and installing the steel, concrete, and other materials needed for HSR will carry a steep environmental cost.

HSR is unlikely to achieve widespread adoption in the U.S. The distances of many routes and high infrastructure costs are obstacles that will be nearly impossible to overcome. Projected fares would be outrageously high were they to cover the full cost of the infrastructure. A typical argument is that taxpayers should fund the infrastructure due to the social benefits that rail is presumed to confer, but that presumption is far-fetched given the impact of producing the infrastructure itself, as well as the power needed to run the trains. I don’t expect adherents of rail to put aside their dreams quickly, however: there is something so romantic about the notion of having the state provide a massive rail network that the idea will never die the death it deserves. And don’t be fooled by Elon Musk’s hyperloop. It remains a distant technological hope and it too will have enormous resource costs along with an attendant call for public subsidies (a call which has already begun). After all, public subsidies are a hallmark of most of Musk’s business ventures.

 

 

Certainty Laundering and Fake Science News

05 Wednesday Dec 2018

Posted by in Global Warming, Risk, Science

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Intriguing theories regarding all kinds of natural and social phenomena abound, but few if any of those theories can be proven with certainty or even validated at a high level of statistical significance. Yet we constantly see reports in the media about scientific studies purporting to prove one thing or another. Naturally, journalists pounce on interesting stories, and they can hardly be blamed when scientists themselves peddle “findings” that are essentially worthless. Unfortunately, the scientific community is doing little to police this kind of malpractice. And incredible as it seems, even principled scientists can be so taken with their devices that they promote uncertain results with few caveats.

Warren Meyer coined the term “certainty laundering” to describe a common form of scientific malpractice. Observational data is often uncontrolled and/or too thin to test theories with any degree of confidence. What’s a researcher to do in the presence of such great uncertainties? Start with a theoretical model in which X is true by assumption and choose parameter values that seem plausible. In all likelihood, the sparse data that exist cannot be used to reject the model on statistical grounds. The data are therefore “consistent with a model in which X is true”. Dramatic headlines are then within reach. Bingo!

The parallel drawn by Meyer between “certainty laundering” and the concept of money laundering is quite suggestive. The latter is a process by which economic gains from illegal activities are funneled through legal entities in order to conceal their subterranean origins. Certainty laundering is a process that may encompass the design of the research exercise, its documentation, and its promotion in the media. It conceals from attention the noise inherent in the data upon which the theory of X presumably bears.

Another tempting exercise that facilitates certainty laundering is to ask how much a certain outcome would have changed under some counterfactual circumstance, call it Z. For example, while atmospheric CO2 concentration increased by roughly one part per 10,000 (0.01%) over the past 60 years, Z might posit that the change did not take place. Then, given a model that embodies a “plausible” degree of global temperature sensitivity to CO2, one can calculate how different global temperatures would be today under that counterfactual. This creates a juicy but often misleading form of attribution. Meyer refers to this process as a way of “writing history”:

“Most of us are familiar with using computer models to predict the future, but this use of complex models to write history is relatively new. Researchers have begun to use computer models for this sort of retrospective analysis because they struggle to isolate the effect of a single variable … in their observational data.”

These “what-if-instead” exercises generally apply ceteris paribus assumptions inappropriately, presuming the dominant influence of a single variable while ignoring other empirical correlations which might have countervailing effects. The exercise usually culminates in a point estimate of the change “implied” by X, without any mention of possible errors in the estimated sensitivity nor any mention of the possible range of outcomes implied by model uncertainty. In many such cases, the actual model and its parameters have not been validated under strict statistical criteria.

Meyer goes on to describe a climate study from 2011 that was quite blatant about its certainty laundering approach. He provides the following quote from the study:

“These question cannot be answered using observations alone, as the available time series are too short and the data not accurate enough. We therefore used climate model output generated in the ESSENCE project, a collaboration of KNMI and Utrecht University that generated 17 simulations of the climate with the ECHAM5/MPI-OM model to sample the natural variability of the climate system. When compared to the available observations, the model describes the ocean temperature rise and variability well.”

At the time, Meyer wrote the following critique:

“[Note the first and last sentences of this paragraph] First, that there is not sufficiently extensive and accurate observational data to test a hypothesis. BUT, then we will create a model, and this model is validated against this same observational data. Then the model is used to draw all kinds of conclusions about the problem being studied.

This is the clearest, simplest example of certainty laundering I have ever seen. If there is not sufficient data to draw conclusions about how a system operates, then how can there be enough data to validate a computer model which, in code, just embodies a series of hypotheses about how a system operates?”

In “Imprecision and Unsettled Science“, I wrote about the process of calculating global surface temperatures. That process is plagued by poor quality and uncertainties, yet many climate scientists and the media seem completely unaware of these problems. They view global and regional temperature data as infallible, but in reality these aggregated readings should be recognized as point estimates with wide error bands. Those bands imply that the conclusions of any research utilizing aggregate temperature data are subject to tremendous uncertainty. Unfortunately, that fact doesn’t get much play.

As Ashe Schow explains, junk science is nothing new. Successful replication rates of study results in most fields are low, and the increasing domination of funding sources by government tends to promote research efforts supporting the preferred narratives of government bureaucrats.

But perhaps we’re not being fair to the scientists, or most scientists at any rate. One hopes that the vast majority theorize with the legitimate intention of explaining phenomena. The unfortunate truth is that adequate data for testing theories is hard to come by in many fields. Fair enough, but Meyer puts his finger on a bigger problem: One simply cannot count on the media to apply appropriate statistical standards in vetting such reports. Here’s his diagnosis of the problem in the context of the Fourth National Climate Assessment and its estimate of the impact of climate change on wildfires:

“The problem comes further down the food chain:

  1. When the media, and in this case the US government, uses this analysis completely uncritically and without any error bars to pretend at certainty — in this case that half of the recent wildfire damage is due to climate change — that simply does not exist
  2. And when anything that supports the general theory that man-made climate change is catastrophic immediately becomes — without challenge or further analysis — part of the ‘consensus’ and therefore immune from criticism.”

That is a big problem for science and society. A striking point estimate is often presented without adequate emphasis on the degree of noise that surrounds it. Indeed, even given a range of estimates, the top number is almost certain to be stressed more heavily. Unfortunately, the incentives facing researchers and journalists are skewed toward this sort of misplaced emphasis. Scientists and other researchers are not immune to the lure of publicity and the promise of policy influence. Sensational point estimates have additional value if they support an agenda that is of interest to those making decisions about research funding. And journalists, who generally are not qualified to make judgements about the quality of scientific research, are always eager for a good story. Today, the spread of bad science, and bad science journalism, is all the more virulent as it is propagated by social media.

The degree of uncertainty underlying a research result just doesn’t sell, but it is every bit as crucial to policy debate as a point estimate of the effect. Policy decisions have expected costs and benefits, but the costs are often front-loaded and more certain than the hoped-for benefits. Any valid cost-benefit analysis must account for uncertainties, but once a narrative gains steam, this sort of rationality is too often cast to the wind. Cascades in public opinion and political momentum are all too vulnerable to the guiles of certainty laundering. Trends of this kind are difficult to reverse and are especially costly if the laundered conclusions are wrong.

The Disastrous Boomerang Effect of Fire Suppression

15 Thursday Nov 2018

Posted by in Environment, Wildfires

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We can lament the tragic forest fires burning in California, but a discussion of contributing hazards and causes is urgent if we are to minimize future conflagrations. The Left points the finger at climate change. Donald Trump, along with many forestry experts, point at forest mismanagement. Whether you believe in climate change or not, Trump is correct on this point. However, he blames the state of California when in fact a good deal of the responsibility falls on the federal government. And as usual, Trump has inflamed passions with unnecessarily aggressive rhetoric and threats:

“There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor. Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now or no more Fed payments.”

Trump was condemned for his tone, of course, but also for the mere temerity to discuss the relationship between policy and fire hazards at such a tragic moment. Apparently, it’s a fine time to allege causes that conform to the accepted wisdom of the environmental Left, but misguided forest management strategy is off-limits.

The image at the top of this post is from the cover of a book by wildlife biologist George E. Gruell, published in 2001. The author includes hundreds of historical photos of forests in the Sierra Nevada range from as early as 1849. He pairs them with photos of the same views in the late 20th century, such as the photo inset on the cover shown above. The remarkable thing is that the old forests were quite thin by comparison. The following quote is from a review of the book on Amazon:

“Even the famed floor of Yosemite is now mostly forested with conifers. I myself love conifers but George makes an interesting point that these forests are “man made” and in many ways are unhealthy from the standpoint that they lead to canopy firestorms that normally don’t exsist when fires are allowed to naturally burn themselves out. Fire ecology is important and our fear of forest fires has led to an ever worsening situation in the Sierra Nevada.”

I posted this piece on forest fires and climate change three months ago. There is ample reason to attribute the recent magnitude of wildfires to conditions influenced by forest management policy. The contribution of a relatively modest change in average temperatures over the past several decades (but primarily during the 1990s) is rather doubtful. And the evidence that warming-induced drought is the real problem is weakened considerably by the fact that the 20th century was wetter than normal in California. In other words, recent dry conditions represent something of a return to normal, making today’s policy-induced overgrowth untenable.

Wildfires are a natural phenomenon and have occurred historically from various causes such as lightning strikes and even spontaneous combustion of dry biomass. They are also caused by human activity, both accidental and intentional. In centuries past, Native Americans used so-called controlled or prescribed burns to preserve and restore grazing areas used by game. In the late 19th and early 20th centuries, fire suppression became official U.S. policy, leading to an unhealthy accumulation of overgrowth and debris in American forests over several decades. This trend, combined with a hot, dry spell in the 1930s, led to sprawling wildfires. However, Warren Meyer says the data on burnt acreage during that era was exaggerated because the U.S. Forest Service insisted on counting acres burned by prescribed burns in states that did not follow its guidance against the practice.

The total acreage burned by wildfires in the U.S. was minimal from the late 1950s to the end of the century, when a modest uptrend began. In California, while the number of fires continued to decline over the past 30 years, the trend in burnt acreage has been slightly positive. Certainly this year’s mega-fires will reinforce that trend. So the state is experiencing fewer but larger fires.

The prior success in containing fires was due in part to active logging and other good forest management policies, including prescribed burns. However, the timber harvest declined through most of this period under federal fire suppression policies, California state policies that increased harvesting fees, and pressure from environmentalists. The last link shows that the annual “fuel removed” from forests in the state has declined by 80% since the 1950s. But attitudes could be changing, as both the state government and environmentalists (WSJ, link could be gated) are beginning to praise biomass harvesting as a way to reduce wildfire risk. Well, yes!

The reason wildfire control ever became a priority is the presence of people in forest lands, and human infrastructure as well. Otherwise, the fires would burn as they always have. Needless to say, homes or communities surrounded by overgrown forests are at great risk. In fact, it’s been reported that the massive Camp Fire in Northern California was caused by a PG&E power line. If so, it’s possible that the existing right-of-way was not properly maintained by PG&E, but it may also be that rights-of-way are of insufficient width to prevent electrical sparks from blowing into adjacent forests, and that’s an especially dangerous situation if those forests are overgrown.

Apparently Donald Trump is under the impression that state policies are largely responsible for overgrown and debris-choked forests. In fact, both federal and state environmental regulations have played a major role in discouraging timber harvesting and prescribed burns. After all, the federal government owns about 57% of the forested land in California. Much of the rest is owned privately or is tribal land. Trump’s threat to withhold federal dollars was his way of attempting to influence state policy, but the vast bulk of federal funds devoted to forest management is dedicated to national forests. A relatively small share subsidizes state and community efforts. Disaster-related funding is and should be a separate matter, but Trump made the unfortunate suggestion that those funds are at issue. Nevertheless, he was correct to identify the tremendous fire hazard posed by overgrown forests and excessive debris on the forest floor. Changes to both federal and state policy must address these conditions.

For additional reading, I found this article to give a balanced treatment of the issues.

The Non-Trend In Hurricane Activity

18 Thursday Oct 2018

Posted by in Global Warming, Hurricanes

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People are unaccountably convinced that there is an upward trend in severe weather events due to global warming. But there is no upward trend in the data on either the frequency or severity of those events. Forget, for the moment, the ongoing debate about the true extent of climate warming. In fact, I’ll stipulate that warming has occurred over the past 40 years, though most of it was confined to the jump roughly coincident with two El Ninos in the 1990s; there’s been little if any discernible trend since. But what about the trend in severe weather? I’ve heard people insist that it is true, but a few strong hurricanes do not constitute a trend.

The two charts at the top of this post were created by hurricane expert Ryan N. Maue. I took them from an article by David Middleton., but visit Maue’s web site on tropical cyclone activity for more. The last month plotted is September 2018, so the charts do not account for Hurricane Michael and the 2018 totals are for a partial year. The first nine months of each year typically accounts for about 3/4 of annual tropical cyclones, so 2018 will be a fairly strong year. Nevertheless, the charts refute the contention that there has been an upward trend in tropical cyclone activity. In fact, in the lower chart, the years following the 1990s increase in global temperatures is shown to have been a time a lower cyclone energy. Roy Spencer weighs in on the negative trend in major landfalling hurricanes in the U.S. and Florida stretching over many decades.

Warren Meyer blames ‘”media selection bias” for the mistaken impression of dangerous trends that do not exist. That is, the news media are very likely to report extreme events, as they should, but they are very unlikely to report a paucity of extreme events, no matter how lengthy or unusual the dearth:

“Does anyone doubt that if we were having a record-heavy tornado season, this would be leading every newscast?  [But] if a record-heavy year is newsworthy, shouldn’t a record-light year be newsworthy as well?  Apparently not.” 

It so happens that 2018, thus far, has seen very close to a record low number of tornadoes in the U.S.

Meyer also highlights the frequent use of misleading statistics on the real value of damage from natural disasters. That aggregate value has almost certainly grown over the years, but it had nothing to do with the number or severity of natural disasters. Meyer explains:

“Think about places where there are large natural disasters in the US — two places that come to mind are California fires and coastal hurricanes. Do you really think that the total property value in California or on the US coastline has grown only at inflation? You not only have real estate price increases, but you have the value of new construction. The combination of these two is WAY over the 2-3% inflation rate.”

Recent experiences are always the most vivid in our minds. The same is true of broad impressions drawn from reports on the most recent natural disasters. The drama and tragedy of these events should never be minimized, and the fact that there is no upward trend in cyclone activity is no consolation to victims of those disasters. Still, the media can’t seem to resist the narrative that the threat of such events is increasing, even if it can’t be proven. Indeed, even if it’s not remotely correct. Reporters are human and generally not good at science, and they are not immune to the tendency to exaggerate the significance of events upon which they report. A dangerous, prospective trend is at once scary, exciting, and possibly career-enhancing. As for the public, sheer repetition is enough to convince most people that such a threat is undeniable… that everybody knows it… that the trend is already underway. The fact is that the upward trend in hurricane activity (and other kinds of severe weather) is speculative, not real.

Don’t Worry: Your IOUs To Yourself Are In a Trust Fund!

10 Sunday Jun 2018

Posted by in Medicare, Social Security, Socialism

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The Social Security and Medicare trust funds should offer no comfort as the obligations of those programs outrace revenues. Between them, the funds hold about $3.1 trillion of federal government bonds purchased with past surplus “contributions” from FICA and Medicare payroll taxes. In other words, those surplus contributions were used to pay for past government deficits. Here’s what Warren Meyer has to say on the topic:

“Imagine to cover benefits in a particular year the Social Security Administration needs $1 billion above and beyond Social Security taxes. If the trust fund exists, the government takes a billion dollars of government bonds out and sells them to private buyers on the open market. If the trust fund didn’t exist, the government would …. issue a billion dollars in bonds and sell them to private buyers on the open market. In either case, the government’s indebtedness to the outside world goes up by a billion dollars.”

Therefore, the trust funds do not provide any real cushion against future obligations. As Meyer says, you can write IOUs to yourself, put them in a piggy bank and call it a trust fund of your very own, but that won’t increase your wealth.

As it happens, last week the Trustees of the Medicare (MC) Trust Fund released the latest projections showing that it will be exhausted by 2026. Likewise, the Trustees of the Social Security (SS) Trust Fund reported that it will be depleted by 2036. But again, those trusts do not enhance the federal government’s fiscal position, so they really don’t matter. Even with the interest earned on the bonds held in trust, which is itself owed by the federal government, the trusts are merely placeholders for an equivalent dollar value of unfunded federal obligations. And in a very real sense, these funds hold no more than our own future tax liabilities: that debt is our debt.

Federal spending on discretionary and other on-budget entitlements is deeply in deficit on an ongoing basis, expected to be greater than $1 trillion annually by 2020, according to the Congressional Budget Office. Then add the bonds that will be sold to the public from the SS and MC trust funds, and total government borrowing from “the public” will become that much larger. After the trust funds are exhausted, accounting for the impact of the annual SS and MC system deficits will be more transparent.

The previous use of SS and MC contributions to pay for other government outlays strikes many as a violation of trust. Remember, however, that contributions to these systems are taxes, after all. And despite apparent impressions to the contrary, and perhaps for worse, individual vesting was never part of the SS system. But if the government must borrow a dollar (on a unified basis), is it always better to do it later? That was essentially the decision made (repeatedly) when FICA and Medicare taxes were used to purchase government bonds. The answer depends on whether the government has an immediate uses for the surplus that can be expected to earn returns superior to investment opportunities of suitable risk otherwise available to the trust funds. I would argue, however, that most of the “spent” funds from surplus FICA and Medicare taxes were put toward government consumption, and much less to investment in physical or social infrastructure. In fact, the availability of the SS and MC surpluses probably encouraged that consumption. To that extent, it was a certainly a mistake.

If the question is at what point must the government address the shortfall in its ability to pay future obligations to seniors, the answer is not “2026 and 2034”. It is now. The programs are racking-up obligations to future retirees that will be impossible to meet. The long-run (75-year) SS deficit projected by the trustees has a present value of $13.2 trillion, with an annual deficit growing to about 1.5% of GDP. By then, the Medicare deficit is expected to bring the combined shortfall of the two programs up to 2.3% of GDP. The trustees estimate that SS benefits would have to be cut by 25% in order to eliminate that deficit, with additional cuts to Medicare.

Oh, but those estimates treat the trust funds as if they are meaningful assets, and they are not! Of course, there are other solutions to the funding shortfall, but I truly hope that current workers have realistic expectations. They should adjust their saving rates to avoid excessive reliance on government social and medical insurance programs.