All the traffic is coming North.
There’s no secret why.
Category Archives: Economics
The People Making Policy Do Not Know Enough
This great read, “Corny Capitalism” by Matt Purple shows very nicely why the government shouldn’t make energy policy, the market should.
There’s just one problem: Ethanol fuel is wildly inefficient. The amount of corn required to soak the fuel supply is massive. To shift America’s car culture entirely from gasoline to gasohol would require 700,000 square miles of land growing corn exclusively for ethanol production. That would mean converting one-fifth of the United States into a sprawling corn farm.
Then again, the government never found a green boondoggle it didn’t love. For five years now, Congress has been mandating that the fuel supply be diluted with ethanol. The Energy Policy Act of 2005 required 7.5 billion gallons of ethanol in the fuel supply by 2012. A Democratic Congress went a step further in 2007, mandating 9 billion gallons by 2008, 15.2 billion by 2012, and 36 billion by 2022.
Unfortunately, that whole Economics 101, supply-and-demand thing got in the way. The maximum amount of ethanol that can be produced to meet demand, called the “blend wall,” is expected to level out at 15 billion. That will make it impossible to meet the government’s mandates.
The agriculture industry, represented primarily by Archer Daniels Midland and Growth Energy, spied an opportunity. Why not increase the legal gasohol concentration from 10% ethanol to 12% or even 15%? That would immediately ignite ethanol production and allow the government to meet its mandate. More importantly, it would make Big Agriculture some serious money.
The EPA looked ready to raise the limit until science finally intervened. A study surfaced by the National Renewable Energy Laboratory from 2008 that found E15 ethanol caused a raft of problems in cars, including a loss of fuel economy and spikes in exhaust temperatures. Meanwhile the higher concentration of ethanol did nothing to reduce tailpipe emissions. The study also found problems when E15 fuel was used in lawn trimmers.
Read the entire thing, it’s enlightening, and highlights the point in yesterday’s post that we really are idiots if we continue to let the government interfere in markets that those who govern can not possibly understand.
Link via Karen De Coster
Not Solving the Problem
Please don’t take this the wrong way, as I’m all for reducing the tax burden on small businesses. But The One is not of a great economic mind, even though everyone seems to think He is all knowing.
The problem most small businesses face is not one of a lack of cash. The problem also isn’t that a credit crunch is keeping small businesses from growing, as they certainly are able to finance growth through borrowing. Alas, small businesses, as well as lots of big businesses, are holding (hoarding) cash.
The reason companies are hoarding cash and not growing, which is very odd, has to do with all the other stuff the Administration and this Congress have done. Companies are not going to grow, and they are not going to hire people, when they have no idea what the costs of those investments (or the tax rate on the returns of those investments) will be.
No one knows what the health care mess is going to cost (other than knowing the answer is ‘more’.) No one knows what Cap and Trade might do to tax rates. No one knows if they will start taking the private property of businesses or individuals in addition to taking income.
Put that on top of the uncertainty on the demand side of the equation, where individuals are also hoarding cash instead of buying stuff (in the case of the wealthy, for the same reasons as businesses), and you get a nice little cycle of worry that slows (stops) recovery.
It all traces back to the madness we’ve seen these last 18 months. And while tax breaks to businesses certainly won’t hurt, I don’t think they will help in this case. (Which will be fodder for the 2012 elections, as the Left will point to the failure of tax breaks to fix the economy as a reason to raise taxes).
The only way we see things get started again is a sweep in November to remove power from the Democratic party, and the overturn of the health care bill in the courts. When that happens, tax breaks on investment will be welcome and effective.
Gridlock is good
Carrying over the theme from the Mark Cuban post below, Mark Perry has an interesting graph on why gridlock is good.
So here’s hoping!
De Coster on Lemonade
This is a fantastic piece by Karen De Coster.
To replace commerce with government planning carried out by a small class of people who think they know what is best for the rest of us is brute force against our person and property.
Read it. And put her blog in your RSS reader.
Amateur Hour Continues
In making the case for citizens subjects of the US to fork over more money in unemployment benefits, President Obama decided to bring out an actual real live unemployed person (no touching, please) for a little dog and pony show.
One teensy little problem. She’s unemployed because she was convicted of prescription drug fraud.
CBS19′s Jessica Jaglois has learned that Macko was found guilty of prescription drug fraud in March 2009, one month before Macko lost her job at ACAC. She served a one year probationary sentence.
Macko joined two other unemployed people and President Obama at the podium for a speech designed to encourage lawmakers to extend jobless benefits.
Now I may be jumping the gun, as the reporter was unable to confirm from the employer that she was indeed fired because of the conviction.
ACAC owner Phil Wendel was unable to tell CBS19 if Macko was terminated because of the conviction. There’s also no indication from the court file that Macko lost her job because of the court case, or that she has received unemployment benefits improperly.
CBS19 contacted Leslie Macko about the conviction, and she declined to comment until she speaks with her attorney. We have also reached out to the White House to see if they know the full story behind the woman they chose to stand next to President Obama, but have not received comment from them either.
But I’m pretty sure she wouldn’t need to check with a lawyer if she weren’t. Maybe I’m wrong. It still doesn’t excuse the remarkable lack of attention to detail of this Administration; it remains amateur hour.
While there may well be people who are out of work and need help to get by, it remains true that extending or increasing unemployment benefits artificially increases the unemployment rate by raising the reserve wage (the amount of money someone will accept to go to work rather than sit home). The solution is not using force to take my money and give it to people Congress think need it; the solution is for good people to freely help their neighbors. Believe it or not, even mean old heartless libertarians help their neighbors. Further, unemployment is a state and local issue, providing unemployment benefits doesn’t fall within the powers granted Congress in the Constitution. Like that matters.
Quote of the day, Ego edition
From Don Boudreaux at Cafe Hayek.
Yes, egos are at work in markets. But egos are no less at work in the public sector. The big difference is that the egos at work in markets spend their own money and deal with other people consensually. The egos at work in government spend other people’s money and deal with other people at gunpoint.
The additional costs of Federal Income Taxes
Mark Perry adds them up at American Enterprise.
Americans spent almost 4 billion hours filling out tax forms last year, according to the National Taxpayers Union, and that number’s likely to be even higher this year. At the current average hourly wage of $18.90, the amount of time spent by Americans on tax preparation is worth about $75 billion, equivalent to the entire annual Gross State Product of New Mexico. Add another $30 billion that the IRS estimates taxpayers spend out-of-pocket on tax preparation (tax software, tax preparers, accountants, etc.), and the total annual cost of tax compliance equals the state of Iowa’s entire annual output.
The compliance burden of income tax preparation for Americans has risen significantly over time as a direct result of the increasing complexity of the U.S. tax code. For example, just the instructions for the 2009 Form 1040 total a record-high 175 pages, more than double the 84 pages of instruction in 1995, and more than 10 times greater than the 17 pages in 1965 (source).
My total cost is ~$80 for Turbo Tax and 5 hours of my time to prepare taxes, and a couple of hours a month keeping the required records, conservatively 20 hours. That’s more than a half a week of productivity, which for me is about $50 an hour (my wife’s is higher). The cost to me on top of the $50K+ I pay in Federal and State income taxes is more than $1300. Can you imagine the cost of an audit, where you must prove your own innocence?
I wonder if anyone in Congress considers this cost to the country as they continue to add complexity to the tax code on top of raising tax rates. Somehow I doubt it.
8 Macroeconomic fallacies
Economics was my Money and Banking textbook in 1989. I thought it was all correct until I read Mises and Hayek in grad school. This essay by Robert Higgs (pdf) highlights 8 key fallacies in Macroeconomic thinking, all of which politicians and pundits continue to repeat.
H/T Cafe Hayek
Government success!
Well, if you think moving lots of money from productive uses to non productive uses (out of the pockets of consumers to purchase and destroy cars) is success, then Cash for Clunkers worked! Because it didn’t have any other positive effect.
Eventually, we’ll learn. The question is whether it will matter when we do.
