Category Archives: markets

Excuses

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During the Great Depression, in an effort to help farmers, the FDR administration got legislation passed that put a floor under the prices farmers could collect for their produce.  At roughly the same time, in order to help out the working man in a time of enormous unemployment (ranging from nearly 16% to over 25%), FDR got legislation passed that put a floor under the prices a man could charge for his work.  With this combination of artificially inflated food prices and a unemployment exacerbated by artificially inflated labor prices, it became exceedingly difficult for Americans to buy food for their families.

The FDR administration “cured” this, not by removing their harmful pricing controls, but by inventing and issuing food stamps—subsidies for purchasing food.

Fast forward to the present, and look at Oregon.  In an era of government mandates for fuel efficiency in our cars (not all of which originated in Oregon, to be sure), governments are seeing falling tax revenue from decreasing private sector fuel purchases.  In Oregon, in particular, though, folks are buying fuel-efficient automobiles, with some vehicles getting over 55 mpg.  The Oregon state government is looking at “curing” this, not by stimulating its economy tax and spending reductions, but instead at creating a new tax.

Beaver State lawmakers, in their upcoming session, are expected to consider legislation that would impose a charge on vehicles that get at least 55 miles per gallon of gasoline, in an effort to make up for lost gas-tax revenue[.]

After 2015, owners of these high-efficiency vehicles would either have to pay an undetermined per-mile tax calculated by GPS technology, or some alternative flat rate option.

Hmm….

Any excuse to grow government, it seems, is a good excuse to grow government.

What Are They Prepared to Do?

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Kimberly Strassel asked this, and three specific questions, in a Wall Street Journal op-ed last week.

Her questions:

Question one: Do they mean it?  In the abstract, the debt ceiling is a powerful tool for forcing the president to give in to spending cuts. …

In the non-abstract, failure to raise government borrowing limits means US default—and with it potential credit downgrades, market panic and resulting economic distress.  Is the GOP willing to inflict that on the economy?  If Republican members instead run for cover, as they did with the cliff, the GOP will have been exposed as bluffers, and the administration will never again have to fear the debt ceiling.

Then,

Question two: What do they want?  Throughout the fiscal-cliff negotiations…the GOP shrunk from laying out its specific demands on Medicare, Social Security and Medicaid.

Do House Republicans have the courage to lay out big demands (say, premium support for Medicare or block grants for Medicaid), send a bill to the Senate, and sell entitlement reform to the public?  If they can’t face the demagoguery that Democrats will use against them for making substantive proposals on entitlements….

Finally,

Question three: What other hostages are Republicans willing to see shot?  Knowing he has lost his tax trump card, Mr Obama seamlessly moved on this week to the defense budget.  …Mr Obama intends to make further tax hikes the price….

Are the GOP’s defense hawks willing to stomach those cuts as a price for entitlement reform?  Having publicly campaigned against this slashing of the military, can the party stare down the president with a unified position?  Mr Obama is betting they can’t….

It’s pretty clear from the Republicans’ past performances in showdowns with Obama that all they’ll do is run for cover—too much of the party consists only of bluffers.  During the just concluded tax cliff matter, hey could have put up big demands concerning tax structure and tax rate reductions—just putting forward the Romney tax plan would have sufficed—but they quailed at the thought and shrank from their duty.  They also could have put up big demands concerning spending cuts—just putting forward the Ryan plan would have sufficed on entitlements—and big demands concerning so-called discretionary spending (so-called because all government spending is at the discretion of the Congress).  After all, Obama was publicly willing to conclude such a “grand bargain;” the Republicans should have held him to his word.  But they failed here, also.

On the matter of selling their position to the public, it’s pretty clear the Republicans have no capability for that, even if they had an actual position to sell.  They’re still not talking to us.

Vernon Pinkley, on walking the Republican halls of the House (or of the Senate), might ask, “Very pretty, Speaker/Minority Leader. Very pretty.  But, can they fight?”  The answer is, “No.”

I pointed out nearby the necessary and encouraging words of a rookie Republican Senator from Texas.  Unfortunately, there’s no reason to believe there are enough more Republicans like him to accomplish much of anything.

Japan’s Sovereign Debt

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With our just completed tax “deal” adding $4 trillion to our national debt by 2022, I thought it might be interesting to look at the debt load of another country that used to be an economic powerhouse, but whose economy has been stagnant while its population ages: Japan.  In no particular order, we see the following:

  • Japanese administrations have accumulated debt worth $14.6 trillion, roughly 230% of GDP.
  • Since the 1990s, administrations have bailed out failed banks and insurance companies.
  • Tax revenues are less than half of expenditures.
  • Interest on Japanese debt has been held to 0.75% by the Bank of Japan, their central bank.
  • Since 2011, the BoJ has fed emergency programs a total of ¥213 trillion ($1.2 trillion).
  • The BoJ Governor, Masaaki Shirakawa, acknowledges
    • At the moment, the effect of our monetary policy in stimulating economic growth is very limited.
    • Fully one-quarter of the government’s overall budget currently goes toward servicing debt.  Were Tokyo forced to pay higher interest rates, it’s mountain of debt would grow even more rapidly.
  • The new Japanese Prime Minister, Shinzo Abe, wants more of the same: a new ¥14.4 trillion ($120 billion) economic stimulus program, this time for the construction sector.  At the same time, Abe wants Shirakawa to pump unlimited cash into the economy.

This graph illustrates:

Any of that look familiar?

The data and graph are via Spiegel Online International.

Now that the Bill Has Been Passed

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…and we can see what is in it, the pork for President Barack Obama’s paymasters that is in it is quite impressive.  Here are some, in no particular order.  Enjoy the sausage.

  • Accelerated tax write-off for owners of NASCAR tracks: $78 million
  • Tax credit for companies operating in American Samoa: $62 million
  • Distillers rum tax rebate: $222 million
  • Film and television producers expense the first $15 million of production costs incurred in the US ($20 million incurred in economically depressed areas in the United States): $430 million
  • Wind production tax credit: $12 billion
  • Cellulosic biofuels tax credit continued and expanded to include producers of “algae-based fuel:” $59 million
  • Biodiesel and “renewable diesel” tax credit: $2.2 billion
  • Plug-in motorcycles tax credit: $7 million
  • Energy-efficient appliances tax credit: $650 million
  • Energy-efficient homes tax credit: $154 million

Most of these seem like chump change, but they, with other inclusions, sum to $40 billion of pork in the tax “deal.”

“Why Conservatives Should Support a Carbon Tax”

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Hmm….

The Social Science Research Network is carrying a paper of that title by Shi-Ling Hsu, of Florida State University’s College of Law, and Yoram Bauman, of Sightline Institute.  (The link takes you to the paper’s abstract, but the full paper is easily downloadable.)

The paper’s opening paragraph pretty much says it all:

Why should conservatives support a carbon tax? There are two answers. First, a carbon tax would reform the American economy in a positive way, even if there were no such thing as human-caused climate change. If a carbon tax can be used to reduce other taxes, or if a carbon tax is a new source of revenues for deficit reduction instead of raising other taxes, the net economic benefits of such a swap are likely to be positive even if there are no environmental benefits. Second, the alternative to a carbon tax is less efficient: federal command-and-control regulation of greenhouse gas emissions under the Clean Air Act. The Supreme Court has held that the EPA must regulate greenhouse gas emissions under the Clean Air Act, and this requirement will not be legislatively repealed unless it is replaced by something comprehensive, like a carbon tax.

Where to begin?

“Used to reduce other taxes?”  Fat chance.  “[N]ew source of revenues?”  But that’s a tax increase, and tax increases have not been shown to be beneficial to any economy, much less ours.  “[F]or deficit reduction?” This  works from the false premise that spending currently is at an entirely appropriate level; reductions in spending sufficient to eliminate altogether the deficit  compared with current revenues are unneeded.

It’s certainly plausible that alternatives to a carbon tax might be less efficient, but this idea proceeds from the false premise that Federal intervention in, Federal control over any part of, our national economy is in any way appropriate.  The fact is that taxation (or subsidization) for social engineering purposes simply distorts the market: taxation produces less of the thing taxed—in this case, less energy (and reduced manufacturing of parts made from carbon fiber, but that’s for another post).  Since energy is at the foundation of our economy—and of our lives—that means prices will go up, substantially, and those at the bottom of the totem pole will have their lives damaged, perhaps severely, by not being able to afford such basics as energy for heating their homes, fuel for their transportation to work, even medical costs, as doctors and hospitals will be forced to increase their charges to cover their own increased energy costs.

Moreover, the premise of relative efficiency is itself far from established.  One has only to look at how well it’s working in Europe and how effectively nations whose economies don’t have such a thing compete with nations which do saddle their economies with this sea anchor (not that I’m mixing metaphors, or anything).

The attitude is defeatist, also.  The most efficient position would be to eliminate the Clean Air Act.  As the authors note, this will be hard to do, but hard means possible.  Modifying the CAA to eliminate CO2 from the list of pollutants would eliminate the need for a carbon tax.  This would be less efficient, but it may be politically more doable in the near term.

It’s also important to avoid carbon taxes because, taking the present paper as an example, what carbon is to be taxed is left carefully unspecified.  Hsu and Bauman do hint at it with their references to carbon dioxide, as though this gas ought to be taken seriously.  Aside from the fact that CO2 is a trailing indicator, though, confirming an increase in the health of the planet from increasing life exhaling more CO2, its impact as a greenhouse contributor is not at all established.

Despite this, the reason for the authors’ preference for a carbon (dioxide) tax is made plain here:

A carbon tax represents the lightest, smallest government touch possible in promoting technologies and measures to reduce greenhouse gas emissions.

And [emphasis in the original]

Fundamentally, what an economy facing the 21st century must do is to sort industries, top to bottom, by the marginal value their carbon dioxide emissions provide to society.

Since the need “to reduce greenhouse gas emissions,” generally, and CO2 as pollutant, particularly, are little more than Progressive tropes with no basis in science, there’s no social engineering need to tax carbon.

Nor is there a practical way.  What CO2 should be taxed?  From what industries?  Are the CO2 (and methane—a potentially very powerful greenhouse gas) emissions of cattle ranchers, and dairy and hog farmers, for instance, to be included?  If not, what distinguishes that CO2 from any other CO2?  Not even the isotopes of the carbon and oxygen differ.

How will the battery-operated cars—hybrids and pure battery-powered—be taxed for their CO2 emissions?  Think these “green” cars don’t have a significant carbon footprint?  Think about the source of the energy that (repeatedly) charges their batteries.  Most modern cars (“green” ones included) also have significant carbon fiber in the materials from which they’re constructed.  How will the CO2 emissions from an accident-related fire be assessed?

Finally, note that I’m eliding here any discussion of the authors’ false premise that government should be in the business of structuring a free market at all.

And so on.

In fine, no Conservative case for supporting a carbon tax has yet been offered.