Tag Archives: political economy

The Evils of Fracking

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It seems that fracking, that heinous technology used for getting hard-to-reach natural gas and oil out of the very deep underground, far from polluting our water, saves it, especially where natural gas-based electricity generating plants are concerned.  According to a University of Texas study published in Environmental Research Letters,

Even though exploration for natural gas through hydraulic fracturing requires significant water consumption in Texas, the new consumption is easily offset by the overall water efficiencies of shifting electricity generation from coal to natural gas.  The researchers estimate that water saved by shifting a power plant from coal to natural gas is 25 to 50 times as great as the amount of water used in hydraulic fracturing to extract the natural gas.

Natural gas-fired power plants use about two-thirds less water than coal-fired plants to cool the generators.  The switch to natural gas-based electricity generation, made commercially feasible by fracking, thus reduces water use by the plants significantly.  Aside from reducing water consumption in and of itself, and reducing costs for producers and consumers of electricity, this yields another, longer-term outcome.  Senior Research Scientist at UT’s Bureau of Economic Geology, said,

The bottom line is that hydraulic fracturing, by boosting natural gas production and moving the state from water-intensive coal technologies, makes our electric power system more drought resilient.

Bad fracking.  Bad.

A Thought on Income Inequality

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Income inequality has become a popular Progressive trope with which to demonize Republicans, Conservatives, and the United States generally over our alleged insensitivity to the plight of our poor.  Notwithstanding the immorality of capping whatever it is we use for income in order to take from the better off and give those takings to the poorer off, there are practical failures in this meme, as well.

One source of information that clarifies this matter comes from Stanford University’s Hoover Institution in the form of a paper by Kip Hagopian and Lee Ohanian, titled The Mismeasure of Inequality.  Following are some highlights from that paper; RTWT.

…the Census Bureau, which uses what it calls “money income” in its measurement of income inequality.  Money income, which is the definition of income typically used in public references to inequality, consists of cash income only, does not subtract taxes, and excludes the value of noncash transfer payments (such as nutritional assistance, Medicare, Medicaid, and public housing), as well as many other components of income.  In addition to transfer payments, which are a substantial portion of income at the low end of the income scale, some of the other missing components of income are: employer-provided fringe benefits (primarily retirement benefits and health insurance, which can amount to as much as 30 percent of income), capital gains, imputed rent from owner-occupied housing, and increases in the value of home equity

And

Based on this more relevant definition [which included all those exclusions], income inequality declined 1.8 percent during the sixteen-year period between 1993 and 2009….

But even using the Gini coefficient, a popular “measure” of income inequality—which uses only money income as its measure—income inequality in the US only grew by 10% over the last nearly 30 years.

But it also turns out that income isn’t the only way to measure what’s intended with “money income” or “total income,” nor is it necessarily even the best measure.

…almost singular focus on income as a measure of economic well-being, when there is a clear consensus among economists that the best measure of living standards over the long term is not income, but consumption.  Focusing on consumption rather than income provides a very different picture of inequality.  … [A]ccording to the BLS [Bureau of Labor Statistics], during the fifteen-year period between 1986 and 2001, consumption inequality went down slightly; from a Gini of .283 to a Gini of .280.

Consumer Expenditure Surveys say much the same thing: consumption is relatively equal across incomes.  Even at that,

[C]urrent methodologies measure only market consumption rather than total consumption, which is the sum of both market (purchased) and nonmarket (home-produced) goods.  This is important because lower-income households consume a disproportionate amount of goods produced in the home (what economists call “home production”), including home-cooked meals, household-provided child care, and household home improvements and maintenance. Economists have estimated that home production is around one-third of GDP, yet this form of consumption is not counted in the total when measuring consumption inequality.

And none of this addresses the dynamic nature of income and consumption, what’s called economic mobility, or the ability of folks to move (or down) the economic ladder.  Here, we are wanting: upward economic mobility requires, among other things, job availability and, for homeowning job hunters, the ability to sell their homes pursuant to a job-related relocation.

Toward An Affordable Health Insurance Industry

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John Cochran, University of Chicago Booth School of Business Professor of Finance, among other positions, is on the right track, but he’s wide of the mark in some critical respects.

The unraveling of the Affordable Care Act presents a historic opportunity for change.  Its proponents call it “settled law,” but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

And

Only deregulation can unleash competition.  And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs, and innovation.

That’s plainly true, and he goes on to tout further—correctly IMNSHO—the advantages of a free market in the delivery of health insurance and the delivery of health care services.  However, he has some misconceptions in the extent to which those two industries should be allowed to go in a free market.

Health insurance should be…lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.

This isn’t insurance: it eliminates the concept of premiums being based on the risk being transferred.  Or, it is insurance, and the risk being transferred and the fee charged for accepting that transfer (the premium) will be elevated to account for the higher risk involved in that mandated longer-term risk acceptance as well as the changed risk factor represented by having gotten sick.  And sick again with the same thing.  And again.

Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

This is blatantly normative and not at all related to the competition of free markets.  There will, indeed, be customers who want policies that cover “routine expenses;” it’s not Cochran’s—or government’s—place to proscribe these because they disagree that such policies have utility.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance.

Again, no.  This is another interference with a competitive free market.  It’s certainly true that the (tax-policy encouraged) “mandate” for employer-based groups is a distortion of the market.  However, rather than simply distorting the market in a different direction, let that market—the individuals who aggregate into that market—decide whether group plans are viable.

Aside from that, there is the matter of preexisting conditions.  The only risk that can be transferred here is the timing of the next flare up of the condition.  Forcing folks with these conditions onto the individual market will simply artificially elevate the premiums they’ll have to pay for the transfer of that risk.  Group plans would allow the risk acceptors, those insurance companies, to spread the timing across a risk pool larger than one, which would allow them to charge a lower premium—with a truly free, competitive market forcing them to compete for the business, and so exerting further downward pressure on the premiums charged.

Current group plans can convert to individual plans, at once or as people leave.  Since all members in a group convert, there is no adverse selection of sicker people.

This isn’t a free market—it’s a mandate to move away from a policy structure that many will want to retain, even if the coverages available within a particular group might change under free market imperative.  The free market also will handle the question of adverse selection just fine—that pricing matter.

The Fed Tapers

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…and the stock market shoots up.  QE was supposed to be propping up the market, driving it even; heretofore, whenever the Fed mumbled that it was maybe thinking about beginning to taper sometime in the vague future, the market tanked.  What’s up with the hard increase?  John Malkin at AEI suggested three reasons for that.

These reasons center on the fact that the Fed is continuing its monetary easing through other channels (the Fed Funds rate and a lowered unemployment rate threshold); the now fact of tapering reduces uncertainty about the Fed’s actions; and the fact that the Fed actually has been buying $94 billion in bonds monthly this year (not the advertised $85 billion), and no one noticed the drop—the $19 billion reduction was perceived as the advertised $10 billion, so the taper size seems to be no big deal.

To those, I’d like to add a fourth reason, and a warning.  The reason is this: the fact that the Fed actually has begun easing is taken as its advertised criteria for doing so having been met and will continue to be met in the nearby future.  This perceived confidence in the economy’s recovery by the Fed is viewed favorably by the market.

The warning is this.  Malkin opened his article by tacitly pooh-poohing a QE-induced market bubble.  Comparing market performance with actual economic performance, it seems clear to me that a bubble was generated.  Comparing the current market to the current underlying economy, it seems equally clear that the bubble is merely extending in that perception-based optimism.

In the end, the economy will catch up with the market.  Or the market will fall back to the economy.  Heads up.

Why Is Delta Afraid?

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Indeed.  Or, it’s just an abuse of market power?

Paulding County, GA, has an airport, Silver Comet Field, and Paulding wants to have a small air line operate all of four or five flights per day out of it.  Hartsfield-Jackson International Airport is 40 miles away, has five runways, 203 gates, and a 46 million passenger-per-year throughput.  Delta Airlines, which uses Hartsfield for its hub, is feeling so threatened by this dinky little airport that it’s doing everything it can to stifle Paulding’s “competition.”

Holden Shannon, a “senior executive” for Delta put an op-ed into the Atlanta Journal-Constitution worrying, with no irony, that

a second airport can quickly expand, and the impact on Hartsfield-Jackson would be significant.

This, though, is sort of the nature of free competition.  Is this what Delta fears?

Shannon also said competition from Paulding would “threaten Atlanta’s economy.”  But the only form the competition would take would be from price competition, making consumers better off.  Is Delta really so fragile that one more, dinky, entrant into the market will push it over the edge?  Is Delta that badly run?  Is that what Delta fears?

He also complained to the Paulding County Commission Chairman, bellyaching that Silver Comet Field’s plans supposedly were hatched in secrecy.  But he chose not to explain why a business is obligated to form its plans in full view of its competitors.

Shannon isn’t the only Delta executive with his knickers bunched, either.  Richard Anderson, Delta’s CEO, told the AJC that the planned commercial operation would be “an economic and community failure.”  Never mind that that’s not Anderson’s call—that’s for the market and the community to decide.  Is this what Delta fears—that the market will decide in favor of competition?

Hmm….