Tag Archives: political economy

Wondering Why?

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…your gas prices are as high as they are?  It isn’t only the summer driving season.  It isn’t only limits on gasoline production at our refineries.  It isn’t even that ethanol-laced gasoline doesn’t even store well so that inventories can be built to smooth out the ebbs and flows of supply and demand.  Here’s another reason, alluded to in a Wednesday op-ed by Kimberly Strassel on a related topic.

Last week, the Environmental Protection Agency issued its annual renewable-fuels mandate, telling refineries how much ethanol they must blend into the nation’s gas supply.  This quota, which grows each year, is becoming a horrific financial burden on the industry, forcing many refineries to buy federal ethanol “credits” to satisfy the rules.  The skyrocketing price of those credits is adding hundreds of millions of dollars to refineries’ annual costs.

Those costs are passed on.  To gasoline-buying customers like our neighborhood filling stations—and you and me.

Refiners say that, with declining demand for gasoline, next year (2014—oddly, a mid-term election year), the existing quota for ethanol use will force them to blend in more than 10% of ethanol into their gasoline production, which both adds to gasoline costs and isn’t safe for many of the engines that use gasoline—like some cars that are optimized only for 10% blends, and smaller engines such as those used in our lawnmowers.

Even at that, the mandated ethanol use quotas simply aren’t possible to get to.  The 2013 mandated quota is 6 million gallons (down, incidentally, from the EPA’s original laughable requirement of 1 billion (that’s with a “b”) gallons to be used this year); the nation’s total ethanol production for this year will top out below 50 thousand gallons.  The quota stands, though, so the refiners are required to go onto the EPA’s ethanol credit market that Strassel mentioned, and buy up enough credits to make up for their collective failure to use 950,000 gallons of ethanol.

Costs.

The IRS Sends a Letter

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Thousands of small-business owners have received letters from the Internal Revenue Service questioning whether they are underreporting their business income….

Tax officials say the letters don’t constitute an audit and instead are simply a request for more information.

Sure.  Except that they’re not “requests.”

One typical letter to a small-business owner is headlined, “Notification of Possible Income Underreporting.”  It begins, “Your gross receipts may be underreported.”

The letter instructs the owner to complete a form “to explain why the portion of your gross receipts from non-card payments appears unusually low.”  It says the business owner must respond within 30 days.

No.  Tell me what crime you’re claiming I’m committing or at risk of committing.  Then we can talk about my business model, my decision to emphasize card transactions in my business.  And 30 days is a short deadline for small businesses to investigate their records of individual transactions over the year supposed to be in question.  While you’re about it, explain to me why I’m obligated to do cash transactions at a rate that suits your whim.  Cash imposes additional costs on me, including more accounting effort (card transactions automatically generate their own audit trail for my internal, business use) and greater security costs from having all that cash on hand.

And there’s this example of IRS disingenuousness:

Peter Fleming, a small-business accountant in Carnegie, PA, said a client with a gift and souvenir shop received a letter from the IRS in December saying the revenue she claimed in tax returns the previous year was lower than sales reported in merchant card and third-party payments data.  The retailer reported gross receipts of $243,462, versus $249,994 in the payment data, according to the IRS.  The letter told her to ensure she was “fully reporting receipts from all sources” and gave her 30 days to respond.  Mr Fleming said the discrepancy was because payments data included sales tax, which wasn’t included in revenue claimed in tax returns.  For small retailers, “Sales tax is a liability and is not reported as revenue,” Mr Fleming said.

Of course, the IRS knew a priori this discrepancy was sales tax; the IRS has lots of access to state and community sales tax rates and records.

And a final bit of IRS cynicism:

The IRS has told accountants that a principal aim of its program is to verify the quality of the card-transaction data the agency is getting.

Clearly not.  I if this were true, the IRS would have said so in its dunning letters to those 20,000 small businesses.

Objections to Cancelling Fannie, Freddie

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Are coming out; here are two.  The existence of these objections demonstrates the disaster that government involvement in the market, together with the resulting dependence on government, generate.

Kelly Powers, Vice President for Advocacy at the Arizona Mortgage Lenders Association:

[She insists that] there isn’t enough private capital to step in and take over, and the results on lending could be damaging.

“It would make it much more difficult for people to borrow.  There would be less liquidity and less players in the game.  The requirements would go up and people won’t be able to qualify for loans.”

She added that she “doesn’t want to operate without a government safety net.”

Of course there isn’t enough private capital today: Uncle Sugar has been providing taxpayer money, either directly, or indirectly through “guaranties.”  Liquidity will develop as the market develops and wants it, based on actual demand and supply, not on the availability of the public trough funded by private tax money—which is our money, not government’s and not yours.

With regard to loan “requirements” and “borrowing difficulty,” once the liquidity aspect is sorted out through the transition period (both President Barack Obama and a bipartisan bill in progress—that also excludes future government participation—posit five-six years for getting rid of Fannie and Freddie) lending and borrowing…difficulty…will more closely be based on actual credit worthiness.  See a nearby post.

In the end, a business whose leadership is unable to function without its collective hand in the taxpayer’s pocket isn’t ready for prime time.  No, if you’re unable to take a risk and suffer the consequences without assurance of government bailout, then you’re a failure as a businessman already.

Independent Bankers of America President and CEO Cam Fine also wants his association’s hands in our pockets, and he added a different objection.

It is extremely complex and it would be a delicate venture to get all of the moving parts in place.  It would take a great deal of coordination and cooperation among private investors, mortgage producers, properly funded and established and all of that would have to be done simultaneously.

Again, this is malarkey.  If it’s hard to do, that just emphasizes the importance of getting started.  More importantly, over the posited transition period, a free market will evolve the needed “moving parts” just fine.  If a business(man) is unable to develop in an evolving market place, if a business(man) is unable to take the first step on a business path without the last step—which never arrives in a human endeavor; the last step is itself constantly changing—being planned out to a gnat’s patootie, if a business(man) is unable to function except in a centrally planned economy, there’s no place for that business(man) here.

In Which I Agree with President Obama

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…mostly.

In a speech Tuesday in Phoenix, Obama call[ed] for transitioning the business model of Fannie and Freddie into a system where “private capital must be wiped out before the government pays on any form of catastrophic guarantee,” a senior administration official said.

If he really wants to, this is mostly good.  Those taking the risks should be the ones to reap the rewards—and the only ones to suffer the loss.  Taxpayers should not be dragged into a failure at all.

And that’s the “mostly” part: “before the government pays on any form of catastrophic guarantee” should not be a player at all.  This is what private insurance in a free market is for.

Obama will also renew his calls for sweeping mortgage refinancing legislation when he travels to Phoenix Tuesday.

Here, not so much.  The only sweeping legislation necessary is the repeal of the Community Reinvestment Act, a high-minded sounding idea that in the realization has been used only to browbeat lenders into making bad loans to poor credit risks.

…a call for expanding refinancing eligibility for homeowners who do not have government-backed mortgages.

In particular, there’s no need for a government determination of “refinancing eligibility.”  The market will determine that, just fine.  Government distortions from the market do no good at all; they only destroy the pricing information extant.

Keynesian Stimuli

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If the point of Keynesian spending is to inject money into the economy to make up for diminished private demand, then an equally valid Keynesian stimulus would be to reduce taxes and leave the money in the private economy in the first place.

Which, in fact, Keynesians actually recommend: Galbraith, John K, The Great Crash 1929.  And as that Evil Republican (!?) John Kennedy actually did in the early ’60s, that Evil Republican Ronald Reagan did again in the ’80s, and that Evil Republican George Bush the Younger did yet again in the early 2000s.

Spend more, tax less—either one produces the deficit spending that is actually what Keynes thought appropriate.  Except that taxing less—eliminating the government as (inefficient) middleman in the deficit spending—produces the more efficient stimulus, to the extent that government stimulus can have any beneficial effect at all.  And spending more is how politicians buy votes.

Hmm….