The governments of these United States, from the federal to the local level, have managed to insinuate themselves between citizens and their property at every point of significance. In that, our governments are very much like most other governments, liberal and illiberal, democratic and undemocratic. We have allowed ourselves to be in effect converted from a nation of owners to a nation of renters. But while medieval serfs had only the one landlord, we have a rogue’s gallery of them: the local school board, the criminals at the IRS, the vehicle-registry office, etc. Never-ending property taxes ensure that as a matter of economic function, you never really own your house — you rent it from the government. Vehicle registration fees and, in some jurisdiction, outright taxes on automobile ownership ensure in precisely the same way that you never really own your car: You rent it from the government. Stock portfolio? Held at the sufferance of politicians. A profitable business? You’ll keep what income they decide you can keep. Your own body? Not yours — not if you use it for profitable labor.
A Who down in Whoville? You should be so lucky: Welcome to Whomville, peon.
Kevin D. Williamson, “Property and Peace”, National Review, 2014-07-20.
May 16, 2015
QotD: The true nature of government
May 15, 2015
This is why California’s water shortage is really a lack of accurate pricing
David Henderson explains:
Of the 80 million acre feet a year of water use in California, only 2.8 million acre feet are used for toilets, showers, faucets, etc. That’s only 3.5 percent of all water used.
One crop, alfalfa, by contrast, uses 5.3 million acre feet. Assuming a linear relationship between the amount of water used to grow alfalfa and the amount of alfalfa grown, if we cut the amount of alfalfa by only 10 percent, that would free up 0.53 million acre feet of water, which means we wouldn’t need to cut our use by the approximately 20 percent that Jerry Brown wants us to.
What is the market value of the alfalfa crop? Alexander quotes a study putting it at $860 million per year. So, assuming, for simplicity, a horizontal demand curve for alfalfa, a cut of 10% would reduce alfalfa revenue by $86 million. (With a more-realistic downward-sloping demand for alfalfa, alfalfa farmers would lose less revenue but consumers would pay more.) With a California population of about 38 million, each person could pay $2.26 to alfalfa growers not to grow that 10%. Given that the alfalfa growers use other resources besides water, they would be much better off taking the payment.
May 13, 2015
Why are railroads dragging their feet over more efficient braking systems?
Fred Frailey discusses the U.S. Department of Transportation mandate that all crude oil trains longer than 69 cars must be equipped with electronic brakes by 2021 or they will restrict the speed of oil trains to 30 MPH at all times. The current standard braking system for railroads in North America is pneumatic, which have worked well for decades, but have inherent problems as modern trains have gotten longer and heavier. One of the biggest problems is that pneumatic brakes have a relatively long activation time — when the engineer operates the brake in the lead locomotive, it takes quite some time for that to propagate all the way through the train. This creates situations which can cause derailments as the lead cars begin to slow down, while the rest of the train is still travelling at full speed.
The preferred replacements are called electronically controlled pneumatic brakes (ECP), where instead of the brakes operating by pressure changes in the air line, the brakes would be controlled by a separate electronic circuit that would allow simultaneous brake application in all cars in the train.
It seems electronic braking has no friends in the railroad industry. I find this puzzling. Research I’ve read suggests there is both a safety and business case to be made. One explanation for the bum’s rush being given ECP comes from someone whose career was immersed in railroad technology: “The mechanical departments say the ECP brakes don’t save enough on wheels and brake shoes to justify implementation. The track departments say that ECP brakes don’t reduce rail wear enough to justify implementation. Transportation departments say that ECP brakes don’t save enough fuel to justify implementation. And improved train running times, improved train dynamics, and improved engineer performance are all soft-dollar savings which don’t count. No one ever bothers to sum up total benefits.” Silos, in other words.
So I’ll make the case for ECP. (By the way, the standards were developed two decades ago by the same AAR that now vigorously opposes their implementation.) A train equipped with electronic braking is hard-wired, allowing instant communication from airbrake handle in the locomotive to every brake valve on the cars. The principal advantages are that all brakes instantly apply and release at the same time, the air supply is continually charged, engineers can gradually release and reapply brakes, and undesired emergency braking (dynamiters, they’re called) virtually disappear. In-train forces, such as slack roll-in and roll-out, are greatly reduced, and that lessens the risk of derailment. Moreover, stopping distance is reduced 40 to 60 percent, permitting higher train speeds and higher speeds approaching restricting signals. Longer trains are possible. Longer trains run at higher speeds increase the capacity of the railroad network. Because air is always charging, braking power is inexhaustible; plus, a train can stop and instantly restart. Brakes, draft gear, wheels, and bearings require less maintenance. Existing federal regulations would allow train inspections every 5,000 miles instead of the present 1,500 or 1,000 miles.
Those are a lot of advantages. In a report commissioned by the Federal Railroad Administration in 2005, the consulting company Booz Allen Hamilton estimated the cost of full implementation of ECP at $6 billion and the measurable savings (not including added network capacity) at $650 million a year. Booz recommended that ECP conversion begin with coal trains loaded in Wyoming’s Powder River Basin, then to other types of unit trains (presumably including intermodal trains), and finally the rest of the car fleet — all in a 15-year time frame. “As applied to western coal service,” its report stated, “the business case is substantial,” with a recovery of all costs within three years.
[…]
Several things are going on here. Silos are one. Nobody is looking at the big picture, just his or her little piece of it. The boys in the Mechanical Silo could care less about increased network capacity. The occupants of the Finance Silo don’t want to divert cash flow away from share buybacks, their favorite toy. Most of those in the CEO Silo didn’t come up on the operating side and are probably bored by the subject. In a conservative, mature business like railroading, risk taking and even forward thinking are not rewarded. And the cost of hard-wiring the car fleet would primarily be borne by shippers, who own most of the equipment, whereas railroads would reap the benefits. How to share the benefits with car-owning shippers leads to very difficult negotiations.
May 12, 2015
Tax Revenue and Deadweight Loss
Published on 27 Jan 2015
Why do taxes exist? What are the effects of taxes? We discuss how taxes affect consumer surplus and producer surplus and discuss the concept of deadweight loss at length. We’ll also look at a real-world example of deadweight loss: taxing luxury yachts in the 1990s.
May 11, 2015
Nepal’s tragic unpreparedness for disaster
In The Walrus, Manjushree Thapa explains why Nepal was so badly prepared for the earthquake:
Following the April 25 earthquake, Nepalis have had to learn the value of preparedness in the most painful way possible. In the aftermath, Pushpa Acharya, a Nepali friend at the University of Toronto, observed, “Knowledge was not our problem.” Indeed. We all knew that our country sits on an active fault line, where the subcontinent collided with the Eurasian plate with such force it created the Himalayas. The last big quake took place in 1934. Others have since struck, but none with the force of 1934’s 8.0 or April 25’s 7.9. We knew that a big earthquake was due.
It was our duty to prepare, and though some of us did so individually, as a society we ignored the warnings. In the past ten days, during search and rescue, and then the beginnings of relief, we’ve had to do some hard thinking about how our country could become more responsible going forward. The root problem may seem obvious: Nepal is one of the poorest countries in the world. Its poverty is, however, a symptom of our history of ill governance, and the reason for our national failure to prepare, which has kept us from becoming a functioning democracy.
When the earthquake struck, the country was in a deep and deeply depressing stupor. The governing parties — a coalition of the Nepali Congress Party and the Unified Marxist Leninists — had reached an impasse with Nepal’s thirty-three opposition parties about what kind of constitution to draft. There was no plan for the country as a whole, let alone in the case of an emergency. The drafting of a constitution has preoccupied, confounded, and eluded Nepal’s polity since 2006, when the Maoists ended a ten-year insurgency to join forces with other parties to remove Gyanendra Bir Bikram Shah. Nepal’s king had used the war as an excuse to end a fragile fifteen-year spell of democracy and install his own military-backed rule. A mass movement restored democracy, and the subsequent peace process promised to restructure the country along just and equitable lines through the drafting of a new constitution
May 5, 2015
QotD: Monarchies and republics
When I say monarchy I am not talking about the wishy-washy monarchy we pretend to have in the UK. I am talking about real monarchies, monarchies red in tooth and claw, monarchies that can at minimum hire and fire ministers and start wars.
Now, I can almost hear the pedants shouting “But those are precisely the powers the Queen has” To which I say “Only in theory”. Should the Queen or any of her successors ever attempt to actually exercise those theoretical powers they would be out of office in a matter of nano-seconds. Britain is a republic.
When did it become one? I think we can be pretty precise with the dates: sometime between 1642 and 1694. 1642 is the date of the outbreak of the English Civil War, when Charles I tried to impose his idea of absolute monarchy. 1694 is the date William III accepted that his powers were extremely limited. Since then it has been Parliament that makes the laws and votes funding – without which making war becomes extremely difficult.
But think of what happened in that period: four civil wars, one military dictatorship and a foreign invasion.
You think that was bad? Try the French. Between 1789 and 1871 they saw four monarchies, three republics, three foreign invasions and a 20-year war with the rest of Europe.
And now look at what happened in the 20th century. Germany, Russia, Austria-Hungary, China, Turkey, Spain and Portugal all made the same transition from monarchy to republic. I need not dwell on the German or Russian experiences — they are well enough known but all the others follow a similar pattern. China saw a 20-year civil war followed by Mao’s communist regime; Spain, a monarchy, followed by a republic followed by a civil war followed by a dictatorship followed by a monarchy followed by a democratic republic. Even Portugal saw two revolutions, a dictatorship and a series of bloody colonial wars.
The point is that in every case the transition from monarchy to republic is bloody and protracted.
Patrick Crozier, “What caused the First World War? Part V: Monarchies and Republics”, Samizdata, 2015-04-29.
April 28, 2015
Tax credits that benefit almost nobody
Last week, Michael Geist pointed out that the tax credits and other inducements offered by state and provincial governments to attract TV and movie business are a bad deal for everyone except the media companies:
The widespread use of film and television production tax subsidies dates back more than two decades as states and provinces used them to lure productions with the promise of new jobs and increased economic activity. The proliferation of subsidies and tax credits created a race to the bottom, where ever-increasing incentives were required to distinguish one province or state from the other.
In recent years, governments have begun to rethink the strategy. States such as Arizona, Michigan, New Mexico, and Iowa suspended or capped their programs. Louisiana found that it lost $170 million in tax revenue in a single year. In Canada, the Quebec government’s taxation review committee recently admitted that its provincial film production tax credit was not profitable and that numerous studies find that there is little economic spinoff activity.
But the most notable Canadian study on the issue has never been publicly released and is rarely discussed. The Ontario government’s Ministry of Finance conducted a detailed review of the issue in 2011, delivering a sharply negative verdict on the benefits associated with spending hundreds of millions of dollars each year in tax credits. It recommended eliminating a 25 per cent tax credit for foreign and non-certified domestic productions that would have saved $155 million per year.
April 21, 2015
Lee Kuan Yew and Singapore’s amazing economic success
Earlier this month, Alvaro Vargas Llosa examined the economic success of Singapore under the authoritarian rule of Lee Kuan Yew:
Lee Kuan Yew, Singapore’s legendary statesman, who died last month at the age of 91, posed a challenge to those of us who believe in political and economic freedom (and all other freedoms). His combination of authoritarianism and economic freedom, of social engineering and self-reliance, worked. The result was a society that is more prosperous than most others, but free only in some respects.
For years, the best examples one could come up with to show that the marriage of economic and political liberty could work were the liberal democracies of the developed world, whose achievements originated in centuries past and different circumstances.
Lee Kuan Yew’s credentials became strong as many countries that also gained independence in the 1950s or 1960s opted for a mix of nativism and collectivism that kept them poor while tiny Singapore, with no natural resources, emerged as an economic powerhouse. While Mao, Ho Chi Minh, and Castro — not to cite Mobutu, Idi Amin Dada, and others — destroyed the chances of a decent life for many generations, Lee Kuan Yew created the conditions for a 124-fold increase in Singapore’s per capita income in half a century.
[…]
Singapore’s case is exceptional, which makes it a tough challenge for those of us who think freedom is best served by not carving it up. My belief is that Singapore has been able to preserve its curious mix because of the absence of prosperous liberal democracies around it. But its model is based on globalization, and it’s therefore porous to good ideas.
In a world in which more countries, including Asian ones, end up successfully embracing democracy under the rule of law as well as free trade, it will be impossible for the city-state to avoid the comparison and the contagion. It is one thing to preserve an authoritarian model because your neighbors espouse a less successful one, and quite another to perpetuate it in the face of equally or even more successful societies that espouse a freer model.
April 15, 2015
QotD: The secret weapon of the bureaucracy
… boredom is the deadly secret weapon of the bien-pensant technocrats of the EU and the UN. “They wear outsiders down with the tedium of their arguments and the smallness of their fine print, so that by the time anyone else notices what they’re up to the damage has been done and it’s too late to do anything about it.”
James Delingpole, “Green Global Governance: How Environmentalists Have Taken Over the World”, Breitbart.com, 2014-06-25.
April 11, 2015
America’s biggest welfare queen
It’s not nice to call someone a welfare queen, but this is a case where it’s hard to find a more accurate way of putting it:
America’s biggest welfare queen is someone you’ve probably never heard of. She’s Hispanic. She’s been living off other people’s hard-earned tax money for years. And she’s gotten rich doing it.
Her name is Iberdrola. She’s a Spanish energy company that has invested in U.S. power facilities. And according to the advocacy group Good Jobs First, she’s raked in more than $2 billion from Uncle Sam in just the past few years.
Good Jobs First maintains a subsidy tracker where you can look up which companies are getting rich from public funds. It recently issued a report on “Uncle Sam’s Favorite Corporations — the companies that have gained the most from federal grants, special tax preferences, loans, and loan guarantees.
The biggest beneficiaries (“by an order of magnitude”) are Bank of America, Citigroup, and other major financial institutions that were bailed out during the 2008 financial crisis. The Federal Reserve, the Troubled Asset Relief Program, and so on threw trillions of dollars at U.S. and foreign banks in a desperate effort to stabilize the financial system. It worked. In many cases (though not all), the institutions repaid the money. In some cases the federal government actually earned a profit.
But hundreds of other companies have raked in billions of dollars in direct grants. Along with Iberdrola, NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy all have reaped more than $1 billion in federal largess, often receiving payments through programs meant to boost renewable energy. At the same time, many coal companies have taken huge sums from Washington through grants and coal production tax credits. So, as with farm programs—some of which subsidize farmers to farm more and some of which pay farmers to not farm at all—Washington thwarts its own objectives by subsidizing both renewable fuel sources and the fossil fuels they’re supposed to replace.
QotD: Tyranny and the Anglosphere
I’m 41 years old, which doesn’t feel that old to me (most days), but history is short. With the exception of those trapped behind the Iron Curtain, the world as I have known it has been remarkably free and prosperous, and it is getting more free and more prosperous. But it is also a fact that, within my lifetime, there have been dictatorships in Spain, Portugal, Greece, Poland, India, Brazil, Argentina, Chile, South Korea, and half of Germany — and lots of other places, too, to be sure, but you sort of expect them in Cameroon and Russia. If I were only a few years older, I could add France to that list. (You know how you can tell that Charles de Gaulle was a pretty good dictator? He’s almost never described as a “dictator.”) There have been three attempted coups d’état in Spain during my life. Take the span of my father’s life and you’ll find dictatorships and coups and generalissimos rampant in practically every country, even the nice ones, like Norway.
That democratic self-governance is a historical anomaly is easy to forget for those of us in the Anglosphere — we haven’t really endured a dictator since Oliver Cromwell. The United States came close, first under Woodrow Wilson and then during the very long presidency of Franklin Roosevelt. Both men were surrounded by advisers who admired various aspects of authoritarian models then fashionable in Europe. Rexford Tugwell, a key figure in Roosevelt’s so-called brain trust, was particularly keen on the Italian fascist model, which he described as “the cleanest, most efficiently operating piece of social machinery I’ve ever seen.” And the means by which that social hygiene was maintained? “It makes me envious,” he said. That envy will always be with us, which is one of the reasons why progressives work so diligently to undermine the separation of powers, aggrandize the machinery of the state, and stifle criticism of the state. We’ll always have our Hendrik Hertzbergs — but who could say the words “Canadian dictatorship” without laughing a little? As Tom Wolfe put it, “The dark night of fascism is always descending in the United States and yet lands only in Europe.”
Kevin D. Williamson, “The Eternal Dictator: The ruthless exercise of power by strongmen and generalissimos is the natural state of human affairs”, National Review, 2014-06-27.
April 10, 2015
“Scotland in the 21st century is a hotbed of the new authoritarianism”
Brendan O’Neill on the odd disconnect between American views of Scotland (roughly summed up by kilts, whisky, and Braveheart) and the reality:
… far from being a land of freedom-yearning Bravehearts, Scotland in the 21st century is a hotbed of the new authoritarianism. It’s the most nannying of Europe’s nanny states. It’s a country that imprisons people for singing songs, instructs people to stop smoking in their own homes, and which dreams of making salad-eating compulsory. Seriously. Scotland the Brave has become Scotland the Brave New World.
If you had to guess which country in the world recently sent a young man to jail for the crime of singing an offensive song, I’m guessing most of you would plumb for Putin’s Russia or maybe Saudi Arabia. Nope, it’s Scotland.
Last month, a 24-year-old fan of Rangers, the largely Protestant soccer team, was banged up for four months for singing “The Billy Boys,” an old anti-Catholic ditty that Rangers fans have been singing for years, mainly to annoy fans of Celtic, the largely Catholic soccer team. He was belting it out as he walked along a street to a game. He was arrested, found guilty of songcrimes—something even Orwell failed to foresee—and sent down.
It’s all thanks to the Offensive Behaviour at Football Act, which, yes, is as scary as it sounds. Introduced in 2012 by the Scottish National Party, the largest party in Scotland the Brave New World and author of most of its new nanny-state laws, the Act sums up everything that is rotten in the head of this sceptred isle. Taking a wild, wide-ranging scattergun approach, it outlaws at soccer matches “behaviour of any kind,” including, “in particular, things said or otherwise communicated,” that is “motivated (wholly or partly) by hatred” or which is “threatening” or which a “reasonable person would be likely to consider offensive.”
Got that? At soccer games in Scotland it is now illegal to do or say anything — and “in particular” to say it — that is hateful or threatening or just offensive. Now, I don’t know how many readers have been to a soccer game in Britain, but offensiveness, riling the opposing side, is the gushing lifeblood of the game. Especially in Scotland. Banning at soccer matches hateful or offensive comments, chants, songs, banners, or badges — all are covered by the Offensive Behaviour Act — is like banning cheerleaders from American football. Sure, our cheerleaders are gruffer, drunker, fatter, and more foul-mouthed than yours, but they play a similarly key role in getting the crowds going.
The Offensive Behaviour Act has led to Celtic fans being arrested in dawn raids for the crime of singing pro-I.R.A. songs — which they do to irritate Rangers fans — and Rangers fans being hauled to court for chanting less-than-pleasant things about Catholics.
Even blessing yourself at a soccer game in Scotland could lead to arrest. Catholic fans have been warned that if they “bless themselves aggressively” at games, it could be “construed as something that is offensive,” presumably to non-Catholic fans, and the police might pick them up. You don’t have to look to some Middle Eastern tinpot tyranny if you want to see the state punishing public expressions of Christian faith — it’s happening in Scotland.
QotD: Zoning hurts the poor
One kind of regulation that was actually intended to harm the poor, and especially poor minorities, was zoning. The ostensible reason for zoning was to address unhealthy conditions in cities by functionally separating land uses, which is called “exclusionary zoning.” But prior to passage of the Civil Rights Act of 1968, some municipalities had race-based exclusionary land-use regulations. Early in the 20th century, several California cities masked their racist intent by specifically excluding laundry businesses, predominantly Chinese owned, from certain areas of the cities.
Today, of course, explicitly race-based, exclusionary zoning policies are illegal. But some zoning regulations nevertheless price certain demographics out of particular neighborhoods by forbidding multifamily dwellings, which are more affordable to low- or middle-income individuals. When the government artificially separates land uses and forbids building certain kinds of residences in entire districts, it restricts the supply of housing and increases the cost of the land, and the price of housing reflects those restrictions.
Moreover, when cities implement zoning rules that make it difficult to secure permits to build new housing, land that is already developed becomes more valuable because you no longer need a permit. The demand for such developed land is therefore artificially higher, and that again raises its price.
Sandy Ikeda, “Shut Out: How Land-Use Regulations Hurt the Poor”, The Freeman, 2015-02-05.
April 9, 2015
Politicians love to build infrastructure – they’re not as eager to maintain it
Politicians love big infrastructure projects, from gala announcement — featuring plenty of face time in the media for the politicos themselves — to ground-breaking, also featuring lots of media along with hard hats and “first shovel” action through to grand opening, usually featuring lots of media along with ribbon cutting and some sort of first action involving the newly built bridge/dam/tunnel/streetcar/etc. For some inscrutable reason, politicians are much less eager to get involved in making sure that the glitzy new infrastructure of a few years back gets appropriate and timely maintenance (and the permanent bureaucracy in charge of the now-built infrastructure have rather different long-term goals):
I think the cause lies in a couple areas related to government incentives
- Legislatures never want to appropriate for capital maintenance. If the legislature somehow has, say, $100 million money it can spend on infrastructure, their incentives are to use it to build new things rather than to keep the old things in repair (e.g. to extend a rail line rather than to keep the old one fixed).
- If you want to understand a government agency’s behavior, the best rule of thumb is to assume that they are working to maximize the headcount and the payroll budget of their agency. I know that sounds cynical, but if you do not understand an agency’s position or priorities, try applying this test: What would the agency be doing or supporting if it were trying to maximize its payroll. You will find this explains a lot
To understand #2, you have to understand that the pay and benefits — and perhaps most important of all — the prestige of an agency’s leaders is set by its headcount and budgets. Also, there are many lobbying forces that are always trying to pressure an agency, but no group is more ever-present, more ubiquitous, and more vocal than its own staff. Also, since cutting staff is politically always the hardest thing for legislators to do, shifting more of the agency’s budget to staff costs helps protect the agency against legislative budget cuts. Non-headcount expenses are raw meat for budget cutters, and the first thing to get swept. By the way, this is not unique to public agencies — the same occurs in corporations. But corporations, unlike government agencies, face the discipline of markets that places a check on this tendency.
This means that agencies are loath to pay for the outside resources (contractors and materials) that are needed for capital maintenance projects out of their regular budgets. When given the choice of repairing a bathroom at the cost of keeping a staff person, agencies will always want to choose in favor of keeping the staff. They assume capital maintenance can always be done later via special appropriation, but of course we saw earlier that legislators are equally unlikely to prioritize capital maintenance vs. other alternatives.
The other related problem faced is that this focus on internal staff tends to drive up pay and benefits of the agency workers. This drives up the cost of fundamental day to day tasks (like cleaning bathrooms and mowing) and again helps to starve out longer-horizon maintenance functions.
April 8, 2015
This is probably why so many people think businesses should pay more tax
At Forbes, Tim Worstall reports on a staggering misconception among Americans about what corporate profits amount to:
A wonderful little find by Mark Perry. Something that helps to explain quite why so many completely ridiculous economic ideas and public policies manage to gain traction. The problem is that the average person just doesn’t understand the economy at all. No, I don’t mean economics, or the abstruse arguments about whether we should use monetary or fiscal policy. But just the basic raw numbers of what’s actually going on out there. As Perry goes on to point out this, well, let’s not beat about the bush here, let’s call it what it is, this ignorance of the universe they’re inhabiting by the average person out there is what keeps the economic demagogues in business.
Here’s what Perry found:
When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC’s polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.
That’s simply a ridiculous belief. Plain howling at the Moon crazy. The capital share of the economy isn’t that high and the capital share is made up of a great deal more than just profits (depreciation, rent, interest and so on as well as profits). There’s just no way that this is anywhere near true. As Perry goes on to point out:
According to this Yahoo!Finance database for 212 different industries, the average profit margin for the most recent quarter was 7.5% and the median profit margin was 6.5%.
