Quotulatiousness

November 19, 2019

The “Carbuncle Cup” is good, but we need mandatory demolition because name-and-shame hasn’t worked

Filed under: Architecture, Britain, History, Media — Tags: , , — Nicholas @ 03:00

I like the cut of Peter Franklin‘s jib:

Centre Georges-Pompidou (no, this isn’t an under construction image … it’s from 2017)
Gerd Eichmann photo via Wikimedia Commons.

The Nobels, the Oscars, Pipe Smoker of the Year: glittering prizes all, but I prefer the Carbuncle Cup, which is awarded annually to the “the ugliest building in the United Kingdom completed in the last 12 months”.

Organised by the magazine Building Design, it has (in my aesthetic judgement) produced a worthy shortlist and a worthy winner every year since its inception in 2006.

But there’s a big problem with the prize — not its subjectivity, but the fact that the winning buildings still exist. Indeed, buildings like them are still being built. Name-and-shame is not working.

There’s an argument to be made that things are getting worse. We’ve swapped the horrendous, but interesting, brutalism of the post-war period for the offensively bland spreadsheet architecture of the 21st century. In an age in which Jane Jacobs has won the intellectual battle against Robert Moses, we really ought to know better. Yet we continue to fill up our towns and cities with inhumane, alienating architecture.

Philharmonie at the Parc de la Villette, Paris.
Photo by Zairon via Wikimedia Commons.

It might seem paradoxical, but to end the cycle of destruction, we need to accelerate it. Every year, there should be a public vote to choose the worst new building in the land. The winner wouldn’t get a cup, but a wrecking ball. Yes, that’s right, it would be physically demolished — immediately and without compensation. Indeed, the owner would be required to foot the bill for the building’s de-construction (though they would have the option of suing the architect and the planning authority).

This would concentrate minds wonderfully. Instead of competing among themselves to épater les bourgeois, starchitects would need to design with due regard to the common good. Meanwhile, developers whose sole objective is to squeeze as much profitable square footage into any site they can get their hands on, would have to contend with the possibility of financial (as well as literal) ruin. The planners would come under immense pressure to do a better job too. At the cost of sacrificing one new building, development across the land would be greatly improved.

Cumbernauld Shopping Centre, voted as Britain’s most hated building.
Photo by Ed Webster via Wikimedia Commons.

H/T to Colby Cosh for the link.

October 8, 2019

Anton Howes on innovation

Filed under: Britain, History — Tags: , , , — Nicholas @ 03:00

Anton Howes publishes a newsletter on the Age of Invention (I just signed up to start receiving it). Here’s an older article from the newsletter on innovation:

The Industrial Revolution was caused by an acceleration of innovation. But how was that acceleration caused? Most theories of the acceleration’s causes assume that innovation is in human nature, that it has always been around.

So, they might argue:

  • Property rights became better enforced so budding innovators felt more secure to make themselves known.
  • Patents appeared so innovators could reveal their secrets and still profit from them.
  • Brits were particularly skilled or well-educated so innovators could more easily get their innovations implemented.
  • British society started to accord dignity or honour to innovation so innovators felt motivated to have a go.
  • Demand increased so innovators had a big enough market to begin selling their innovations.

And so on. All of these arguments assume the same thing — that innovation is a part of human nature, a choice that has always been recognised. Their implicit claim is that, other than in mid-eighteenth century Britain, save for a few short-lived cases, choosing innovation was simply just not worth it.

I disagree.

The more I study the lives of British innovators, the more convinced I am that innovation is not in human nature, but is instead received. People innovate because they are inspired to do so — it is an idea that is transmitted. And when people do not innovate, it is often simply because it never occurs to them to do so. Incentives matter too, of course. But a person needs to at least have the idea of innovation — an improving mentality — before they can choose to innovate, before they can even take the costs and benefits of innovation into account.

An illustration: at a conference I was at last month the attendees wore lanyards with name tags, which listed their names on one side. Over the course of the conference the tags would inevitably flip over, hiding the names. People would, when introducing themselves, periodically check each other’s tags, flipping them the right way around. But only one person — one single person, of attendees in the hundreds, had the ingenuity to write their name on the other side. To my shame, it wasn’t me.

Everyone at that conference had an incentive to do that innovation. Everyone was there to meet one another, so the innovation helped achieve that goal. And the cost of the innovation was negligible. It took a couple of seconds to whip out a pen and scribble a name. It simply did not occur to them to innovate. Innovation can be extraordinarily rare — despite the opportunities, despite the incentives.

September 26, 2019

QotD: Preventing “price gouging” is counter-productive in an emergency

Filed under: Business, Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

During an emergency like a hurricane, many different categories of goods and services experience supply-demand shocks. The shock may be because of a fall in supply (e.g. oil companies can’t get gasoline into the area) or a spike in demand (e.g. for generators or plywood) or a combination of both. In a free market, prices will rise to help match supply and demand. Higher prices cause people with less valuable or more frivolous uses of the scarce goods to defer purchase, and can cause suppliers to expend extra effort to get product into the area, even diverting supplies from other areas.

When the government institutes price gouging laws in an emergency, the supply-demand mismatch that leads to the rising prices isn’t magically eliminated. First, without higher price incentives, all the incentives to get more supply into the area are lost. Supply and demand under these regulations can only be matched by rationing demand, and typically this is through queuing and increasing search costs (e.g. driving around all over the place looking for a station that is open and has gas). People who gain the limited supplies in this regime are thus those with a lot of time on their hands, where the marginal cost of queuing and driving around does not impose a lot of cost. Think about a roofer scrambling to repair roofs after the a storm — do they have time to have their trucks and crews sitting dormant in gas lines? Thus, price gouging laws tend to ensure that scarce goods in an emergency flow to those with the least use for them.

Warren Meyer, “Price Gouging Laws: Allocating Goods in An Emergency To People Who Have Nothing Much Valuable to Do”, Coyote Blog, 2017-08-26.

September 17, 2019

QotD: Rent-seeking

Filed under: Economics, Government, Quotations — Tags: , , , , , , — Nicholas @ 01:00

[Progressives] should also be delighted by public choice scholars’ development of the theory of privilege-seeking (or “rent-seeking“). It’s an old observation, really: when the state’s personnel have favors to dispense, people in the private sector will invest resources to obtain them. Such favors are by nature impositions on third parties. They may take the form of cash subsidies, taxes and regulations that hamper or quash competition and raise incomes in a non-market manner, and other devices. But the principle is the same: private- and government-sector individuals collude to use the state’s coercive power to obtain what they could not obtain through voluntary exchange for mutual benefit. It’s a theory of exploitation the good-faith left should embrace.

By the same token, the state’s personnel, seeing opportunities to sell favors, are just as likely to initiate the privilege-seeking process. In this sense, public choice scholars are right when they see the political arena as a series of exchanges. The big difference with the marketplace, however, is that in the political arena the largest group of people is forced to participate.

The bottom line on privilege-seeking, which should interest the left, is this: the people with the greatest access to power will not be those the left cares most about, but those who run Boeing and ExxonMobil and GE and Lockheed Martin. Wealth transfers will tend overwhelmingly to be upward.

Sheldon Richman, “TGIF: What the Left Should Like about Public Choice”, The Libertarian Institute, 2017-07-28.

August 1, 2019

QotD: Small government provides little scope for special interest lobbying

Filed under: Economics, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

When a government is small, it can provide very limited benefits to special interest groups, so there is a small incentive for special interest groups to lobby the government. The successes of those that do lobby the government will cause the government to grow. This occurs because the great majority of voters and taxpayers are rationally ignorant about most government activity, making it easy to increase everybody’s taxes a small amount to provide a sizable benefit to a few. Most people do not have an incentive to investigate in detail the allocation of their tax dollars, but the special interest groups with the sizable benefit will repay the representatives with political support. Thus, special interest groups cause government growth.

The growth of government, in turn, raises the payoff available to special interest groups. With a higher payoff to special interest groups, this encourages the formation of new special interest groups to share in the payoff. A larger government can support a larger number of special interest groups. Thus, as government grows, more special interest groups form. The formation of special interest groups in turn increases the demand for special interest legislation, cause a further growth in government spending.

Randy Holcombe, An Economic Analysis of Democracy, 1985.

July 25, 2019

In British Columbia, “butthurt” damages can exceed $75,000 under Human Rights legislation

Filed under: Cancon, Law, Liberty — Tags: , , , — Nicholas @ 05:00

In the Post Millennial, Jordan Schroeder illustrates how BC human rights rules have created a new class of tort:

I would argue that the issue is not with the BC Human Rights Tribunal itself, but with the perverse incentive of litigating for profit that is created by the BC Human Rights Code. The BC Human Rights Code creates this incentive through a type of damages called “injury to dignity, feelings, and self-respect.”

This head of damages is harmful to human rights law in BC. It is unfair to the defendants, and it incentivizes predatory litigation. All of this causes British Columbians to lose trust in the important role that the tribunal can play in redressing wrongs.

Section 37 of the BC Human Rights Code allows the tribunal to make an award of damages to a complainant for “injury to dignity, feelings, and self-respect”. The tribunal is permitted to award any amount for this that it sees fit.

By the admission of the Human Rights Tribunal [PDF], the awards for this type of damages is high and is “trending upwards.” For example, in the Oger v Whatcott case, Whatcott was ordered to pay $35,000 for discriminatory speech against Morgane Oger. Whatcott had made critical comments about Oger based Oger’s transgender identity. In the same case, the tribunal cited $5,000 awards as “lower” awards. Other cases have seen awards of up to $75,000.

Awards for hurt feelings are unique to human rights law. Damages awarded in every other area of law are based on the principle that the award should only make the complainant whole. A complainant should never be better off after receiving the damages award.

For example, consider if a company leased a concert hall to a business that wanted to use the space to put on a production. Imagine that business stood to make $50,000 in profit from a sold-out production.

If the rental was cancelled by the company leasing the concert hall in breach of the contract, that company would have to pay the other party $50,000, representing all of the profit the other party could have made. The other party is not better off after the award. They are only made whole.

In contrast, awards for hurt feelings undoubtedly put the complainant better off than they would have been had the human rights violation not occurred in the first place. It is self-evident that an award in the tens of thousands of dollars outweighs any injury to feelings caused by the discriminatory speech or action.

Why is it a problem to have an award that amounts to more than what the complainant actually lost? Obviously, there is the problem that it saddles a defendant with a massive financial burden that doesn’t reflect the damage that they caused. A woman starting a small business who is ordered to pay a “small” award of $5,000 dollars would likely find it ruinous.

July 7, 2019

Cancelling student loans would be a really, really bad economic move

Filed under: Economics, Education, Politics, USA — Tags: , , , , — Nicholas @ 03:00

Art Carden explains why cancelling outstanding student loan debt — despite its huge popularity on the campaign trail — would be a very bad idea:

University College, University of Toronto, 31 July, 2008.
Photo by “SurlyDuff” via Wikimedia Commons.

It’s one of the rules of electoral success: advocate policies that concentrate the benefits on an easy-to-identify interest group (preferably one that is sympathetic in the public eye) and disperse the costs onto the entire electorate. It’s how we get Coke sweetened with corn syrup rather than actual sugar. It’s also how we get proposals to cancel student loans. As my AIER colleague Will Luther points out, the fact that two of the Democratic frontrunners have made debt cancellation such an important part of their campaigns suggests that the issue is going to be with us for a while.

But would it be a good idea to cancel student debt? And importantly, how does even the prospect of canceled student debt affect people’s incentives?

Regressive Tax

First, let’s consider the quality of the policy. A lot of commentators are pointing out that it’s fundamentally regressive, meaning that we’re basically taxing the poor to pay the rich. As economist Alexander William Salter puts it in the Dallas Morning News, it’s

    a transfer of wealth to those with relatively high levels of expected lifetime income, at the expense of those with relatively lower levels of expected lifetime income.

The idea might have some merit, but it will make wealth and income inequality worse rather than better.

Even saying that the idea might have some merit is perhaps too charitable. In 2011, economist Justin Wolfers called it the “Worst. Idea. Ever.” in a Freakonomics post. Why? First, there’s the distributional effect. If we’re going to have policies that transfer wealth from one group to another, it doesn’t make much sense to transfer wealth from taxpayers generally to high-income college graduates. As Will Luther and so many others have pointed out, a college degree brings spectacular financial returns. As a group, college graduates aren’t “needy” by any reasonable definition.

July 6, 2019

QotD: How to learn

Filed under: Books, Economics, Education, Quotations — Tags: , , — Nicholas @ 01:00

I can imagine an economics professor reading through The Literary Book of Economics in search of things he can use in his teaching. But I find it hard to imagine anyone else doing so on his own initiative, merely because he enjoyed reading it. There is a reason why a book is the length it is; a novel is not, with rare exceptions, a series of short stories. I conclude that most of the people reading [Michael] Watts’ book, most of the people it was written for, will be students reading it because their professor told them to. And, judging by my experience of students over the years, many of the students told to read it won’t.

That fits the pattern of most modern schooling at all levels. Someone else decides what you should learn, tells you what you must do to learn it, and makes some attempt to make sure you follow his instructions. It is not a model I think highly of. A much superior model in my view, if you can pull it off, is to get someone to learn something primarily because he finds it interesting. The best way of doing that is to provide students with things to read that are worth reading on their own, not things they read only because they are ordered to. Not even things they read only because they think the labor of reading them will pay off in future benefit.

That view of education is why both children of my present marriage were unschooled. It is also why all of my nonfiction books, with the partial exception of Price Theory, were targeted at the proverbial intelligent layman. They can be, and sometimes are, used as textbooks, but they were written with the assumption that if the reader did not find a chapter worth finishing he was likely not to finish it.

David Friedman, “Thoughts on Literature, Economics and Education”, Ideas, 2017-05-01.

June 9, 2019

QotD: What is economics?

Filed under: Books, Economics, Quotations — Tags: , , — Nicholas @ 01:00

Probably the most common definition is “the science of allocating scarce resources to diverse ends.” [Michael] Watts offers Marshall’s definition: The study of mankind in the ordinary business of life. Neither of those is what I think of as economics. Still less is it the study of the economy, which I suspect would come closest to what most people think the word means.

To me, economics is that approach to understanding behavior that starts from the assumption that individuals have objectives and tend to take the acts that best achieve them. That is what economists mean by “rationality,” and it is the assumption of rationality that is, in my view, the distinguishing characteristic of economics. What I am looking for are works that tell us something interesting about the implications of that assumption.

Someone at some point suggested Orwell’s Down and Out in Paris and London. It is an interesting book, although much too long for my purposes. But what makes it interesting, economically speaking, is not the vivid picture of poverty in the period between the wars but particular details relevant to implications of rational behavior.

I can give, by memory, an example. Orwell observed waiters in a fancy Paris restaurant, out of sight of the diners, spitting in the dishes they were going to serve. In an idealized market context, the waiter would never spit in the dish unless the value to him of doing so was more than the disvalue to the patron he was serving, which is unlikely. But throw in the inability of either the patrons or the waiter’s employers to monitor the waiter’s behavior and any benefit to the waiter of expressing his hostility is a sufficient incentive to make him do it. That suggests the further point that, when you cannot monitor someone’s behavior, his preferences matter — you want the job he is doing for you to be done by someone whose preferences are close enough to yours so that he will want to do what you would want him to do — even if nobody is watching.

Economics is not the study of the economy. A picture of poverty, or unemployment, or wealth, or economic growth, however accurate and vivid, does not in itself teach you any economics. A story such as Poul Anderson’s “Margin of Profit,” which deals with a wholly fictional future, does, because it demonstrates in that world an important implication of rationality that holds in our world as well — that in order to prevent someone from doing something you do not want him to do it is not necessary to make it impossible, merely unprofitable.

David Friedman, “Thoughts on Literature, Economics and Education”, Ideas, 2017-05-01.

December 1, 2018

CAFE killed the North American passenger car

Filed under: Business, Cancon, Government, USA — Tags: , , , , , — Nicholas @ 03:00

The move by GM to close many of its remaining car manufacturing facilities in Canada and the US is a belated rational response — not to the market, but to the ways government action has distorted the market. In the Financial Post, Lawrence Solomon explains how, step-by-step, the CAFE rules have shifted drivers out of sedans and wagons and into minivans, pickup trucks, and SUVs:

Before the U.S. government introduced Corporate Average Fuel Economy (CAFE) standards to increase the distance cars could travel per gallon of gas, sedans and full-size station wagons were popular and SUVs were unknown. CAFE, which effectively governed the entire North American market thanks to the Canada-U.S. Auto Pact, incented manufacturers to artificially raise the cost of large passenger cars in order to favour smaller, more fuel-efficient vehicles. It soon claimed its first victim: the full-size station wagon, whose flexible interior accommodated both passenger and cargo needs, and which, at its peak, came in 62 models to satisfy different tastes.

But, although CAFE priced the station wagon out of the market, the market still demanded a vehicle that offered its flexibility. Enter Lee Iacocca, the chairman of Chrysler, who helped develop the minivan and convinced the U.S. government to deem it a truck rather than a passenger vehicle, thus exempting it from the strict CAFE standards that killed the station wagon. The minivan took off — the first 1984 model, built in Windsor, sold 209,000 its first year — followed by the SUV, which also was deemed a truck rather than a passenger vehicle. By 2000, the passenger car had less than half the market. Today it accounts for only about a third.

CAFE standards didn’t only claim certain car models as victims, they also made the whole industry a victim by making it dependent on government whims and then handouts. CAFE also distorted the market by creating credits for ethanol and electric vehicles and by creating a lobbyist’s dream through ever-changing regulations that led car manufacturers to continually game the system to favour their own vehicles over those of competitors.

Perversely, by improving mileage, CAFE also increased distances travelled and emissions of pollutants such as carbon monoxide and nitrogen oxides. The 2025 CAFE targets (since cancelled by President Trump) ran to almost 2,000 pages and were estimated to add an average of US$1,946 to the cost of a vehicle. Tax loopholes also helped accelerate SUV sales — like all light trucks, they were exempted from the gas-guzzler’s excise tax and also given preferential tax treatment as business vehicles.

October 26, 2018

Economist Jack Mintz dis-claims credit for the Liberals’ carbon tax scheme

Filed under: Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

Everybody likes to be recognized for their work, but Jack Mintz wants to delineate where his original plan and the actual carbon tax scheme implemented by the federal government diverge:

I continue to maintain, as I have all these years, that the best way to implement carbon taxes is to use the revenues to reduce harmful corporate and personal taxes (I’ve since added land-transfer taxes to the original list). This includes removing anti-competitive levies while also providing support for low-income households to cope with higher electricity, heating and transportation costs.

However, what was unveiled Tuesday by the federal Liberal government in its carbon-pricing plan fails to achieve what I would have argued to be an ideal carbon policy. What is being advertised as a climate plan for provinces that fail to follow Ottawa’s carbon-tax directives — currently New Brunswick, Ontario, Manitoba and Saskatchewan, but they’ll likely be joined by others — instead comes across as a grand redistribution scheme administered by an expanding government bureaucracy.

While the federal carbon tax is almost uniform (electricity is not yet included), it provides special exemptions for certain sectors such as farmers, fishers, aviation, power producers in the North and greenhouse operators, although not the ones growing recreational cannabis.

But the departure from uniformity is marginal and not nearly as concerning as the Trudeau government’s continuing commitment to existing and even new regulations and subsidies to promote “clean energy,” each with their implicit carbon price. While economists repeatedly argue for a carbon tax precisely because it means we can forgo these high-cost interventions, somehow that has all been lost. While plenty of the economists behind the carbon-tax lobby were cheering Prime Minister Justin Trudeau’s new plan yesterday, I somehow missed their demands that we now must eliminate clean fuel and renewable electricity standards, subsidies for electric vehicles and ethanol — all of which have carbon costs well in excess of the $50-a-tonne carbon tax planned for 2022.

Another failure of the federal plan is to pass on carbon taxes in the form of Justin Bucks — or, to use the more laborious official name for these tax rebates: Climate Action Incentive Payments. So, rather than include carbon taxation as part of a comprehensive tax reform to make the tax system simpler, less distorting and fair, these Justin Bucks will be paid to households, small businesses, municipalities, universities, colleges, hospitals, non-profit and Indigenous populations.

A fatal flaw in federal pricing plan is a major shift in taxes from individuals to businesses. The average per household rebate — $1,161 in Saskatchewan in 2022 for example — is more than the cost per household of $946 (not including GST or HST on any energy bills). Even though the document states that business taxes are fully shifted forward to households, something is amiss here. How can household rebates average more than costs?

October 25, 2018

It’s not a “bribe” … it’s an “incentive”!

Filed under: Cancon, Economics, Environment, Government, Politics — Tags: , , , , , — Nicholas @ 05:00

Terence Corcoran explains why the federal government’s promised “incentive” isn’t in any way, shape, or form any kind of bribe:

Step right up, ladies and gentlemen. Welcome aboard the all-new Canadian Cynical Circular Carbon Circus, the amazing Liberal climate control spectacle that will send you on a great environmental ride into the future.

Come on in! We will pay you to not consume fossil fuels — as individuals and as industries. It’s an economic revolution that takes us beyond blockchain and cryptocurrencies and cannabis into a brave new universe in which money goes round and round and everybody wins. We will pay Canadians with their own money — more than $20 billion over five years in carbon taxes that will raise the price of gasoline by 11 cents a litre by 2022, and ever higher thereafter if not sooner. Everybody pays and everybody wins, except for those who don’t. And some people win more than they pay. It’s better than a lottery!

For the people of Ontario, Saskatchewan, Manitoba and New Brunswick, the federal carbon circus cash comes via a new “Climate Action Incentive Payment.” An Ontario family of four will receive $307 for this year, the amount to be claimed on 2018 income tax returns. A Saskatchewan family will get a Climate Action Incentive Payment of $609.

What’s the Climate Action Incentive Payment for? The Liberal plan unveiled by Prime Minister Justin Trudeau and Environment Minister Catherine McKenna Tuesday doesn’t specify. What are taxpayers in the four provinces being incented to do, exactly, with this new wad of free cash? There is only one explanation: Vote Liberal in 2019!

The payments are based on a 2019 carbon price of $20 a tonne, rising to $50 by 2022. As the carbon tax goes up, Ontario families will receive $718 in 2022 and Saskatchewan families $1,459. And there will be more to come, presumably, since the latest doomsday scenario from the UN Intergovernmental Panel on Climate Change — the font of all speculation and data manipulation on climate issues — warned that by 2030 (only 12 years from now) a carbon price of somewhere between $135 to $5,500 per tonne would be needed to keep global warming below 1.5 degrees Celsius.

October 12, 2018

Carbon taxes may be efficient, but let’s not rush into it quite yet…

Filed under: Cancon, Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

Terence Corcoran says we shouldn’t jump at the chance to kill our economy just because carbon taxes are efficient:

It didn’t take long for federal Environment Minister Catherine McKenna to tweet out the news implying that the Nobel committee supported the government of Canada’s carbon-price scheme. The Montreal-based carbon-taxing NGO, the Ecofiscal Commission, hailed Nordhaus for having “demonstrated” that a universal price on carbon was the most “efficient” way to curb climate change.

Before jumping aboard the Nordhaus bandwagon, however, carbon-taxing politicians and all Canadians might want to take a closer look at what they are being led into.

[…]

Nordhaus and his co-winner of this year’s Nobel in economics, former Stanford economist Paul Romer, are great believers in “incentives.” As Romer said in a post-Nobel interview (tweeted by McKenna, naturally): “I believe, and I think Bill (Nordhaus) believes, that if we start encouraging people to find ways to produce lower carbon energy, everybody’s going to be surprised at the progress we’ll make as we go down that path. All we need to do is create some incentives that get people going in that direction, and that we don’t know exactly what solution will come out of it — but we’ll make big progress.”

But why a tax? If all we need to do is deploy the price mechanism, why impose a tax? Let’s ignore for a moment the dubious assumption that the science and economics of climate change are sound and settled. Would it still not be better to have the government set the carbon price, require the energy companies to charge it, but allow the revenue to flow not to government but through to energy companies and their shareholders, and others in the supply chain? That’s where market forces and the above-mentioned miracle price mechanisms — rather than government planners — would determine where to invest and what energy alternatives are best. (No gas retailer could possibly eat the cost of a 90-cent-per-litre carbon tax, so they’d have no choice but to pass at least most of it along to the customer).

One of the ironies of carbon taxation is the enthusiasm for “market mechanisms” and “prices” among politicians who otherwise abhor and resist market pricing of everything from roads to health care to rental housing to public transit to education to broadcasting and telecom and the internet and the price of cannabis, not to mention the Canadian price of milk and chickens. With carbon, market pricing is suddenly a great idea, no matter how fanciful the analyses and speculative the projections.

September 26, 2018

Reforming Union Pacific

Filed under: Business, Economics, Railways, USA — Tags: , , , — Nicholas @ 03:00

Fred Frailey explains why the vast Union Pacific system is due for some serious economic streamlining:

Union Pacific locomotive 5587, a General Electric AC4400CW-CTE (AC44CWCTE)
Photo by Terry Cantrell via Wikimedia Commons.

Union Pacific is the ideal lab rat for Precision Scheduled Railroading, practiced by the late Hunter Harrison on four Class I railroads, with great rewards for shareholders and mixed results for customers. UP, which will begin recasting itself October 1, is ideal for the role because it has too many employees, too many unproductive route miles, and too many expensive toys. Plus, it is less interested in increasing market share than in maximizing freight rates, which makes right-sizing the railroad easier. Let’s start by running the numbers.

Employees. At the peak of the last railroad cycle in 2006, Union Pacific had already been lapped by its western competitor, BNSF Railway, in both cars originated and revenue ton miles. Since then, through 2017, UP’s originations and revenue ton miles both fell 17 percent, while BNSF RTMs actually set a record in 2017. Yet at 44,146 employees last year, UP’s employee count was still 7 percent higher than that of BNSF. To put this another way, for UP’s productivity per employee (revenue ton miles per worker) to equal its competitor’s, it would need to slice the headcount by 16,000. A place to start might be headquarters in Omaha. UP counted 3,678 executives, officials and staff assistants in 2017 versus BNSF’s 1,511.

Barren route miles. Salina, Kan., to Provo, Utah, is becoming a traffic wasteland. That didn’t stop UP from laying welded rail and concrete ties and from covering the almost 1,000 miles with centralized traffic control. Meanwhile, one train a day (plus Amtrak) operates In Missouri between St. Louis and Poplar Bluff, Ark. And the railroad has effectively ceased freight service between Watsonville Junction and San Luis Obispo, Calif., and is close to doing so over the rest of the Coast Line to Los Angeles. All of these routes and perhaps many others you can identify contribute little revenue but buckets of costs, inflating the operating ratio (which is the percentage of revenues eaten up by operating costs). They would constitute Hunter Harrison’s first target.

Map of the Union Pacific Railroad as of 2008, with trackage rights in purple (the special Chicago-Kansas City intermodal trackage rights are lighter).
Image via Wikimedia Commons.

[…]

Moreover, there are aspects to PSR as practiced by Hunter Harrison that customers won’t like. At the core of Precision Scheduled Railroading is intense use of assets: Run as many trains every day one direction as you do the other, fill them to maximum designed length and operate them at similar speeds. This isn’t how the commercial world works, and the Hunter Harrison way to make customers ship seven days a week was to discount rates on slow days and slap on surcharges on busy days. This keeps your crews and equipment fleet in motion at all times, and those cars and locomotives not continually used can be retired. Goodbye to growth and increased market share, which is a messy process requiring you to accede to the needs of customers rather than the other way around. But it is efficient.

However, if Union Pacific is serious about serving its customers better and delivering individual cars rather than trains to their destinations on schedule, I have an idea that I guarantee will achieve that result: Base salaried bonuses and stock grants on UP’s success in getting cars to customers on the right day and time and on the right train. UP has scheduled individual cars for decades, but there have never been monetary consequences for achieving those plans. People do follow the money. And when Union Pacific does for customers what it says it will do, calling the process Precision Scheduled Railroading or whatever you wish, I will be leading the applause.

September 25, 2018

QotD: The Laffer Curve

Filed under: Britain, Economics, Government, Quotations — Tags: , , — Nicholas @ 01:00

Around a certain sort of leftist mention of the Laffer Curve just brings a derisive snort. The sadness of that reaction being that it’s just an obvious mathematical truth. Tax rates of 0 % and 100 % bring in no revenue. Somewhere in between maximises the moolah. Note what isn’t being said, that all tax cuts always pay for themselves, nor even that lower tax rates are necessarily a good thing. Only that there’s some optimal level with regard to revenue collection.

All the arguments about the optimal level of government are over in the Wagner Curve and such others.

The Laffer Curve is also made up of two components, the income and substitution. Some people will work just to make their nut. Observational studies have shown that many taxi drivers do. So, increase their tax rates and they’ll work more. The substitution effect is, well, what’s that net wage worth to me? What’s the value of not working? When going fishing is worth more than working then people will go fishing. The curve as a whole is the interplay of these two effects.

Each tax in each society has its own such curve. A transactions tax of 0.01% can reduce revenue collection, as the EU’s study of a financial transactions tax shows us. Taxes upon income of 20% are below that Laffer Curve peak.

But where, exactly, is that peak for taxes upon income? The best study we’ve got, Saez and Diamond, says between 54% and 80% dependent upon other structures in the tax system. The Tory part of the UK Treasury says around 40 to 45% for income tax, plus national insurance, so at the bottom end of that S&D range. Many lefties want to say it’s higher so we can tax “the rich” more.

Tim Worstall, “How Lovely To Spot The Laffer Curve In The Wild – Doctors’ Pensions Edition”, Continental Telegraph, 2018-09-05.

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