The battle among the crony capitalists!

I read the report in The Des Moines Register about the questioning of Tom Vilsack by Joni Ernst during the Senate hearings on Vilsack’s nomination for Secretary of Agriculture.  (Vilsack nomination moves to full Senate” 2/3/2021)  President Biden has ordered the development of a plan to convert all federal, state, local and tribal vehicles, including Post Office vehicles, to “clean and zero-emission vehicles.”  Ernst asked Vilsack if he will direct the USDA to buy Tesla trucks that run on electricity or Ford vehicles that run on 85% ethanol.  Vilsack, like a good politician, said it’s not ” an either-or circumstance.”  It will be interesting to see how Vilsack balances the interests of farmers and biofuels producers with the interests of the zero-emissions vehicle and power producers.  One thing is for sure: lobbyists will be in high demand.

Time to start reducing use of government force in transportation fuels.

The forced use of biofuels, euphemistically called the Renewable Fuel standard (RFS), was established in 2005.  Then as now, the RFS requires refiners and importers of transportation fuels to add minimum amounts of ethanol or bio diesel to their fuel, or be subject to fines.  The requirement has grown from 4 billion gallons in 2006 to 15 billion gallons for traditional ethanol for 2019.  Existing legislation requires a completely unrealistic total of 36 billion gallons by 2022, including at least 16 billion gallons from cellulosic biofuels.

The current “rebellion” by Iowa biofuel leaders against the waivers of the FRS requirement that are being granted to small refiners is understandable.  (The waivers allow small refiners to be exempt from adding bio-fuels to their gasoline or diesel.)  All businesses that are dependent on government protection will fight back if they feel their favored status is being threatened.  Biofuels producers and their suppliers (corn farmers), will lobby hard and loud to stop any reduction of the RFS.

Will the subsidies and use of force ever end?  After 13 years of increasing subsidies, we now need to pass laws to start reducing, and over time end, the forced use of ethanol.

Need to wean energy producers off of government support.

There has been a recent outpouring of letters to the editor and paid advertising in The Des Moines Register thanking President Trump for the EPA’s decision to allow E15 (gasoline with 15% ethanol) to be used year round.  Many go on complain about the hardship waivers being granted to small refineries that exempt them from being forced to add ethanol to their gasoline under the Renewal Fuel Standard (RFS).  They say the exemptions are costing corn farmers and ethanol producers billions of dollars and are undermining growth of the ethanol industry.

Since 2006, the RFS has required petroleum refiniries to add more and more ethanol to gasoline.  (For 2019 the requirement is over 19 billion gallons.)  Investment in and growth of the ethanol industry (and related corn purchases) have been greatly dependent on this use of government force.  After 13 years, the industry has billions of dollars invested in over 200 production facilities, revenues of over $16 billion per year.  Any yet, not only can it not wean itself off of government assistance, it continues to press government for more and more support.

Public Choice Theory tells us what to expect when government and special interests create an artificial market using government force.   As investment and revenues reach billions of dollars, vested interests easily justify spending millions of dollars lobbying Congress to make sure the support continues.  At the same time, each taxpayer pays such a relatively small amount that it is very difficult to raise money to lobby in opposition to these government programs.

But we must do what we can, so now is the time to urge Presidential candidates as well as elected representatives to work toward ending government subsidies and special support for all forms of energy.

No need to be energy independent.

In a letter to the Des Moines Register today, 6/24/2015, Jacob Hession advocated for American energy independence and for the renewable energy Production Tax Credit.

We need to be energy independent just like we need to be food independent, clothing independent, pharmaceutical independent, electronics independent… – that is, we don’t need to be independent.

World-wide free market capitalism is a wonderful thing. It gives us a more varied and consistent supply of pretty much everything we need or want. If there is a shortage of anything anywhere around the world, there are people in other parts of the world who will rush to supply what is needed.  Shortages mostly occur where trade is restricted and protected.

Any call for for a certain type of “independence” or “security” is usually cover for special interests who will benefit if we protect them from competition or give them special benefits.

What we really need to do is end special protections and subsidies for all forms of energy.  Free market capitalism has done more to provide for the security and dependability of the supply all types of products than any scheme devised by government.

LInk to Register article: http://www.desmoinesregister.com/story/opinion/readers/2015/06/24/renewable-energy-hession/29196411/

Carbon tax – don’t forget about ethanol and bio-diesel.

In his essay in The Des Moines Sunday Register (10/5/2014), Richard Doak used the example of British Columbia (BC) as a regional government that has gone out on its own and instituted a carbon tax.  He wrote that the carbon tax as been a success.  The revenue neutral tax has allowed BC to reduce personal and corporate income taxes to quite low levels.  He reported that in BC, “Economic growth is slightly better than the rest of Canada…”

He asked, “Why can’t Iowa be like that?”  Throughout the essay, Doak talked about taxing “fossil fuels”.  What he did not talk about was that fact that the BC carbon tax applies to ethanol and bio-diesel, because both contain carbon that is released into the atmosphere when burned.

When all aspects of production are considered, there is still a question about which fule, gasoline or ethanol, puts more carbon into the atmosphere.  At the time of combustion, ethanol puts about one third less carbon into the atmosphere than gasoline.  So, to the extent that there is discussion in Iowa or the U.S. about a carbon tax, the tax on ethanol should  be about two-thirds of the tax on gasoline.  It should not be zero.

Doak also talks about replacing the gasoline tax with a carbon tax to fund road building and maintenance.  He make the point that a tax on coal and natural gas, used to make electricity, will make users of electric cars pay their share for roads.  In almost any scenario of the future, electric cars will use a very small fraction of the total electricity output and will not come close to paying their fair share of road use.  Most of the cost of a carbon tax on coal and natural gas will be paid by households and businesses.  Doak is right that roads should be financed by users, but a carbon tax is not a good solution.

Link to Register article: http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2014/10/04/richard-doax-climate-change/16747421/

The new welfare dependent class – businesses

If seems as if all businesses now require some type of welfare program.  The definition of economic development is grants or loans or special tax breaks given by our government to businesses.  Banks get their welfare indirectly – from loan guarantees from many government programs.  Of course our farmers must be protected from losses by government – through crop insurance subsidies that not only cover natural disasters, but actually protect against price declines.  All types of energy companies receive special tax credits or tax breaks.  The biggest manufacturers in Iowa receive large tax credits for research.  Now, Mediacom and John Deere want a grant of $800,000 from the federal government to help bring high speed internet to farmers who buy high-tech, internet connected tractors that cost hundreds of thousands of dollars.  We should say no!  We need to reverse the trend of expecting taxpayers to fund all types of economic development.  Just as with with individuals and families, welfare for businesses create dependency.  Our economy will continue to grow sluggishly as long as we look to government to manage our economic development.

Wind energy jobs created?

“Iowa has enjoyed tremendous economic benefits by being a leader in both wind power development and wind manufacturing.”  So wrote Mike Prior, Milford, interim executive director, Iowa Wind Energy Association, in a letter to the editor on 2/4/2012, (“Wind energy is important jobs provider”)  He went on to extol the many benefits that Iowans have enjoyed as a result of the funding that taxpayers have provided to those in the industry.  He urged that we, “… continue to invest in Iowa’s future.”

Good economic analysis must consider both what is seen and what is not seen.  We see the jobs.  We see the payments to farmers.  What we don’t see are the other jobs that would have been created if people had been left to spend or invest their own money.  Other jobs would have been created that would not be dependent on government handouts.  Instead, we hear a never-ending story about how we must continue to provide taxpayer support or the investment and jobs will be lost.  This is very typical when government creates new “incentives” and makes “investments” in what should be left to the private sector.

Welfare for wind energy producers is like all other special interest giveaways: the benefits are large and concentrated among the few who who are politically connected, and and costs are relatively small and disbursed among many taxpayers. This is a classic case in public choice theory.  Those who directly benefit have a great incentive to lobby government to continue the subsidies, and those who pay the taxes don’t have a strong incentive to oppose any specific program.

We need legislators who will stand against political favors for special interest factions who press their political power for their own self interest.

Link to Register article:  http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=2014302040081

Ethanol credit speculation – for dummies

Speculators are being blamed for increases in ethanol RIN credits!  Renewable Identification Number (RIN) credits are issued to manufacturers for every gallon of ethanol that they blend into gasoline.  All manufacturers are required to meet targets for blending ethanol into their gasoline – in order to meet national Renewable Fuels Standards.  If they fail to meet their targets, they have to pay substantial penalties.  Some manufacturers exceed their targets so they have excess credits that they are allowed to sell.  Others fail to meet their targets and either have to purchase credits from other manufacturers or pay the penalties.  If, for the entire market, it appears there will be a shortage then the price of the credits will go up.  If it were possible for a few speculators to “corner the market”, then they might be able to hold out for higher prices.  But, the there were truly a shortage, then manufacturers who have excess credits could just as easily do the same.  In either case, this puts pressure on manufacturers to blend more ethanol.  If there is a shortage of ethanol, then the price of ethanol should rise.  If the price of ethanol rises than ethanol producers will try to increase their production to capture more profit.  In any case, the credits are doing what they are supposed to do: reward manufacturers who blend excess gallons and penalize those who blend less than their target.  If the entire market is below the target, then there will be incentives to produce more ethanol.  Speculators help the market to work as it was intended.  The real problem here is the entire Renewable Fuel Standards that uses force, in the form of money penalties, to make everyone use more ethanol than they would in a voluntary market.  This is a classic case of unintended consequences that occurs when people discover, as Friedrich Hayek wrote, “…how little they know about what they imagine they can design.”

Go ahead with Sequestration cuts

Maybe it would be best to let the Sequestration spending cuts to take effect.  It appears that elected politicians are unable to make significant cuts to any specific federal spending items.

If cuts could be prioritized, here would be my short list in order of priority:

• The Medicare eligibility age should be coupled with Social Security and they both should be gradually moved to age 70.  The federal government should not be responsible to pay for 15 – 30 years of retirement for healthy adults.  (see below)
• Freeze the dollar amount of federal spending on Medicaid – block grant the money to the states and let States decide on the priorities.  There will always be more demand than there is supply for free medical care.
• Cut military spending, in actual dollars, by at least 5%.  Let the defense department decide on priorities to give us the best defense that the budget can buy.  We would still have greatest defense on Earth.
• Eliminate the Dept. of Education – leave education to the states entirely.
• Limit farm subsidies to $50,000 per farmer maximum, $100,000 per family maximum.  Phase out all subsidies for farmers who have a Adjusted Gross Income between $100,000 and $200,000.  Require 100% of the cost of crop insurance to be charged to the farmers.  Why do we keep paying subsidies to farmers when they have record profits?  Something is wrong.
• Cut the FEMA budget by 50%, and make States pay a 50% co-insurance payment for all federal money that flows into any State.  States would be much more efficient, and there would be much less abuse and fraud.
• Eliminate subsidies and special tax breaks for all forms of energy.  All energy producers fight to protect their subsidies by claiming that the other forms of energy get subsidies and all they want is a fair playing field.  Well, lets make the playing field very fair – no subsidies for anyone.
• Eliminate spending on arts, and humanities, public broadcasting, etc.  Contributions to these kinds of organizations should be left to charitable organizations.

I’m sure the list would be different and much larger if I took enough additional time.

According to data compiled by the Social Security Administration:

• A man reaching age 65 today can expect to live, on average, until age 83.
• A woman turning age 65 today can expect to live, on average, until age 85.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Global warming and government.

It appears that our Earth is warming more quickly and is likely due, in part, to human action.  Our climate has always changed and will always continue to change.  The key question is: “What is the role of government?”  I don’t think it is to try to stop climate change.  Government has a proper role in regulating pollution of our common environment.  But our air and water have never been perfectly clean.  As our society has become more affluent, we have done much to clean up our environment.  We still have work to do.

Government’s proper role is to help us adapt to the changes.  Increasing the availability and lowering the cost of energy will improve our lives and our health more than government efforts to reduce carbon emissions to try to slow global warming.   Taxing energy not only makes it less affordable, but Increasing the flow of money to Washington also has its own negative consequences.

We will be best able to adapt to climate changes if we are economically prosperous.  People are more prosperous when energy costs are lower.  Energy costs are lower when there is a truly free market in energy.  Government policies that force us to be “energy independent” raise energy costs.  Government should not prohibit free international trade in energy.  We should stop subsidizing all forms of energy – treat them all equally.  Government should regulate incrementally to continue to reduce pollution, but not make major changes that dramatically increase the cost of energy or that increase the flow of money to Washington.