Libertarian Perspectives

A Blog By Kurt Johnson

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.
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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.

Farmers are doing okay.

The front page headline of the Des Moines Register on October 210, 2017 read: “Hoping To Break Even”  The sub-heading read, “Iowa farmers are facing their fourth year of possible losses as they head into this year’s harvest season”.  (See link below.)

The story mostly about the worries of some farmers.  It painted a picture of farmers on the brink of bankruptcy for reasons that were out of their control.The Register reported, “For a good number of farmers, it will be a fourth year of losses.”

I  don’t doubt that a “good number” of farmers will lose money, but it may be due to their own fault rather than factors that are out of their control… just like businesses in many other industries.  There was one telling fact that contradicted the mostly emotional report: “Since 2013 Iowa farm income has dropped from $5.72 billion to $2.6 billion in 2016…”  That fact  makes it pretty clear that a lot of farmers are still making a substantial profit, and are not losing money.

Farmers are working very hard to make sure that they don’t lose their federal subsidies, even though they have more wealth and higher incomes than most U.S. citizens.  When the current Farm Bill expires in 2018, we need to sharply reduce farm welfare subsidies.

Link to Register article: https://www.desmoinesregister.com/story/money/agriculture/2017/10/20/iowa-farmers-face-fourth-year-possible-losses-heading-into-harvest/775626001/

 

EpiPens and Government Cheese – article from Reason Magazine

The November issue of Reason magazine included the article below by Katherine Mangu-Ward.  I think it is an excellent example of how our government can screw things ups, no matter how good the intentions.

 

EpiPens and Government Cheese

Some things won’t change no matter who wins the 2016 election.

At the end of August, the U.S. Department of Agriculture bought 11 million pounds of cheese—that’s a cheese cube for every man, woman, and child in America—in order to bail out the nation’s feckless cheesemongers.

Secretary of Agriculture Tom Vilsack touted the aid package, worth $20 million, as a win-win: “This commodity purchase is part of a robust, comprehensive safety net that will help reduce a cheese surplus that is at a 30-year high while, at the same time, moving a high-protein food to the tables of those most in need.” (Most of the federal government’s new stockpile will go to food banks.)

This bailout of Big Cheese came on top of an $11.2 million infusion earlier in the month to dairy farmers enrolled in a 2014 federal financial aid scheme. The deal comes after months of lobbying by the National Farmers Union, the American Farm Bureau, and the National Milk Producers Federation, who were too antsy to wait for their next big cash cow to come ambling in with the farm bill.

The same week, Sen. Chuck Grassley (R–Iowa) wrote a letter to the pharmaceutical company Mylan, demanding an explanation for why EpiPens, the epinephrine auto-injectors that severely allergic people carry in case of an emergency, have quadrupled in price since 2007. Grassley cited constituents paying $500 to fill their prescriptions.

Hillary Clinton issued a statement about the price increases as well: “Since there is no apparent justification in this case, I am calling on Mylan to immediately reduce the price of EpiPens.” Donald Trump used the occasion to score points, tweeting out a story about hundreds of thousands of dollars in donations to the Clinton Foundation from the disgraced company. Sen. Amy Klobuchar (D–Minn.) echoed Clinton’s sentiment in a letter to the Federal Trade Commission: Lamenting that “antitrust laws do not prohibit price gouging,” she asked the regulatory body to look into whether Mylan has used “unreasonable restraints of trade” to keep prices high.

The summer’s cheese bailout and EpiPen price scandal are ideological Rorschach blots.Where one observer sees only the evils of the profit motive, another looks at the same fact pattern and sees the perils of an overweening regulatory state.

Vox sided solidly with the profit shamers, declaring: “We are the only developed nation that lets drugmakers set their own prices, maximizing profits the same way sellers of chairs, mugs, shoes, or any other manufactured goods would.” But pseudonymous blogger Scott Alexander of Slate Star Codex responded with a tidy reverse Voxsplanation: The cronyist Food and Drug Administration (FDA) and other government forces have squelched nearly every effort to compete with Mylan’s EpiPens, distorting the market beyond recognition via a process he chronicles in painful detail.

Mylan acquired the EpiPen from Merck in 2007, by which time the product was already 25 years old, which means the question of paying back research costs was moot. In 2009, Teva Pharmaceuticals tried to enter the market—and Mylan sued. Teva managed to get its product to the FDA anyway, only to be told that it had “certain major deficiencies,” unspecified. In 2010, Sandoz Inc. tried its luck and got bogged down in the courts, where the case still dwells. In 2011, the French drug company Sanofi made a bid to gain approval for a generic, which was delayed for years because the FDA didn’t like the proposed brand name. Which brings us to this year, when Adamis decided to sell plain old pre-filled epinephrine syringes directly to patients without the fancy injector. Cue an FDA recall, on the rather vague basis that insufficient study had been done on standard administration of a drug whose medical properties have been known since the turn of the last century.

And sometimes the tangled, dysfunctional relationship between big business and big government gets even more personal. The CEO of Mylan, Heather Bresch, is the daughter of U.S. Sen. Joe Manchin (D–W. Va.), which probably makes things awkward in the Senate cafeteria. But Manchin has joined his colleagues in saying that he is “concerned about the high prices of prescription drugs,” which probably makes things awkward at Thanksgiving. Then again, Mylan spends over a million dollars a year lobbying, which likely goes a long way toward smoothing things over.

In 2014 Congress passed the School Access to Emergency Epinephrine Act, which Grassley mentions in his letter. The law, he writes, “provides an incentive to states to boost the stockpile of epinephrine at schools.” It was co-sponsored by Klobuchar, the same senator who now wants to sic the antitrust dogs on Mylan. That law was a top lobbying priority for Mylan that year, along with new rules that reduced competition for generics.

Grassley also notes that the taxpayers are picking up the tab for kids who are getting EpiPens while on Medicaid or the state-level Children’s Health Insurance Program, and he adds that some 47 states require or encourage schools and other public institutions to stock EpiPens. In other words, Congress created a huge new class of price-insensitive EpiPen customers and now wonders why the price has gone up.

Meanwhile, the prescription laws still require you to get a special piece of paper from a doctor every single time you want to buy an EpiPen. If the doctor writes a brand name on that paper, it’s illegal for the pharmacist to give you a cheaper generic.

The story of the government cheese is just as convoluted. It’s easy to be lulled by Vilsack’s sell: Helping farmers and the hungry? Sounds great! But you know what else helps move a glut of cheese off the shelves and into the hands of poor people, without requiring taxpayer dollars? Lowering the price.

That’s something the industry isn’t willing to do, and—given all the pricing rules and production quotas that have been distorting dairy markets since the 1930s—mostly can’t do. With Americans eating a record 34 pounds of cheese a year, the problem isn’t an unexpected drop in demand.The problem is a failure to allow the laws of supply and demand to function at all.

Eleven million pounds of cheese may seem like small potatoes (to mix culinary metaphors), and it is in the larger scheme of federal spending and meddling. What’s another $20 million when the debt is already $20 trillion, after all? But our typically cheerful acceptance of central control of compressed curds and injectable epinephrine shows how widespread and insidious such conditions are in our lives.

What would real free market reforms look like, and how would they come about? In this issue, you’ll read what Libertarian Party nominees Gary Johnson and Bill Weld would do in the (very unlikely) event that they won the presidency and vice presidency (page 30). Reason TV’s Jim Epstein reports on the millennial libertarian activists in Brazil who brought down a corrupt populist president (page 50). And in Detroit, an American city where public services are essentially nonexistent, we detail how residents are building DIY alternatives (page 65).

In the meantime, there is no reason to think either the tale of the EpiPens or the saga of the cheese would play out any differently under President Trump or President Clinton. Taxpayer-funded sops to farmers are as bipartisan as it gets, and there is precisely zero chance that a president from either major party would discontinue the practice. Likewise, the iron grip of the FDA on the drug approval process—and the opportunities to purchase influence in that powerful bureaucracy—will not diminish one iota, regardless of which major-party candidate becomes America’s Big Cheese in January.

Farmers are not special, and shouldn’t be given special preferential treatment.

The Des Moines Register recently recently ran an editorial advising us to not buy into the idea that Iowa farmers “feed the world”.  As the Register documented, “Only half of one percent of U.S. agricultural exports went to a group of 19 undernourished countries that includes Haiti, Yemen and Ethiopia.”  Some farmers and their supporters have a vested  interest in making sure that fellow citizens hold them in a special position because they produce the food we eat.  They perpetuate that meme in order to get special treatment by our government, for example by not having to either stop or pay for polluting our waters,  and by receiving a 60% subsidy on their crop/revenue insurance premiums, among many others.

Every week, most of us buy food from all over the world at our local grocery stores. It may be wonderful to be able to buy local fresh food, but it is not a necessity. International voluntary free trade is what has allowed us, and much of the rest of the world, to avoid starvation when local producers fail for any reason.  Farmers should be given no more credit than other producers of all kinds of products. As Adam Smith wrote in 1776 in his book, The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Link to Register editorial:  http://www.desmoinesregister.com/story/opinion/editorials/2016/10/09/editorial-dont-expect-iowa-farmers-feed-world/91735242/

Repeal Iowa Constitutional amendment – dont’ pay farmers rent to not pollute.

Governor Brandstad said he is open to increasing the sales tax to improve water quality in Iowa. (Des Moines Register, 5/3/2016, “Branstad open to sales tax for water quality” – link below) Specifically, he wants to implement the Natural Resources and Outdoor Recreations Trust Fund. Under the Iowa Constitutional amendment passed in 2010, the next three-eights of a penny increase in the sales tax must go to the Trust Fund. He suggested offsetting the tax increase by a decrease in the income tax – to make the change revenue neutral.
We all want clean water and nice recreation opportunities. But, what I don’t want is to pay farmers rent to not pollute. It appears that up to 50% of the tax collected could go to farmers to entice them to not pollute. The Constitutional amendment was a mistake. People want clean water and good recreational opportunities, but the way the Consitutional amendment was structured was a mistake. I think most Iowans voted their emotions, but would really not agree with the structure of the amendment.  We need to repeal this amendment.

Why do taxpayers pay for bird flu?

According to a report in the Des Moines Register today, 10/26/2015, the last bird flu outbreak cost taxpayers $1 billion.  (See link below.)   The payments to chicken and egg producers included the cost of the birds that were destroyed, the cleanup, and “indemnity payments” to cover their losses.
I understand that we citizens, through our government, need to prohibit diseased meat from entering our food supply.  I don’t understand why producers are not insured against such a foreseeable risk.  If we have a law that prohibits diseased meat from being sold, and if we do not provide producers with a taxpayer paid bailout, then producers will do one (or more) of three things:  they will reduce their own risk by splitting large flocks into smaller, geographically separated flocks; they will buy insurance to cover the risk; or they will take the financial risk of loss upon themselves.
To the extent that taxpayers bail out producers, they will not take the necessary steps to manage and reduce their own risks.  We need to give notice to producers that they will not be bailed out in the future.
Link to Register article: http://www.desmoinesregister.com/story/money/agriculture/2015/10/25/bird-flu-when-return/74334080/