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.

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/

New YMCA pool should not receive federal or state funding assistance

The new downtown Des Moines YMCA should not receive federal funding for its new Olympic size swimming pool.  The Register reported that the Y did not receive the $6 million in federal tax credits it had requested, but that it had reapplied for funding next year under the same program.  I don’t blame the Y, or any of the thousands of similar organizations across the nation, for applying for available grants.  I blame our federal government and elected representatives for creating such spending programs.  Building swimming pools, and other local community projects, is clearly an improper role for our federal government.  There is no authorization for this kind of spending in the Constitution.  Wanting to fund good causes is not sufficient.  (As a longtime member, financial supporter, and twice past board member, I believe in the good cause of the Y.)   Spending proposals that are not authorized under the Constitution must be opposed for that reason alone – no matter how good the cause.  Let’s see if the newly Republican controlled Congress will honor their oath to uphold the Constitution and work to reign in these Constitutionally abusive spending programs.

Export-Import Bank need to end.

 

 

The essay in The Register on 9/15/2014, by Mary Andringa and Jay Timmons in support of reauthorizing the Export-Import Bank (Ex-Im Bank) was well done.  The fact that the Ex-Im Bank returned $1 billion in profits to the U.S. Treasury is very persuasive.  Of course the same thing could be said about the U.S. government getting into about any business.  If our government ran a grocery store or a tractor manufacturing plant, it is very likely that it could make a profit.  But we don’t (or shouldn’t) do things that way in the United States.

In this case, there is good reason to believe that privately owned banks could provide this kind of financing for our manufacturers who want to export their products to other parts of the world.  The manufacturers should be willing to guarantee the debt of their customers if that is what is needed to secure financing for their buyers.  The fact that Ex-Im Bank financing, “is available to any exporter of any size” does not mean that this isn’t an example of crony capitalism.  In this case, the crony capitalists just happen to be a very large group of manufacturers who want the government to guarantee loans for their foreign customers.

We have created a crutch for these businesses.  We need to take away that crutch and move towards free market capitalism.

Link to Register article:  http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2014/09/15/iowa-view-export-import-bank-economic-engine/15650761/

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

5 more years of farm welfare?

It appears that those in charge of reconciling the differences between the House and Senate versions of the Farm Bill will not be doing anything to reduce the obscene amount of welfare going to farmers.  Money “saved” by eliminating direct payments is being shifted towards more subsidies for crop insurance.  Senator Grassley’s effort to place a cap on the total welfare payments received by any one farmer appears to have been watered down at best.  Farmers have higher incomes and greater wealth than most citizens. They should pay the full cost of their crop insurance.  Now, lets hope that either the full House or Senate will vote this bill down.  We don’t need five more years of welfare for rich farmers.

Income inequality is not the problem.

Income inequality is not a problem in and of itself.  As long a people earn their income through honest, peaceful and voluntary exchange, then there is no moral reason for our government to redistribute that wealth.  What is a problem is when government places its thumb on the scale and unfairly helps the rich to get richer, or hurts the poor and makes them poorer.  To the extent that a person gains wealth by unequal preferential treatment by government, it is morally correct for government to use its force to take away that wealth.

One good example of the many unfair government policies that wrongly favor the rich is the special low income tax rate on “carried interest” income earned by hedge fund managers.  They call it carried interest, but it is nothing more than a bonus based on performance.   In any other situation, this type of income is taxed at regular income tax rates. Somehow, hedge fund managers have sold politicians on the idea that carried interest is a special kind of income that should be taxed at lower rates.  Another example is the Oil Depletion Allowance for oil companies.  Another is farm subsidies for rich farmers.  We do not need to raise tax rates on ordinary income, we do need to do away with the unfair preferences, tax breaks, and subsidies that go mostly to the wealthy.

A good example of government policy that hurts poor people is that of keeping interest rates low in order to prop up housing prices.  If housing prices had been allowed to fall to their free market levels, housing would be much more affordable for poor people.  Instead, our government tries to fix the problem that it helped to create (unaffordable housing) by giving rent subsidies to the poor – creating more dependency on government, but not fixing the underlying causes of the problem.

To misquote Walter Scott, “Oh what a tangled web we weave when first we practice to use our government to achieve social goals.”  The solution to many of our economic problems today is to reduce the size and scope of our government.  Many unfair crony capitalist subsidies and tax breaks exist because our government has expanded far beyond its Constitutionally limited powers.  The primary just powers of government are to protect our lives, liberty and property; and to resolve disputes.  The scope and powers of our current federal government are clearly way beyond the limited government that our founding fathers created.  Lets start by closing unfair tax breaks and lowering spending to match.

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.”

Farm Bill changes needed.

The Farm Bill should not pass until the following changes are made:

Separate the food stamp program (the SNAP program) from the rest of the farm bill.  The huge size of the food stamp program dwarfs the farm subsidies and, in effect, hides them.  Farm subsidies need to be exposed to a more open process.  It would also help make the food stamp program more transparent.

Stop subsidizing crop insurance.  Make farmers pay 100% of the cost.  If that raises the price of food, so be it.  If it reduces farmers’ incomes, so be it.  Subsidizing crop insurance is not a proper role for our government.  Today’s federally subsidized crop insurance not only covers losses due to unforeseen disasters, it also covers drops in revenues!   If farmers had to pay the full price for their coverage, they might prefer higher deductibles and lower levels of coverage.  But to add insult to injury,many farmer who receive subsidies are also very wealthy.  There is no good reason why wealthy farmers should be subsidized, even for crop insurance.  If our goal is to help poor farmers, then surely the subsidy should be phased out as a farmer’s wealth and income increase.

Establish a maximum amount of subsidy that can be received by any individual or commonly owned group of farms under all farm subsidy programs combined.  Again, we shouldn’t be subsidizing big farmers or farm organizations.

Don’t place tariffs on imports unless the country of origin first places tariffs on our exports to that country.  Free trade is beneficial to all.  It is voluntary!  It requires no intervention by government other than to resolve disputes.  Free people should not be forced exchange or be prevented from voluntarily exchanging with another party.  Amazingly, under the current Farm Bill, we pay Brazilian cotton farmers almost $150 million per year as compensation for the damage done to them by the subsidies we provide to our U.S. cotton farmers!  Is that not insane trade policy?

Separate the “rural development” programs from farm subsidies.  Again, the tens to hundreds of millions of dollars spent in this area are hidden within the much larger primary subsidy programs.  It is questionable whether or not rural economic development is even a proper  role of government.  In any event, consideration of spending for rural economic development should not be mixed with farm subsidies.

Tie environmental practices to any subsidies granted.  We shouldn’t expect perfectly clean water in our lakes and rivers.  Wild animals have defecated in them forever.  But, it reasonable to expect farmers to not fowl the water down stream from them, and to pay for damages when they can be reasonably determined.  The idea of requiring minimum buffer strips between farms and rivers and lakes is reasonable.