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Letter to VA Senators on Health-Care Bill

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I sent the below letter to my new VA Senators yesterday to urge them to withdrawal their support from the bloated and obscured bill that will likely be up for vote tomorrow afternoon. Merry Christmas Virginian’s, your state senator’s cast a vote to show that they have done something for the reason that something needs to be done, not becuase its right and the change will be beneficial. You can read both their statements at their respective websites (Senator Webb) and (Senator Warner).

I am writing to ask you to withdrawal your support for the Senate Health-Care Bill. This bill will soon come to a vote in the state senate and for reasons outlined below I urge you to withdrawal your support.

Deal making is career breaking
No matter how appropriate the majority of a bill is, deal making of the type thrown within this bill will never be accepted by VA citizens. It is utterly inappropriate to support a bill that provides support and monies to other states in the manner that this bill does. It is extremely inappropriate that Senators’ Nelson, Baucus, and Dorgan received last minute deals, among other Senators.

Unknown Costs
There is no reliable study on the exact implications on the costs or savings of this bill. In fact you mention in your support statement that it will, “reduce the deficit by more than three-quarters of a trillion dollars over the next 20 years.” Whereas your colleague Senator Webb states, “will lower the federal budget deficit by $133 billion over the next ten years, and by more than $1 trillion over the decade following.” It is insightful that not even a member of your same party elected in your same state can agree on the projected savings.

Reform Yes, but not this type of reform
Your statement also correctly identifies that our current system is not sustainable, “Most importantly, the status quo of our present system, which is damaging our national economy at many levels, is unacceptable.” However, voting for a change because a change is necessary is an extremely weak position. How about voting for change that is right, that correctly fixes the issue (a position I think only a fine minority in your party would state about this bill).

The passing of this bill will affect the ability of democrats to get elected in the next election cycles. Mainly because (1) people don’t like last minute deals (2) people really don’t like to pay for something in year 1 that may or may not save money 20 years in the future (neither young people nor old people) (3) the bill doesn’t actually put in place reform that is favorable.

People are smart, and they are getting smarter, they understand that senators want to show their constituents that they did something that helped, but they are smart enough to analyze if what was done actually helps and prefer to support people who make the right decision not those who just make a decision.

This letter went to Senator Warner whereas a similar letter was sent to Senator Webb.

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Subsidizing Greenhouse Gas Production

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The House of Representatives is planning on voting this week on the week Waxman-Markey cap-and-trade bill. This bill requires entities to hold one allowance for any fuel whose combustion would emit one ton of greenhouse gas. The below image shows the Heritage foundations estimation of the costs of this program.


There has been push back from environmentalist for the lack of stringency of the bill (see this op-ed), whereas conservatives criticize the bill for the negative consequences to the economy and increased costs to households (see this report).

For me it is fairly simple. If we increase the cost of doing business in the U.S., then companies will move to other countries to produce goods and services (internet searches are energy and carbon intensive). This decreases the economic activity in our country while moving carbon intensive industries to countries with no carbon limitations, resulting in the same or even more likely a larger carbon footprint for the world and reduced economic activity in the U.S.

If the goal of the government was to move to a green economy to reduce our carbon footprint than they should stop subsidizing the production of carbon intensive fuels and uses for those fuels.

A cap-and-trade program simply attempts to increase the costs of using carbon based fuels, by requiring an emitting entity to hold an allowance, which costs money (similar to a tax). There is another way to reduce carbon, among others, by increasing the cost of producing carbon based fuels. An interesting aspect of this approach is that the cost of producing carbon based fuels is lower due to government subsidies.

The US government subsidizes the production of carbon based fuels, most notable oil, coal, and natural gas, through numerous programs and incentives.

Here are a couple of methods of subsidizing oil (from GreenPeace article)

Tax Breaks for Domestic Oil Exploration and Production.
Defense of Persian Gulf Oil Supplies.
Provision of the Strategic Petroleum Reserve.
Support for Oil-related Exports and Foreign Production.

Also, the subsidization of royalties (from NY Times article).

In the United States, the federal government’s take — royalties as well as corporate taxes — is about 40 percent of revenue from oil and gas produced on federal property, according to Van Meurs Associates, an industry consulting firm that compares the taxes of all oil-producing countries. By contrast, according to Van Meurs, the worldwide average “government take” is about 60 to 65 percent. And that figure, of course, excludes countries that do not allow any private ownership in oil production.

Last fall, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal — including financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct. Maybe this is why we have some of the lowest royalties in the world. (See NY Times article, and Colorado Independent Article)

So, let’s stop subsidizing the production of carbon based fuels, and do this by first increasing royalties and increasing the transparency and oversight of the Interior Department. Allowing the cost of carbon based fuels to reflect their true market costs will create an incentive for green development, while reducing government intervention and manipulation. Win win situation between the greens and libertarian/conservatives. And increasing government royalties could allow us to pay for all the other government services, so the liberals win as well, albeit to the detriment of the libertarians.

See the End Oil Aid website for further information on ridding our market of harmful oil subsidies.

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Soft Paternalism – Because You Are Dumb

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sheep

I came across a good article on Soft Paternalism on NPR, Using Psychology to Save You from Yourself.

The basic concept of Soft Paternalism, or so its supports claim, is derived from Behavioral Economics, which is,

a school of economic thought greatly influenced by psychological research — which argues that the human animal is hard-wired to make errors when it comes to decision-making, and therefore people need a little “nudge” to make decisions that are in their own best interests. And that is exactly what Obama administration officials plan to do: By taking account of human psychology, they hope to save you from yourself.

The argument against Soft Paternalism is often along the lines of government also being made up of error prone individuals, so that the government should remain out of the business of making decisions for individuals.

“Just understanding that human beings don’t make perfect decisions does not make the case for government by any stretch of the imagination,” Glaeser says. “After all, governments are made up of people, too. They are subject to the same foibles and weakness as the rest of us.”

The retort provided by one of the article’s subjects brings up an example of Soft Paternalism in Britain.

Any American who goes to London realizes that they are endangering their lives every time they try to cross the street, because the traffic comes from the wrong direction. Our instinct is to look left, but if you look left, you’ll get run over by a double-decker bus. To help us, Thaler says, someone in the British government decided to write on the sidewalks of busy intersections filled with American tourists the words “look right.”

The problem I have with this is not that government officials are error prone, although I realize they are error prone (on top of incentives that are not aligned with my well being), but that this type of intervention in individuals lives can lead to a lazy populice, which can become even more error prone.

The reason we are taught to walk across the street safely, is so that we can become independent adults, pursuing what makes us happy in our own way. If we no longer need to be taught to walk across the street, or how to choose a doctor, or what to do with our money, then we are no longer individuals pursuing our own happiness. We are merely mechanisms of a society which has robbed us of our path to empowerment and self fulfillment, the maturity to take responsibility for our actions. I would prefer to live with people who feel responsible for thier own actions and felt empowered and esteemed for being able to do things like, walk across the street.

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US Steelmakers Support Green House Gas Legislation

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carbon-cap-fedderman

I came across the group ‘The Cap Solution‘ through a few different avenues, energy industry related research, at the public library as an advertisement in the front hall, and at the local farmers market on a bulletin board. The Cap Solution is consortium of the Environmental Defense Fund, the Blue/Green Alliance, and the United Steel Workers.

Here’s what they stand for:

The cap solution in a nutshell

Capping carbon pollution encourages the growth of renewable energy and energy-efficient industries. It brings customers to these businesses, which in turn will create good jobs and help revitalize American towns.

They are correct that it will encourage the growth of renewable energy as a GHG cap will increase the costs of traditional generation (e.g., coal and natural gas). I’m not sure if it will create jobs, as that assumes the jobs lost from the coal and natrual gas generation sector will be more than replaced by jobs associated with ‘green energy’. Their logic does fully fall apart with the comment that a GHG cap will, “revitalize American towns.”

Let’s explore this logic a bit further:

New jobs americans can do tomorrow

Take the wind turbine. It’s a machine. Americans are good at machines. A typical wind turbine has 8,000 parts and is made of 250 tons of steel. Somebody’s got to make that steel, fabricate those parts, assemble those parts, deliver the assembled turbine to a wind farm, erect the turbine and manage the wind farm. That’s a lot of jobs right in the American workers’ sweet spot. And this is just one example. A Carbon Cap will create demand for energy efficient windows, LED lighting, ball bearings for turbines and thousands of other products.

So here is where I strongly disagree with their logic. If we implement a GHG cap we increase the price of manufacturing in the US, particularly the cost of manufacturing energy intensive products. Steel is energy intensive. So while we increase the costs of doing business and producing steel and India and China do not increase the costs, they become more competitive in the market and thus will be most likely the producers of the new wind turbines. In fact this article, claims that China will be the biggest producer of wind turbines in 2009. So why, in particular, is the United Steelworkers supporting this legislation. Well as an economist I tend to think of incentives, what is it that the United Steelworkers like, what reward would they possibly seek…protectionism.

This can be seen by the Cap Solution’s simple sentence:

And by starting now, we’ll make sure these products are made here and exported all over the world. Instead of becoming more products we have to import.

In fact the United Steelworkers couldn’t get any trade complaints passed through the Bush administration so their hoping for some traction with Obama (particular since he pledged to increase trade enforcement). They are currently trying to get ‘trade enforcement’ considerations by Obama on imported Chinese tires (see article).

Its unfortunate that the environmental leadership in our country can’t make the connection between increased costs of production and the health of our economy, and how the health of our economy allows us to purchase environmental services (e.g., pollution control and preservation). I also find that most people forget that the reason we get to even consider worrying about GHG is that we have a high standard of living. I fear that our ability to worry about GHG, our high standard of living, will erode as we start to turn our worries into policies. Policies that increase the costs of doing business in the U.S., while not simultaneously increasing the cost of doing business in other countries, putting all of us at a competitive disadvantage.

This group, waiting in line for free food for unemployed, aren’t waiting in line to volunteer for a non-profit, or learn about environmental degradation, they’re unemployed and employment and security definitely come before environmental protection.

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