Mark Warner is economically illiterate, and dangerous

I was looking forward to firing up the Warnerese-English translator for Mark’s recent statement on energy, until I realized he may actually mean what he says.  It just goes to show you, just because a guy can make millions via insider trading on cell-phone licenses (Riley) doesn’t mean he actually knows how an economy works (Washington Times):

Make no mistake about it: what has happened over the past few months has not been the result of the market. Actually, driving demand in the United States and consumption have fallen and we’ve seen record increases in the price of gas.

Why yes, Mark, the price has risen and demand has fallen here in the United States, but that did not mean demand has fallen worldwide.  We can’t simply control the price of oil by fiat here.

So why would I simply analyze something so ridiculous without breaking out the translator?  The answer is his audience - “a group of technology investors” - in other words, folks that Warner likes to think are “his people,” as opposed to the mountain folks he’s managed to hoodwink into voting for him all these years.  He’s not likely to go into Warnerese with that crowd.

In other words, Warner really doesn’t understand how international markets work.  He thinks the United States can just close itself off from the rest of the world.

Even worse, he sees millions of ordinary investors and mutual fund managers looking for long-term gains in the commodities markets as ”predatory speculators.”  The last time I heard that kind of talk was when the market destroyed Great Britain’s attempt to join the pre-euro Exchange Rate Mechanism at a badly overvalued currency rate.  The Tory government (led by John Major) had the same hysterical reaction to “speculators.”  Voters knew better, and the Conservative Party hasn’t been elected to power since.

So what would Warner do?  Take a look at this nonsense:

Quicker relief, he said, would result from federal action against speculators who have made billions by inflating crude oil prices on overseas markets, from aggressively using U.S. trade leverage to pressure oil cartel nations to increase production, and from “enforcement action” against nations and corporations that collude to drive up oil prices.

In other words: locking up every individual investor who decides to put their money in oil or oil companies, repeatedly begging Saudi Arabia to increase production, and retaliatory trade tariffs that could spread the fuel inflation to every sector of the economy and bring back the Smoot-Hawley Great Depression of old.

Again - and I can’t emphasize this enough - Warner really believes this stuff.  That’s why he cannot be elected Senator.  Nonsense like this is merely a hop, skip, and a jump away from Maurice Hinchey’s demand to ”nationalize” oil production.

I only wish I had paid more attention to this when it first came out three days ago.  Mark Warner is no longer just a shifty politician who plays fast and loose with the truth.  The man is actually dangerous.

Cross-posted to Bloggers 4 JimGilmore

McCain didn’t flip-flop on oil drilling; Florida did

The Democrats have become so desperate to divert the issue from their refusal to support offshore oil drilling that they are now claiming John McCain flipped on the issue.  Sadly, most on the right have become so enamored with considering McCain a lefty that they’re swallowing the myth whole.

The fact is, McCain has always supported the same policy on offshore drilling: let the individual states decide.  McCain’s policy never changed; the implications of it changed dramatically.

As late as ten days ago, McCain’s policy appeared similar to an offshore ban.  Irwin Stelzer (Weekly Standard) put it thusly on June 9:

. . . Obama wants to maintain the ban on drilling off-shore, and by leaving it to the governors of those states, McCain effectively favors the same ban.

The reason the policies seemed similar was the widespread assumption that no coastal state would support offshore oil drilling - including the biggest of all swing states: Florida.  The Sunshine State’s opposition to drilling seemed particularly etched in stone (Politico, emphasis added):

A veteran of Florida politics who is not tied to Crist says the gas price-driven poll numbers justify the drilling flip-flop (justify in the political sense, that is):

“[After many years working in the state], I would have told you that it was the single issue that would never, ever, ever change. Ev-uh,” says the source.

Then, the people of Florida affirmed Steyn’s Law (”something always happens until it doesn’t”).  Or, as the source cited by Politico puts it:

But “somewhere between $3.00 and $4.00, the [poll] number literally flipped upside down.”

Translation: oil drilling is now OK (politically) in Florida, meaning McCain’s difference with Obama is an actual difference.

Of course, all of this is merely a distraction from the larger point. McCain is at least willing to expand America’s domestic energy supply (and not just in fossil fuels, he called for a doubling of America’s nuclear capacity - Bloomberg); whereas Obama has presented nothing but flowery words and populist rhetoric.

House Dem calls for socialism in oil market

Damn.  Riley beat me to it.

I can’t say I’m surprised by this. And if we get President Barry Obama, you can look forward to more such boneheaded moves.

House Democrats responded to President’s Bush’s call for Congress to lift the moratorium on offshore drilling. This was at an on-camera press conference fed back live.

Among other things, the Democrats called for the government to own refineries so it could better control the flow of the oil supply.

. . .

Rep. Maurice Hinchey (D-NY), member of the House Appropriations Committee and one of the most-ardent opponents of off-shore drilling

. . .

“We (the government) should own the refineries. Then we can control how much gets out into the market.”

Oh, yes. By all means, let’s have the government try to straighten out this mess. That would be the same government that hasn’t allowed a new oil refinery to be built in 30 years thereby restricting our capacity to get gasoline and home heating oil to market. We can have all the oil we need, but if it we don’t have the capability of refining it all, it is as good as useless.

Actually, it’s worse than that.  Hinchey is dumb enough to believe that ownership of the refineries means “we can control how much gets out into the market.”  That’s insane.  Refinery ownership will not increase the oil supply one iota.  All it will do replace the profit motive with political favoritism in determining how to operate the refineries.  We all know how that goes (and they’re finding out once more in Latin America - more on that later).

Still, if Hinchey had any economic intelligence, he wouldn’t be a New York Democrat.

The sky refuses to fall (Part II)

Wall Street braced for the next statistical storm this morning (the job numbers), and ended up happy and dry (Market Watch):

The U.S. labor market was not as weak as expected in April, the government said Friday. The economy lost 20,000 nonfarm payroll jobs last month, according to a survey of business establishments, much less than the 81,000 lost in March and way below the 78,000 decline expected by economists surveyed by MarketWatch (RWL Note: in the household survey, the number of people actually employed rose more the 350,000 - Department of Labor) . The unemployment rate inched down to 5.0% in April from 5.1% in March. Economists were expecting the unemployment rate to tick up to 5.2%.

So not only were job “losses” far less than expected (and, if you use the household survey, actually healthy gain, but the unemployment rate actually fell.  Once again, the American economy, while certianly bruised, has refused to go down.

In defense of the gas tax holiday

You can always trust an economist to hate a popular idea.

In this case, its the gas tax holiday first proposed by John McCain - and then embraced by Senator Clinton.  Perhaps it was the latter’s shameless opportunism that has scared so many right-wingers off, but just about everybody “in the know” has a reaction similar to Doug over at Below the Beltway:

Apparently, the Republican National Committee has decided to sign on to John McCain and Hillary Clinton’s stupid, and in the end pointless, idea to suspend the Federal Gas Tax during the summer.

. . .

There isn’t a lot that I agree with Barack Obama on in terms of policy, but in this one he is absolutely 100% correct. Suspending the Federal gas tax will do nothing to address the “problem” of higher gasoline prices in the long term, and it is unlikely to have any real impact at the pump for the majority of consumers.

The fact that he supported such a suspension as an Illinois Legislator and now opposes it as a Presidential candidate is, in my book, a point in his favor. Unlike the other two Presidential candidates, he isn’t pandering to the public by putting forward an idea that sounds good when you first hear it but, in reality, accomplishes nothing.

Now, I will acknowledge I do not have a doctorate in Economics - just a Master’s; also, I do not teach Economics at a University - just a Community College.  Still, I’d like to think I have some expertise I can bring to this discussion, and while the arguments of Doug et al sound very sensible - especially as it rejects the populist impulse - they are also very, very wrong.

Gasoline, like everything else, is a good that follows the laws of supply and demand, but those laws mean different things to different goods.  In some cases, consumers demand for a good will fall steeply as the price rises; we call those goods elastic goods.  Other goods, however, will see hardly any change in demand despite price fluctuation; these goods are called - wait for it - inelastic.

Taxes on elastic goods an have a dramatic effect on demand if the sellers (who have to collect the tax and send it to the governments who levy them) try to pass the tax cost onto consumers in higher prices.  Thus, the sellers usually raise the price of elastic goods more gingerly (if at all) and end up eating the tax cost.  Inelastic goods are another matter; since demand is unlikely to change much, sellers can more easily pass the tax cost on in higher prices.

So which one is gasoline?  Well, according to a recent analysis by Jonathan Hughes, Christopher Knittel, and Dan Sperling (all professors in the University of California system), gas is a very inelastic good, meaning it is consumers, not sellers, who are actually paying the gas tax.  Thus, a suspension of the gas tax would indeed lead to lower prices at the pump.

The question next becomes: what will consumers do with the money?  Will they spend it - thus adding to short-run GDP?  Or will they save it, adding to the pool of investment money (or reducing the debt pressure on same) and leading to a long-term increase in economic capacity?  As one would expect, the answer is some of both, meaning a marginal gain in GDP now and potential GDP later.  Given the knife’s edge on which the economy currently sits, every little bit will help.

But what of the lost revenue to the federal government?  Well, that question depends on how well one thinks Congress is doing with the taxpayer’s money, especially on transportation (which is where gas-tax money goes).  Putting aside that this is, well, Congress, there is also the more pertinent question of how effective a gas tax really is as a user fee.  Keep in mind, Washington gets the money whether you drive on the Interstate System or not, thus you end up paying for roads you don’t use.

Unfortunately, most right-wingers have been led astray by (of all people) Adam Smith, who considered roads one of the few things deserving of government funds.  Transportation has been considered “good spending” by conservatives ever since, despite the massive differentiation of street uses (interstates, primary roads, secondary roads, and subdivision streets) that clearly put into question the idea that governments should maintain every square inch of asphalt.

In the final analysis, the question devolves to this: is it better for the government to spend this money or for the people to spend it?  To ask this question is to answer it.

Are there better ways to reduce the tax burden?  Of course there are, but McCain is already supporting many of them, including cutting the corporate tax rate and ending the Alternative Minimum Tax.

With luck, the gas tax suspension will force people to think about better ways to pay for roads (perhaps shifting in part from use-based to value-based, from federal funding to more localized funding, and/or from taxes to tolls).  Even without such desperately needed soul searching, it will provide a quick boost to the economy when it is needed the most - at a cost of less than half the earmark total from last year (Toronto Star and the Heritage Foundation).

Just remember: Hillary Clinton supporting something doesn’t make it wrong.

This is an abomination

Did you know the Pentagon (and everyone else in government) can’t use Albertan oil?

It’s true (Arab News, via The Corner):

In an interesting tussle, a virtually unnoticed clause was added almost at the least moment to a US energy bill that bars the government, in particular the Department of Defense, from using Alberta crude because it is deemed unconventional and too dirty.

A provision in the US Carbon Neutral Government Act incorporated into the Energy Independence and Security Act of 2007 act effectively bars the US government from buying fuels that have greater life-cycle emissions than fuels produced from conventional petroleum sources.

The United States has defined Alberta oilsands as unconventional because the bitumen mined from the ground requires upgrading and refining as opposed to the traditional crude pumped from oil wells.

California Democrat Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform and Republican Tom Davis added the clause.  

Keep in mind, Alberta not only has a tremendous amount of oil, it is also the most pro-American province in Canada.  I would argue that Albertans are, by and large, more pro-American than half the blue states in this country.

So I can see Henry Waxman trying to sabotage our friends in Canada, but what is the Emperor of Northern Virginia’s game here?  One resource analyst has a theory (same links):

Some analysts, however, are claiming that the clause was added after some political maneuvering by Saudi Arabia as it is “increasingly threatened” by Canada’s growing market share of oil production.

Strategic resource analyst Paul Michael Wihbey recalling the November OPEC summit, said it was then that for the first time Saudi Oil Minister Ali Al-Naimi “took a swipe at the oilsands.” He claimed the minister then said “Canada is one of the world’s costliest oil producers and requires high prices to remain viable.”

. . .

“They’re playing hardball … then all of a sudden this legislation pops in, literally a month after these statements were made in November,” noted Wihbey.

Now, we can’t say for certain if the Saudis had a hand in this (and Arab News certainly is skeptical), but it’s almost beside the point.  This is a slap in the face to our neighbor, friend, and ally, and especially galling given just who within Canada (pro-American Alberta) is taking the punch.

The sky is refusing to fall

The new numbers for Gross Domestic Product (econ-speak for “the economy”) are out, and it turns out the recession that supposedly descended upon us over the last six months actually didn’t happen (Associated Press via Yahoo, h/t Shaun Kenney):

The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down.

The country’s economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday.

In other words, the last six months, which numerous economists believed would show a recession, showed no such thing (sidenote-primer: a recession is defined as two consecutive quarters of GDP-shrinkage.  Each quarter’s statistics are released a month after the quarter ends, as the Jan-March state were today, and then revised three months later, as the Oct-Dec 2007 stats were).

More intriguingly, despite the Fed’s numerous interest rate cuts and surging prices in oil, gas, and food, inflation actually fell this quarter compared to last quarter.  I didn’t see that one coming at all.

What with the tax rebates, the Feds’ actions taking further hold (especially if it keeps the ARM rates low at reset time), the economic picture could look much better over the course of this year than previously expected - and we all know what that could mean come November.

Another deadly export from Communist China (and how it shows there is no free market there)

Remember the Communist export scare?  Well, it’s back, and then some.

Here’s the opening paragraph of the Washington Post jaw-dropper:

Food and Drug Administration officials said yesterday they have new evidence that links hundreds of serious adverse reactions and scores of deaths among patients given the blood thinner heparin to a man-made contaminant introduced during production in China.

The contaminant in questions was over-sulfated chondroitin, and the Communists’ attempt to spin themselves clean was refuted before this even went to print (said refutation is in the story).

Now, most who read this space (and its neighbor, the China e-Lobby) know full well my views on Communist China.  Ironically, many free-traders will take an opposing view, in part because they don’t really know what’s going on over there.

Communist China is not a free market.  Free markets allow for complete labor mobility (one needs a permit to between provinces or enter cities in Communist China), free labor association (independent labor unions are banned by the CCP), and a thriving private sector divorced from the government (the CCP leadership “privately” owns nearly everything that the state does not own outright).

Contrary to conventional wisdom, this has a lot to do with product safety.  In a society like Communist China, where the regime is still deeply entwined with the economy, the normal regulatory structure is no match for the one constant of all socialist/fascist economies - corruption.  In Communist China, not only is said corruption widespread, but it has also become an unofficial part of the regime’s recruitment efforts: there is no more effective license to steal in Communist China than a Party Card.

History has shown us, over and over again, that the best way to ensure quality products and ethical conduct is and has always been the reputation mechanism that comes with free markets.  More to the point, in socialist/ fascist economics, that reputation mechanism is destroyed by the regime itself - almost alwys deliberately.  Maintaining the goodwill of the customers is replaced as a priority by maintaining the goodwill of the regime - customers be damned.

Incidents like this make clear that the Communist Chinese economy is nowhere near the free market that they and their Western apologists claim it is.  The argument many make on Communist China - that economic freedom can lead to political freedom - is moot, because in Communist China economic freedom does not exist. 

The regime’s horrible product record, its brutal treatment of the Chinese, Tibetan, and Turkestani peoples, and its support for anti-American terrorists don’t deserve the false fig leaf of “reform.”  The CCP is an enemy to the American nation, the Chinese people, and everyone else on the planet; it is time to treat it as such.

The Audacity of Hype - forget the economy or tax revenue; just punish rich people

“They’re going to raise your taxes by thousands of dollars a year and they have the audacity to hope you don’t mind” - John McCain on his two opponents: Barack Obama and Hillary Clinton

Obama himself was confronted with that quote and this set of recent historical evidence on the capital gains tax from Charles Gibson (ABC - emphasis in text added):

GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.

But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

Obama’s answer starts with pure, unadulterated class envy (same link, emphasis added):

Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.

And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair  . . .

Then he veers off into his typical boilerplate that ignores the actual question and contradicts history:

and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.

And you can’t do that for free.

It’s as if he felt his flowery words could reverse the numbers.  Hiking the capital gains tax rate loses revenue, it doesn’t generate it.  If he really was interested in bringing the revenue in (which for the Democrats is usually a given), he would want to cut the capital gains tax rate.

For the Audacity of Hype, however, the American economy - and even increasing government revenue - is not as important as punishing Americans who worked hard and made intelligent investments with their earnings, all in the name of “fairness.”

I know I’m a little weird in the blogosphere, as I treat taxes the way most other folks treat abortion, religion, and gun rights, but this is really a no-brainer here.  Each and every capital-gains tax reduction has led to economic growth (and, for those who like it, revenue growth), while the 1986 capital-gains tax hike hit the stock and real-estate markets like a ton of bricks (it took the latter nearly a decade to recover, and by then it took the savings and loan industry down with it).

None of that is relevant to the Audacity of Hype.  That should be enough all by itself to keep him out of the White House.

Marshall takes aim at the biofuel nonsense

I must confess that I have something against “biofuels,” particularly ethanol.  It swallows up more engery to produce than it provides (more than 1.25 BTU to produce 1 BTU worth - Slate).  Thus, its horrendously inefficient, and thus relies on massive government intervention just to be competitive - thus diverting American corn from feeding the world by government fiat.

Case in point: the utterly ridiculous biofuels mandate, which requires that the nation’s fuel use includes an ever increasing biofuel portion.  In Virginia, that’s 9 billion gallons of ethanol, which wipes out 234.9 billion pounds of corn.  Naturally, the price of corn and anything else that requires it (i.e., nearly foodstuff animal raised on the farm, plus milk and eggs) have gone through the roof - and no one seems to notice the government’s hand in literally pushing Americans closer to starvation.

Well, almost no one.  Bob Marshall took aim at the nonsense today (emphasis added):

Del. Bob Marshall is urging Gov. Tim Kaine to petition the federal Environmental Protection Agency for a temporary biofuels waiver in order to cut rising food prices for Virginians, reduce pollution of the Chesapeake Bay, save state budget funds, and help Virginia’s farm and watermen families.

Marshall (R., Manassas), in a letter e-mailed to the governor today (April  9), said “the inflationary federal biofuels mandate,” which requires that 9 billion gallons of ethanol and other biofuels be substituted this year for other types of fuel in Virginia, “has created a food-versus-fuel conflict in our economy.”

Kaine, Marshall wrote in his letter, has authority under the federal 2005 Energy Policy Act and the 2007 Energy Independence and Security Act to seek such a temporary waiver if maintaining the  biofuels mandate would “severely harm the economy or environment of a state, a region or the United States.”

“Inflationary prices of food are directly traceable to the diversion of corn from food and feed to fuel, and they affect milk, cheese, other dairy products, beef, cereal, bread and even candy prices,” Marshall, who is seeking the 2008 Republican nomination for the U.S. Senate, wrote.

“The U.S. Bureau of Labor Statistics reports that food prices are at their highest level since 1990, and has doubled the average of the past 10 years.  Milk and eggs have logged double-digit increases in late 2007 and early 2008, with higher prices forecast.”

. . .

Corn and soybean prices have peaked more than double their historic average, Marshall pointed out, and are projected to increase even higher.  High feed costs are “decimating Virginia’s agricultural base of broilers, turkeys, eggs and dairy and beef cattle,” which he wrote “is an important economic engine in many parts of the state, including the Shenandoah Valley.”

This is exactly the sort of special interest government intervention that must be stopped.  This was one of the reasons I came so quickly to support John McCain (who was willing to campaign against ethanol subsidies - in Iowa).  Even though Virginia is hardly the corn-dependent state that Iowa is, it takes a lot of guts to stand up to Archer Daniels Midland and “Big Corn.”  Kudos to Marshall for doing just that.

Cross-posted to Bloggers 4 Bob Marshall