The Misguided March for Science

Although the Earth Day March for Science was billed to emphasize that “science upholds the the common good and to call for evidence-based policy in the public’s best interest,” it was nothing more than a reaction to the Trump Administration’s agenda and comments by the President that have been interpreted as hostility to science.  The only difference between the President’s remarks and the actions of the Obama Administration is that he has been blunt, even if misguided and ill-informed, where the Obama Administration wrapped its abuse of science in politically correct language.

Obama’s war on Climate Change was cloaked in science but was nothing more than a war against fossil fuels, especially coal.  EPA used science much as a drunk uses a lamp post—for support and not illumination.  Its Clean Power Plant regulation claimed benefits that were preposterous on their face.  The claim that reductions in air pollutants would reduce the incidence of asthma and premature deaths was accepted without challenge by many of those involved in the March for Science.  If they really wanted science based public policy, they would have challenged the basis for those claims by pointing out that the incidence of asthma has been increasing even though air quality kept improving and that the estimates of premature deaths avoided implied epidemiological precision of greater than 99%.  There is no scientific basis, beyond political science, that can justify those claims.

EPA’s abuse of science has been going on for a long time and has been accepted by many in the scientific community because it advanced the agenda of environmentalist elites who use science as a tool to increase the political power of government to promote their policy preferences. How else can you explain black box modeling and the one hit, linear dose response approach to toxic impacts?

Here are a few examples.

In evaluating the health effects of air pollutants and carcinogens, EPA takes the most conservative approach possible by assuming that there is no safe exposure and that dose response is linear.  Professor Judith Curry of Georgia Tech described one example this way: “ … EPA decided that there is no safe level of ambient PM 2.5 – however near to zero — at which risk of ‘early” death ceases. Statisticians call this analytic approach a “no threshold linear regression to zero analytic model.” …   This methodology … contradicts a foundational principle of toxicology, that it’s the dose that makes the poison. …”

In 2014, a former EPA scientist wrote Confessions of a Computer Modeler.  The example he used was his development of a large model to assess sewer treatment and drinking water quality.  As the regulations became more stringent, his analysis concluded that the agency “had hit the point of diminishing returns.”  EPA didn’t want to hear that.  He was told to rework the analysis and “sharpen my pencil”.  That kept happening until he asked his supervisor what result he was looking for?  In the end, he concluded “my work for the EPA wasn’t that of a scientist, at least in the popular imagination of what a scientist does.  It was more like that of a lawyer.  My job, as a modeler, was to build the best case for my client’s position.”

The agency draws on scientists to conduct research and participate on its advisory panels.  But, many of these groups end up reviewing the work of their members.  This has been shown to represent a clear conflict of interest.  Group Think virtually guarantees that these groups will pursue enlightened  self interest by being collegial and agreeing with each other’s research.

Past attempts to mandate transparency and data quality have not brought an end to EPA mischief.  And, it is the prospect that Congress will be more vigorous and vigilant going forward that rattled some of the organizers of the recent march.  If the marchers are serious about promoting “evidence-based policy” they will coalesce around accepted principles of science and complete transparency.  A good place to start would be support for the Reference Manual on Scientific Evidence and the rules set out by the Supreme Court in its 1993 opinion in Daubert v. Merrell Dow. 

 

Is Tax Reform Like the Horizon?

Since the inauguration there has been a steady drumbeat that tax reform was going to happen quickly but like the horizon it recedes as we approach it.  The Treasury Secretary promised that tax reform would take place by August but just two days ago admitted that date was unlikely.  The more action is delayed the more it begins to look like the Administration and Congress face stiff opposition in accomplishing one of the most important actions that would be a positive jolt to the economy.

In 1986, the Reagan tax reform was not easy for a popular president.  It took two years to achieve and during that period of time the process moved in fits and starts.  The President, his advisors and members of Congress would do well to read the history of the Reagan accomplishment:  Showdown at Gucci Gulch by Jeffrey Birnbaum and Alan Murray.

The longer a tax reform initiative is delayed the harder it will be to accomplish since democrats will see delay as a means to regain control of the House next year.  What could be better than running against a do-nothing Congress and an unpopular president?

Comprehensive tax reform will bring out special interests who will like reform as long as they can protect their favored provisions. And, that may be enough to stall the process this year.  So, what is the alternative?

How about doing tax reform in stages with each stage being able to garner bi-partisan support while minimizing special interest opposition.

Today’s New York Times contained an opinion piece by Steve Forbes, Arthur Laffer, Larry Kudlow, and Stephan Moore that made a very sensible suggestion that could get the reform ball rolling.  It proposed three actions: reduce the corporate tax rate from the world’s highest at 35% to 15%; immediate expensing of capital purchases; set a low rate on repatriating the $2 trillion that is held offshore.  To help win democrat support, the writers suggest using the money from the repatriation tax for infrastructure investment—roads, bridges, the electric grid, broad band access, and airports.  That means union jobs a favorite of democrats.

To really generate strong support, there is one additional action that would please most taxpayers while only alienating accountants and accounting firms.  That action would be to follow the precedent of Japan and the Netherlands and let the IRS prepare “pre-filled forms”.  Since the IRS already collects all of our financial information through wage statements and 1099s, it could send tax payers a pre-prepared form that they could check, sign, and submit.  That is how it is done in Japan and the Netherlands.  And, in Japan the tax form is a post card.

If the architects of comprehensive tax reform are serious about getting something done this year, they would do well to adopt of the philosophy of the icon Vince Lombardi—do a few things but do them very well.  Streamlining the tax code represents the battle of interests and like the 1986 will not happen quickly.

Hand Wringing or Serious Threat?

New Jersey Senator Robert Menendez is expressing concern that the potential purchase of Citgo assets from Venezuela by Russia’s Rosneft could represent “threats posed to our national security, economy and energy independence.”   Currently, Rosneft, a Russian owned oil company, holds 49.9% ownership in Citgo as security for a loan made last year to Venezuela.  Menendez and several other members of Congress have written to the Treasury Secretary expressing concern about the prospect of Rosneft gaining control of Citgo.

Given Russia’s meddling in last year’s election and what could involve broader use of cyber warfare to be politically disruptive, a higher level of concern is justifiable.  Instead of jumping into the competition for news coverage, it would be more reassuring if those members of Congress first gathered facts and analyzed them.

Citgo has had a substantial presence in the US for decades.  Its gasoline is sold through about 6,500 independent outlets in 28 US states and Citgo Petroleum owns oil refineries in Illinois, Louisiana, and Texas.  While that would represent a substantial Russian investment and footprint in the US, it would not be the only one.  Since 2000, Lukoil, one of the 20 largest oil companies in the world, has been selling petroleum products in 11 east coast states and the District of Columbia.

While adding Citgo to its US portfolio would allow Russia to engage in serious disruptive mischief, the question is would it?  Probably not.  Putin and his oligarch cronies, who have enriched themselves by plundering Russia’s resources, have moved their wealth overseas to protect it and see it grow.  Putting a large investment such as Citgo at risk would not be in their self interest.  Any action to disrupt our energy market could be countered in a number of ways and not just including freezing their assets.

Oil is fungible, so any effort to manipulate the flow to Citgo refineries could be offset after initial disruption. When refineries go down, except in California, others move quickly to make up the shortfall. Any action that constrained product sales would just expand competitors market opportunities  without a long term effect on price.  That is how competitive markets work.

Foreign investment can contribute to a more productive relationship between the US and Russia, which is sorely needed.

Congressional due diligence is appropriate; ill informed fear mongering isn’t.

 

 

Irrational Exuberance

That is the phrase made famous by Alan Greenspan in describing the dot com bubble of the late 1990s.  Today, it could be applied to the investment bubble in Tesla.  The Wall Street Journal reported that Tesla has surpassed Ford Motors in terms of investor value even though it sales are 1% of Fords and Tesla’s earning per share and net income have been negative since it came into being. Since there are no signs of it earning a profit anytime soon, especially if government subsidies are taken away, investors, except the shrewd ones, are displaying irrational exhuberance.

The LA Times ran an article on Elon Musk two years ago and made the point that Tesla wouldn’t be around without the $4.9 billion in government subsidies.  Musk has raised crony capitalism to an art form and has perfected the Bootlegger and Baptist scheme for getting very rich by becoming an environmental icon.

Without continued taxpayer funding, Tesla would have gone bankrupt as Solyndra and A123 systems did.  As the LA Times pointed out, the Model S, which is the wealthy’s symbol of environmental political correctness, “sells for more than $100,000, but that is literally tens of thousands of dollars less than it costs to manufacture and sell.”

The Times went on to say, “Every time a Tesla is sold, we witness a transfer of wealth to a rich hobbyist (most Teslas are their owners’ third or fourth car), while average Americans are on the hook for at least $30,000 in federal and state subsidies. Tesla is more a regulatory arbitrageur than an auto manufacturer.”

In addition, to the $7500 federal tax credit, a number of states provide credits or rebates to Tesla buyers.  Not surprising, the most outrageous is California which created a zero emission mandate requiring an arbitrary number of “zero-emission” vehicles to be sold each year. Tesla’s Model S earns four emission credits per unit sold which it then sells to other manufacturers for $20,000 with the cost borne by California taxpayers.  A few years ago, Tesla received over $129 million in these credits but still lost $61 million in its manufacturing and sales.  Clearly you can’t go broke as long as you are spending someone else’s money.

The image of a zero emission, high mileage vehicle that is affordable for most is almost every driver’s dream.  And, Tesla is promising a new lower cost Model-3 in the near future–$35,000.  Investors must be betting on economies of scale lowering cost enough, including battery costs, to make the Model-3 really affordable with a range greater than 200 miles between charges.  Absent a battery technology breakthrough, which doesn’t appear likely any time soon, lithium ion batteries and their costs will limit Tesla’s range and the potential loss of subsidies limit Tesla’s future.  Ford has the brighter future.

Early investors who sell before reality strikes will make a killing, leaving cult investors who bet on a dream holding the proverbial bag.  Tesla stock is likely to be our generation’s version of Holland’s Tulip Mania in the 1830s.