Quit Digging

There is an old adage that when you are in a ditch, quit digging.  EPA with the help of corn state representatives dug a ditch when they created the ethanol mandate, the  renewable fuel standard and then created renewable identification numbers-RINs—as a mechanism to track compliance with  blending requirements.

RINs worked to the advantage of companies with blending capabilities but created a big disadvantage for independent refiners that had to buy RINs—blending credits.  In addition, traders found a way, as they always do, to turn RINs into a commodity that they could buy and sell and hence turn a profit.

Recently, the largest independent refiner on the east coast declared bankruptcy because of  the high cost of RINs.  According to the Wall Street Journal, Philadelphia Energy Solutions, has spent over $800 million purchasing RIN credits since 2012. That is more than the pay and benefits for its 692 workers.  Spending money to purchase credits certifying that a company has blended ethanol with its gasoline is shear insanity.  Ethanol has no environmental benefits, it can be corrosive to engine parts, lower gas mileage, it can’t be shipped by pipeline, and it raises food prices.  There is only one reason for the renewable fuel standard, to transfer wealth from motorists to corn growers and ethanol manufacturers.

Having distorted the gasoline market with a requirement that has no benefits, EPA now plans to make the situation worse by either setting a cap on the price of RINs or allowing independent refiners to purchase credits directly from the federal government.  We experienced price controls in the 1970s and they proved to be an economic disaster.  Markets set prices through the interactions of a large number of buyers and sellers.  This process conveys information on supply and demand.  To think that the federal government can duplicate that discovery process to determine the price of RINs is wooden headed folly.  There are only two things that are certain with the approach being considered.  A system that has no value beyond enriching the favored will become ever more complicated and traders will figure out how to game the system to continue making money from it.

EPA has made the ethanol hole bigger over time and should simply stop digging by beginning the process of withdrawing the useless renewable fuel standard.  In the meantime, EPA can simply give away RINs. Refiners report production to DOE, so gallons of gasoline produced would have to match assigned RIN credits.  A similar process could be used for imported gasoline.

The Three Stooges of Trade

Groucho Marx once observed that politicians look for problems, find them everywhere, misdiagnose them, and apply the wrong solutions.  That insight perfectly fits the wrongheaded trade policy developed by Wilbur Ross, Peter Navarro, and President Trump.  On reflection, equating this three to the three stooges does Moe, Larry, and Curly a disservice.   The level of economic ignorance being shown by the President’s action is breathtaking, especially since Peter Navarro was trained in economics.  He must be like. Paul Krugman who has locked his training away is favor of ideology.

Economists disagree about many things but on the subject of tariffs they are virtually unanimous.  They are bad.  In 2002, President George W. Bush imposed steel tariffs and it cost the economy 200,000 jobs and $30 billion.  Navarro-Ross could become the Smoot-Hawley of 2018 if a trade war follows. The EU has already developed a list of US products that will be hit with retaliatory tariffs.

Someone should tell the President that every dollar that goes overseas as a result of the purchase of a foreign good works its way back here through investments or purchases of US products.  The trade relationships that develop in our interconnected world work towards stronger relations among nations which helps preserve peace.

At the time of Smoot-Hawley, over 1000 economists wrote a letter in opposition.  In part it said, “We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. By raising prices they would encourage concerns with higher costs to undertake production, thus compelling the consumer to subsidize waste and inefficiency in industry. At the same time they would force him to pay higher rates of profit to established firms which enjoyed lower production costs. A higher level of protection, such as is contemplated by both the House and Senate bills, would therefore raise the cost of living and injure the great majority of our citizens.  … We would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. The United States was ably represented at the World Economic Conference which was held under the auspices of the League of Nations in 1927. This conference adopted a resolution announcing that “the time has come to put an end to the increase in tariffs and move in the opposite direction.” The higher duties proposed in our pending legislation violate the spirit of this agreement and plainly invite other nations to compete with us in raising further barriers to trade. A tariff war does not furnish good.  That is just as true today as it was in 1930.

 The national security argument is more of a hobgoblin than a legitimate justification.  If some country wants to sell us products at a discount, why should we refuse?

 Business leaders have spoken out against the tariffs and Congress has made noises about legislative action.  Both should act decisively.  It is said that you get a mule’s attention with a 2X4.  The political analog might get the President’s.



Thinking About Gun Violence

Every time that there is a mass shooting, there is a short lived debate about what to do.  Unfortunately, it soon dies out, in part because those who want action are not as well organized as gun rights advocates, set unrealistic objectives –prevention versus reducing the incidence, and the debate is too polarized.

Certainly, everyone would like to find a way to prevent mass shootings within the context of the Constitution but the problem is too complex for that objective to be achieved.  But that does not mean that such killings and others cannot be reduced.  So, the focus should be on a combination of policies and actions that will make mass killings and others less likely.  What is needed is a serious discussion about guns and gun violence that is based on fact and desire to find common ground.

Florida has the Baker Act which provides to involuntary confinement for mental evaluation.  Local authorities and the FBI had information that could have led to Cruz being confined under that law but the system failed, especially at the local level.  In the case of the Las Vegas shootings, it is not clear that there was enough prior information that could have led to an intervention.    In addition to states having robust gun violence restraining ordnances, there needs to be better public education on behaviors that justify reporting.  For 20 years, Congress has prohibited the CDC from conducting research on gun violence behaviors.  That prohibition has no justification for not investing in knowledge.

Peer reviewed research—Grant Duwe, Michael Rocaque– has shown that individuals with major mental disorders (those that substantially interfere with life activities) are more likely to commit violent acts, especially if they abuse drugs. When we focus more narrowly on mass public shootings — an extreme and, fortunately, rare form of violence — we see a relatively high rate of mental illness.

 The NRA is a major obstacle.  The national headquarters has brainwashed its members that any restraints are the slippery slope to confiscation.  Some members have been quoted as saying owning AR-15 type assault rifles is their god given right under the Constitution.  Anyone who believes that doesn’t understand the Constitution and is possessed by a dangerous thought process.  In writing for the majority in the Heller v DC case, Justice Scalia wrote, “Like most rights, the right secured by the Second Amendment is not unlimited…”. It is “…not a right to keep and carry any weapon whatsoever in any manner whatsoever and for whatever purpose.”  Limiting guns to those used for self defense, hunting, and target shooting is a good start but not sufficient to reduce senseless shootings.  A serious discussion would involve asking why anyone really needs a weapons of war?  Most people do not know that it is still legal to buy pre 1986 machine guns, flame throwers, and Miniguns ( similar to Gatling guns?

However, the licensing requirements are very strict. The process under the National Firearms Act is costly, invasive, and time-consuming. Federal law requires extensive background checks of anyone wishing to own a NFA item such as a machine gun. To purchase a machine gun today, it would take close to a year for the more extensive background check, including submitting fingerprints and a photo.  At a minimum, it would make sense to have the same requirements for AR weapons.

Between 1994 and 2004, there was a ban on assault rifles and high capacity magazines.  Analyses of the ban lead to mixed results because of limited data.  Australia took a series of actions in 1996 that included a ban, new licensing requirements and a buy back program.  In the 18 year period since those actions were taken, mass shootings dropped from 13 to zero.  It is worth analyzing the Australian program to see what aspects apply here.

The goal should be to make it harder for bad guys to get guns & ammunition without unreasonably restraining the ability for good people to have access to firearms for protection, hunting, and sport shooting.   In economics if you raise the cost of something, you get less of it.   Using a more robust background check and licensing system would raise the cost but not make it prohibitive.

The best way to have a real national discussion would be to set up a National Commission to examine the full range of issues involving gun violence leading to  a set of recommendations