Unintended Consequences

From the WSJ:

This story begins with Congress's 2005 highway bill. It included a subsidy to encourage businesses to power their motor vehicles with "alternative fuels" such as ethanol, rather than fossil fuels such as diesel. Congress said businesses could receive a 50-cent tax credit for every gallon of gasoline if they used a blend of a traditional fossil fuel and an alternative fuel.
Then in 2007, Congress extended this largesse beyond highway vehicles to a wider range of alternative fuel users. Enter "black liquor," a carbon-rich substance the paper industry has used for decades to power its mills. It also qualifies as an alternative fuel. All the paper industry had to do was blend some fossil fuel in with their alternative fuel and -- voila! -- billions of dollars in federal subsidies were within reach. So they did.

Once again we have a clear example of the law of unintended consequences; Politicians attempting to “do something” about climate change end up creating a conflict of interest and a mess.

And the rumba line just gets a little longer

Now commercial real estate developers are asking the government for financial assistance. The line for a taxpayer handout just keeps getting longer, folks. As predicted, a bad precedent was set when the Feds decided to bailout Wall Street.

Thomas Sowell - On Diversity

HT: Liberty Pen

Herbert Hoover and the New Deal

Thomas DiLorenzo, Phd. in Economics at Loyola, lectures on Herbert Hoover and the myth that free-market capitalism was the cause of the Great Depression.

HT: Liberty Pen

Social Security Disability--Your Tax Dollars at Work

You just wait till Democrats start fattening up all of those entitlement programs they are so fond of in order to garner votes.

HT: Liberty Pen

Unintended consequences in lithium batteries

The electric-hybrid cars with lithium batteries that we are constantly told should be built and marketed to the public come with an environmental and social cost. Not only is lithium a finite resource, but the people of the communities in Bolivia where the world's largest reserves of lithium lie have great reservations of mining the resource due to environmental concerns and also simple resistance to having, as they say, industrialized countries exploit them for the lithium. In this case it seems that as the Western world tries to move away from oil, in some respects due to the hostility of the nations that have the largest reserves and due to climate change, it also falls into the same sort of trap it desperately wishes to leave behind. It's not easy being green.

Please, take all of our money and bailout big business

Hey, guess what? There's a line forming for bailout cash! Wow! What a surprise! We can thank our political elite for driving this whole scam. But hey, it had to be done or else the global economy and our economy would have crashed to smithereens. Right?

Here's one of my favorite quotes from AP News:

The bailout is now the hottest lobbying game in town.

Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.

The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.

These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.

The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.

Lobbying efforts are intensifying.

Health care shouldn't be linked to employment

Jeff Jacoby writes succinctly on why healthcare should not depend on being employed; He explains McCain's $5,000 refundable tax credit better than McCain has during his entire campaign--which says a lot about McCain's inability to communicate his platform effectively. In essence, much of the problems we have with our healthcare system stems from the federal government tweaking the tax code to favor one group over another. The result over the last 60 years has been a lesson in unintended consequences.

Hayek at Bodega Bay

I was away with family for four days just this weekend. We rented a home near Bodega Bay in California; the weather was lousy except for the very first day. The beach was chilly and we had fog most of the time. We still had a great time all in all. During quiet times, I managed to re-read some chapters of F.A. Hayek’s The Road to Serfdom. I came across this paragraph and I felt that it is as relevant today as it was back in the 1940’s:

Economic liberalism [Free-market capitalism] is opposed, however, to competition’s being supplanted by inferior methods of coordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority.

It seems that the events of the last several months have moved us away from freer markets and to more government oversight and planning. How long before we see the “unintended consequences” of these actions?

Advice on Charity

I found an interesting article by Sudhir Venkatesh on charity in the New York Times. An excerpt:

I told the three people who came to me for advice that, in my opinion, prospective donors had two traits working against them.

First, they confused charity with commerce: that is, they uncritically applied the language of outcome-oriented investment to efforts to change human behavior in social settings. Humans, alas, don’t operate neatly according to market logic, though incentives can shift behavior.

Second, donors seem reluctant to talk about their own self interest. Instead of admitting their personal desires, they speak of selfless charity. Of course, donors can do whatever they want with their money, but this attitude doesn’t help them grow.

Speculators = Vampires!

Some of the theories that have been bandied about regarding oil prices and speculators have reached new levels of dogma. The little poisonous gem that I happened upon was a piece that I found (via The Liberal Journal) on the Counterpunch website titled “Gas Price Gouging,” by Mike Whitney. Here’s an excerpt:

This is not about shortages or scarcity; it's about gaming the system to fatten the bottom line. The whole scam is being executed by the same carpetbagging scoundrels who engineered the subprime fiasco; the investment bankers. The Wall Street Goliaths are using the futures market to recapitalize their flagging balance sheets after sustaining huge losses in the mortgage-backed securities boondoggle. That's the whole thing in a nutshell. Now they're on to their next swindle; distorting the futures market with gargantuan leveraged bets on food and oil.

Yes, it’s the carpet-bagging investment bankers. And don’t forget the Illuminati and the Free Masons. They have a hand in everything. Here’s another zinger:

In fact, oil is being deliberately kept off the market to keep prices high. Consider this: if supply isn't keeping up with demand then why aren't there any lines at the gas stations like there were during the '70s?

Somebody needs to tell this fellow that the reason that there was rationing of gasoline and long lines to gas stations (that would then run out of gas) was due to the implementation of price controls by President Nixon. Once wholesale prices for gasoline rose beyond what a retailer could afford to buy (they had to make some profit to pay employees, taxes, utility bills, etc), gas stations ran out of gas. This meant that there was less refined gas to go around. Somehow, Mr. Whitney believes that the lack of rationing and long lines is proof that there is plenty of gas and that prices are being manipulated. The fact that prices are allowed to rise and that it is in effect a signal of the healthy elasticity of the market - there are no long lines - is proof that the mechanism of supply and demand is working as it should. Mr. Whitney does not understand basic economics.

While the futures market is a convenient scapegoat, it is simply a price discovery mechanism. Here’s one example of how the futures market works nicely: One of the reasons that Southwest Airlines has been able to be successful in recent years, while other airlines are faltering, is due to its prescient ability to lock in lower fuel prices with the futures market: It acts as a hedge against volatility and inflation. The futures market is not without risk. If a company bets incorrectly, they could lose money. It isn’t the perfectly gamed system that Mr. Whitney and others believe it is.

Note that many commodities have spiked in price over the last couple of years. It isn’t just oil. Does that mean that corn, wheat, copper, and fertilizer are being manipulated by speculators too? Should congress make laws to meddle in the trading of those commodities as well? The rise in oil is occurring globally, not just in the U.S. Attempting to stifle speculators in U.S. financial markets will do nothing to the global price of oil.

So, what’s the answer? Why has oil jumped to its record highs? The primary answers are the weak dollar and good old supply and demand, folks. I know that this is not as sexy and as attractive as a conspiracy theory. But there it is. If the Fed ever decides to fight inflation and strengthen the dollar, commodity prices would fall like a rock. It’s as simple as that. Alan Reynolds of the Cato Institute explains it best:

There is no mystery behind the rise in oil prices. They rose too high too fast because of booming demand for oil for petrochemical products, electric power and shipping from many emerging economies (particularly China, India and the Middle East). Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria and Russia.

Now, I’m not saying that the futures and options markets have absolutely no effect on the global price of petroleum. All I’m saying is that its effect is greatly exaggerated for political reasons.

When Congress returns from vacation expect more heated rhetoric on this issue; there are currently at least ten bills submitted by Democrats attempting to address “speculation.” I blame congress for legitimizing the arguments put forth by bloggers like Mr. Whitney: No quarter is given to facts or to the unintended consequences that may follow bad legislation.

Secret Report: bio-fuel caused food crises

Environmentalist groups pushed the idea of bio-fuels for decades and now that it has been implemented and turned into a global food crisis, you hardly hear a peep from any of them. This Guardian article relating to an unreleased World Bank report claims that bio-fuels have caused food prices to increase by 75%. While I do believe that bio-fuels have some responsibility for higher food prices, I think the 75% figure sounds rather high. In any case, it looks like the report makes U.S. policy to be less than desirable.

But here is my thought on all of this: Now that the world knows, and our government knows, that corn ethanol production is expensive and causes food shortages, how long will it take our federal government to correct this problem?

Compact Fluorescent Bulbs are forced upon us

The Bobo Files has an interesting post on congress’ recent passing of a bill that will ban incandescent light bulbs completely by 2014.

Mexico imposes price controls on food

I guess Mexican president Felipe Calderon has taken a cue from Venezuela’s Hugo Chavez and has decided to ruin his country’s food supply. How long before we start to read about shortages in some of the 150 foods targeted for price control? Well, at least this hapless experiment is set to lapse after six months:

Food manufacturers promised Mexico's government to freeze prices on more than 150 food products Wednesday to help families cope with rising costs.

President Felipe Calderon announced that prices for goods such as cooking oil, flour, canned tuna, fruit juices, coffee, ketchup and canned tomatoes will remain fixed until Dec. 31. (Read More)

Rich actor’s pocket taxpayer funds

In another example of the “unintended consequences” of trying to subsidize industry in order to create jobs and a viable economy:

When [Massachusetts] Governor Deval Patrick signed legislation a year ago to expand state tax subsidies for the film industry, he predicted it would help lure new movies to Massachusetts and pump millions of dollars into the economy.

But a new government study suggests much of the money will go to high-paid Hollywood actors, raising questions about the value of the incentives. (Read More)