Archives: May, 2009

Does Congress Know Media Markets Better Than Media Markets Do?

No. But some members of Congress think they do.

In the section of Tim Lee’s “Durable Internet” paper titled Customers Gone Wild: Why Ownership Doesn’t Mean Control, he showed how powerful online consumers are. They can surely decide whether media markets are forming up contrary to their interests, and they can punish providers who get on the wrong side of their demands.

New at Cato

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  • In USA Today, Jerry Taylor argues that Obama’s plan to require new  vehicles sold in 2016 to get an average of 39 miles per gallon or better is likely to result in all cost no benefit.
  • In The American Spectator, Doug Bandow says that while it is important for the U.S. to encourage dialogue with Muslim nations, we must not shy away from serious discussions about religious persecution.
  • Randal O’Toole argues in USA Today that Obama’s plan for high-speed rail will cost taxpayers billions of dollars and do little to reduce traffic congestion or improve the environment.
  • In The Washington Examiner, Gene Healy discusses why President Obama’s approach to terrorism is virtually identical to Bush/Cheney’s.
  • In today’s Cato Daily Podcast, James Bartholomew argues that the welfare state in Britain has resulted in a generation of badly educated citizens and has undermined its original intent.

IRS Commissioner: Obama Used False Numbers to Attack Low-Tax Jurisdictions

During the campaign, President Obama asserted that tax havens “cost” the Treasury $100 billion per year (see, for instance, 8:07 of this video), echoing the assertions made by demagogues such as Michigan’s Democratic Senator, Carl Levin. Many gullible journalists proceeded to disseminate this number, even though I repeatedly warned that it was a blatant fabrication. Indeed, it was the first falsehood that I punctured in my video entitled, Tax Havens: Myths vs Facts.

So it was with considerable interest that I read about the recent testimony of IRS Commissioner, Douglas Shulman, who acknowledged that the Obama-Levin numbers are “wild estimates” that “don’t have much basis.” Here is the key passage from a report from Bloomberg:

Internal Revenue Service Commissioner Douglas Shulman said projections that the US loses $US100 billion annually to offshore tax havens are “wild estimates” that “don’t have much basis”. …”Those numbers are pretty broad numbers,” Shulman said. The $US100 billion figure, a compilation of private-sector estimates, is often cited by Michigan Senator Carl Levin… North Dakota Senator Byron Dorgan also frequently cites the $US100 billion figure.

This, of course, raises an interesting question. If politicians are willing to use dishonest numbers to push a certain policy, what does that suggest about the merits of the policy?

Obama’s Fuel-Economy Standards

If you like driving a big car or SUV, the good news about Obama’s new fuel-economy standards is that they won’t dictate what kind of car you will be able to buy in the future. If you want to buy a 15-mpg SUV, Detroit (or Aichi or Wolfsburg) will be free to make and sell you one.

The bad news is that the standards may make your car more expensive. Corporate Average Fuel Economy (CAFE) standards are actually calculated as the mean of gallons per mile, not miles per gallon. So, as of 2016, for every 15-mpg model made by an auto maker, that company will have to make five models of cars that can go 50 mpg in order for its fleet to meet Obama’s new target. Since bringing each new model to market can cost billions of dollars, if there are not enough people who want to buy those fuel-efficient cars to cover their design costs, the company will have to add a share of those costs to your SUV.

If you want to save energy, the good news is that Obama’s standards are more stringent than those in the Energy Independence and Security Act of 2007 – but not by much. While the 2007 law required new car fleets to average 35 mpg by 2020, Obama’s standard requires fleets to average 35.5 mpg by 2016.

The bad news is that nothing in Obama’s standard guarantees that they will actually save energy. The rule only requires that the mean fuel economy of all models, not all cars, made by a manufacturer meet the 35.5 mpg standard. Not much energy will be saved if gas guzzlers sell well and hybrids don’t.

If gas prices go up, people will buy the fuel-efficient models that auto makers are forced to make – but that would have happened anyway. If gas stays cheap, people will continue to buy fuel-inefficient cars (tempered only by having to pay extra to cover the start-up costs of models no one wants). If you believe that saving energy or reducing dependence on foreign oil is important, then you should prefer a stronger form incentive over this mandate.

The worst-cast scenario is that the new standards increase the cost of buying new cars but don’t save any energy (except to the extent that a few people can’t afford to own a car at all). The best-case scenario is that Obama’s standards result in future auto fleets that are not much different from what a free market would have produced. Considering that Honda and Toyota are now in a price war over their Insight vs. the third-generation Prius, that may be closer to the actual outcome.

The good news is that auto makers readily acquiesced to this standard, partly because they feared something worse but partly because they didn’t think it would cost much. The Obama administration estimates that the added cost of the new standard will be $1,300 per car, but that (if gasoline remains $3 per gallon) it will save drivers $500 per year. That means it could pay for itself in the long run – but only if people actually do buy more fuel-efficient cars.

The debate over the standard reminds me of the debate after Congress gave the Environmental Protection Agency the authority to regulate air quality in 1970. One faction favored of technical solutions to pollution, such as catalytic converters. The other faction argued for behavioral tools aimed at getting people to drive less.

Today, we know the behavioral solutions were a complete failure. Although many cities imposed urban-growth boundaries, built light rail, and implemented various disincentives to driving, not one can say they have reduced per-capita driving by even 1 percent.

On the other hand, the technical solutions were highly successful. Though we drive nearly three times as many miles as in 1970, total automotive air pollution has declined more than 50 percent.

There was a third faction in 1970 whose voice was almost inaudible: economists who argued that incentives would clean the air better than mandates. The mandates that were put in place only acted on new cars, and it took more than a decade (and now takes almost two decades) to turn over the American auto fleet. Properly designed incentives could have acted on all cars and cleaned the air much faster (by, for example, giving people a choice between retrofitting their cars or paying a pollution fee that was dedicated to cleaning up pollution elsewhere).

The lesson libertarians take from this is that incentives are better than mandates. But the point I like to make is that, though incentives might work better than mandates, technical solutions work far better than behavioral ones.

Despite the past failure of behavioral tools, there is a strong movement in the administration and Congress today for more behavioral controls aimed at reducing driving to save energy and greenhouse gas emissions. These behavioral tools will be expensive, they will have costly unintended consequences, and in the end they will do little to protect the environment.

I remain unpersuaded that we need to reduce greenhouse gas emissions. But if there is a political need to do so, we should at least do it in ways that cost little and provide other benefits that will help cover those costs. McKinsey & Company estimates that the United States can meet the most stringent greenhouse gas targets by investing in programs that cost no more than $50 per ton of greenhouse gas abatements. More fuel-efficient cars meet this test, says McKinsey, and will also reduce the emissions of other pollutants such as nitrogen oxides.

Meanwhile, light rail, growth boundaries, and other behavioral tools, if they save energy and reduce greenhouse gases at all, will only do so at costs of tens of thousands of dollars per ton. Though I am far from thrilled about Obama’s new policy, at least it reminds us that, for a relatively low cost, we can significantly reduce energy consumption and various pollution emissions without trying to socially engineer American lifestyles.

Rush Limbaugh Is Not the Problem

Brink Lindsey’s post, triggered by Jerry Taylor’s controversial critique of conservative talk radio at National Review online,  is part of a much-needed debate about the changes needed to create more fertile soil for limited-government – a task that is especially difficult given the GOP’s decade-long embrace of statist economic policy.

But in the spirit of friendly disagreement, the problem is not Rush Limbaugh and Sean Hannity. Talk radio, after all, existed when Republicans were riding high and promoting small government in the 1990s.

The real problem is that today’s GOP politicians are unwilling to even pretend that they believe in limited government. In such an environment, it is hardly a surprise that anti-tax and anti-spending voters decide that talk show hosts are de facto national leaders.

This does not mean that Rush Limbaugh is always right or that Sean Hannity never engages in demagoguery. But I suspect if any of us had to be live on the air three hours every day and support our families by attracting an audience, our efforts to be entertaining might result in an occasional mistake - either factually or rhetorically. Heck, when I had to be on the air for just one hour each day in the mid-1990s for the fledgling conservative television network created by the late Paul Weyrich, I’m sure I had more than my share of errors.

This being said, I agree with Brink’s main points about conservatism being adrift. How come there were no tea parties when Bush was expanding the burden of government? Why didn’t conservative think tanks rebel when Bush increased the power of the federal government? Where were the supposedly conservative members of the House and Senate when Bush was pushing through pork-filled transportation bills, corrupt farm bills, a no-bureaucrat-left-behind education bill, and a massive entitlement expansion?

I sometimes wonder if the re-emergence of another Reagan would make a difference, but Brink (and Posner, et al) offer compelling reasons to believe that the problems are much deeper.

Computers Freedom & Privacy 2009

The Computers Freedom & Privacy conference is consistently one of the most interesting and forward-looking privacy conferences. This year, it’s at George Washington University in Washington, D.C. June 1-4.

I helped organize it this time, though by no means does the event skew libertarian. What it does is bring together people of all ideologies to discuss common concerns about the present and future state of privacy.

I’ll be speaking on a panel called “The Future of Security vs. Privacy” on Tuesday, June 2nd. Here’s the program page. And here’s the registration page if any of this whets your appetite.