Topic: Energy and Environment

Is Portland Light Rail a Success?

My recent Cato policy analysis, Debunking Portland, said Portland’s light rail is a failure. Paul Weyrich, the noted conservative and president of the Free Congress Foundation, responds that it is successful.

The question becomes, “How do you define success?” Weyrich claims that Portland’s light rail led to billions of dollars in economic development. But my paper shows that that development received billions of dollars in subsidies – and before the city started offering subsidies, not a single transit-oriented development was built along the light-rail line.

“Many (Portlanders) use their public transportation system,” says Weyrich. In fact, 9.8 percent of Portland-area commuters took transit to work before the region build light rail. Today it is just 7.6 percent. In a story repeated in numerous cities that have built rail lines, rail cost overruns forced the city to raise bus fares and reduce bus service. That’s a success?

To Weyrich, rail is successful if anyone at all rides it. My standard is somewhat higher. For a point-by-point response to Weyrich’s article, see my Antiplanner blog.

Globalization and Food Safety

The Washington Post has an interesting story today about E. coli on lettuce. A batch of lettuce produced in California last month passed through numerous screenings and was sent to U.S. grocery stores. Some of it was also sent to Canada, and the government there found E. coli, which led to a major recall across both countries.

Here are some speculations:

  • Globalization increases the safety of American-produced goods because those goods must often pass muster in foreign markets where consumers and governments have different standards and safety procedures.
  • I don’t know whether American or Canadian food safety procedures are better, but a diversity of systems generates greater information, which allows producers and governments everywhere to improve quality.
  • Globalization doesn’t lead to a “race to the bottom” on environmental standards as critics often claim. Some countries, such as Japan, apparently have very high standards on food, and that tends to push up standards elsewhere. When Japanese importers demand strict standards from Chinese food producers, Americans consuming Chinese products also benefit.

Lomborg on Gore

At the Guardian’s “Comment is free” site, skeptical environmentalist Bjorn Lomborg has some tart words for the Nobel committee:

This year’s Nobel Peace Prize justly rewards the thousands of scientists of the United Nations Climate Change Panel (the IPCC). These scientists are engaged in excellent, painstaking work that establishes exactly what the world should expect from climate change.

The other award winner, former US vice president Al Gore, has spent much more time telling us what to fear. While the IPCC’s estimates and conclusions are grounded in careful study, Gore doesn’t seem to be similarly restrained.

Gore told the world in his Academy Award-winning movie (recently labelled “one-sided” and containing “scientific errors” by a British judge) to expect 20-foot sea-level rises over this century. But his Nobel co-winners, the IPCC, conclude that sea levels will rise between only a half-foot and two feet over this century, with their best expectation being about one foot - similar to what the world experienced over the past 150 years. …

The IPCC engages in meticulous research where facts rule over everything else. Gore has a very different approach.

Debunking Coercion

The Congress for the New Urbanism has responded to my July policy analysis, Debunking Portland, with a paper titled, Debunking Cato. I am posting my reply on the Antiplanner blog.

New Urbanism refers to a recent architectural fad that includes mixed-use developments (retail and housing in the same complex), high-density housing (either multi-family or single-family on tiny lots), and pedestrian-friendly design (limited parking and storefronts on sidewalks instead of facing large parking lots). There is a demand for this type of development and no one objects to developers meeting that demand.

Portland, however, has decided to go far beyond market demand by imposing this type of development on many people. An urban-growth boundary has driven up the cost of single-family housing and the city uses subsidies, including tax-increment financing and below-market land sales, to promote high-density housing. A member of the Portland city council (and leading candidate for mayor) has even said that no new housing should be built in Portland that does not meet New Urban densities and designs.

My paper shows that Portland has achieved very little from this massive and cost coercion. The Congress for the New Urbanism basically argues that it has achieved slightly more than my paper says. But those benefits are still so tiny that they are overwhelmed by the costs to homebuyers, commuters, and taxpayers in the region.

Some people in the Congress for the New Urbanism say they merely want to build for the market and do not support coercive policies. Lovers of freedom can support New Urbanist efforts to dismantle obsolete zoning codes that prevent developers from meeting market demand for New Urban designs.

By the same token, I note in my reply, New Urbanists who oppose coercion cannot defend Portland’s policies, which are based almost entirely on coercive land-use regulations, taxation, and subsidies. Those policies don’t produce the benefits claimed for them and they do impose huge costs on the cities that apply them.

Senate Now Debating the Manner in Which to Fleece You

After a disastrous result in the House of Representatives, the farm bill debate has moved on to the Senate, where the main conflict is about how to provide assistance to farmers. Senator Max Baucus (D, MT), who sits on the Agriculture Committe but also holds the purse strings as Chairman of the Senate Finance Committee, favors a permanent weather-related disaster relief fund alongside more “traditional” farm subsidies. The Chairman of the Senate Agriculture Committee, Tom Harkin (D, IA) prefers government subsidies based on farm revenue rather than commodity prices, and more spending on “renewable fuels” and conservation of farmlands.

Sen. Harkin wants about $10 billion dollars over the amount currently slated for farm programs to pay for his pet projects, but Sen. Baucus has made it clear that if Sen. Harkin wants more money, then he has to dance somewhat to Mr. Baucus’ tune. Sen. Harkin has in recent days appeared more open to a “modest” permanent disaster-assistance program if it means he gets his money (see here). Something tells me that Sen. Harkin’s definition of “modest” might be different to mine. Nor am I convinced that a permanent disaster relief trust fund would prevent Congress from approving extra disaster funds along the way.

The administration has issued a veto threat, but on ominous grounds. For example, the administration does not like the tax package that the House approved to pay for extra money for food stamps and sees the House income cap of $1 million dollars annual adjusted gross income as an insufficiently tight means test. As well they might, because it would affect only 7,000 farmers.

The veto threat is ominous because (a) it is based on things that are minimal and easily fixed relative to the entire package itself and (b) President Bush passed the similar 2002 farm bill without too much wailing and gnashing of teeth. At no point has the administration seriously questioned the rationale for these programs. While the President may have little to lose this time by vetoing the thing, Secretary of Agriculture Mike Johanns is reportedly seeking the Senate seat vacated by Sen. Chuck Hagel in Nebraska in 2008. Secretary Johanns has pushed strongly for reforms of farm programs until now, but presumably he would not want to campaign after being behind a farm bill veto.

Here’s an idea: instead of spreading the love around to more farmers (like the $1.6 billion in extra spending for fruit and vegetable growers who have traditionally missed out on largess), tinkering with the income limit and changing the method by which we give money to farmers, how about we scrap the whole thing altogether? See here and here for starters.

The Economist vs. Cato on Gasoline Taxes

With the Pigou Club now having gone silent in the debate over the federal gasoline tax launched by our study of the same last month, the only party left standing to hold the flag for the federal gasoline tax is … The Economist. I hope the former reemerges for a more sustained conversation sometime down the road, but until they do, let’s consider the latest riposte from our favorite news weekly.

The Economist seems to agree that a federal gasoline tax is a very clumsy and inefficient way to deal with the negative externalities associated with driving. So far, so good. But then they claim:

The discussion over taxation of carbon emissions from tailpipes … comes down to arguments over cost efficiency (a gas tax may well be preferable if the cost of assessing emissions for tax purposes is too high).

Maybe I’m not reading this right, but is The Economist seriously entertaining the argument that it might be more efficient to tax carbon emissions via a gasoline tax than via a cross-sector carbon tax? Econometric investigations suggest that it’s twice as costly to reduce carbon emissions via taxes confined to the transportation and electricity sectors than via taxes imposed across the economy as a whole.

Perhaps The Economist meant to say that “The discussion of taxation of conventional pollutants from tailpipes comes down to argument over cost efficiency.” If so, that’s different … and fine. If the costs associated with monitoring and collecting information regarding tailpipe emissions were high, there would be room for an argument for gasoline taxes as a “second-best” remedy (a point we explicitly concede in our paper).

Even so, repairing to a gasoline tax as a second-best means of addressing environmental externalities still does not suggest the need for federal taxation. State or local taxation would be far better for reasons discussed in our paper.

The Economist then moves on to take issue with our most unconventional argument – that even perfect internalization of the negative externalities associated with driving via some set of Pigouvian taxes would make the economy less efficient because it would induce greater use of mass transit. Additional mass transit use is less efficient at the margin because the literature suggests that the discrepancy between costs and charges to users associated with mass transit use are even greater than those associated with automobile use.

The Economist makes four arguments. Argument #1:

The first and most obvious point is that a carbon tax and congestion pricing will quite obviously have the same effect on transit use, other things equal, as an increased gasoline tax … If a reduction in transit use is Mr Taylor’s guiding principle, then I fear his prescriptions are misguided.

A reduction in transit use is not my guiding principle. Nor do I prescribe carbon taxes or other emission taxes. We are instead making an If/then argument. IF one wants to internalize the negative externalities associated with driving (pollution, congestion, carbon dioxide emissions, whatever), THEN one should tax those externalities directly rather than indirectly via a tax on fuel consumption.

Sure, we could have stopped there, but many economists embrace Pigouvian taxes because they think they would improve economic efficiency. But according to Cliff Winston’s work, if all transportation options were priced optimally, there would be more automobile use and less mass transit use. Thus perfect Pigouvian taxes on automobile use but no reforms in mass transit pricing (i.e. reforms that would make users pay more of the costs) would have the paradoxical effect of making the economy less, not more, efficient.

So we are giving serious economists – including those of the Pigouvian variety – two very good reasons to oppose a federal gasoline tax. Either one will suffice.

On to argument #2:

Those cited authors [and by this, The Economist is referring to Mark Delucchi and Clifford Winston, whose work we highlight in our study] do make a very compelling case that transit is inefficient relative to automobile use, so long as you take as given the billions of dollars in annual government highway spending and eliminate that spending from your calculations. And that is exactly what the cited authors have done. The Washington Post reported this week that annual federal spending on highways is now over $40 billion, which is, of course, in addition to the billions spent by state and local governments on the construction, maintenance, and policing of roads. Include those figures in the analysis, and the inefficiency argument loses all coherence.

How so? Winston and Delucchi ask the following question; if everything were priced optimally, what would would the cost of driving be? What would the cost of mass transit be? And given those costs, how much of each would people use given the benefits they receive? Both authors conclude that, in a perfectly priced world, there would be less mass transit use than at present and more driving. Hence, if we want to “get the prices right” – the explicit goal of Pigouvian taxation – the result would be more driving.

Now, how does the fact that government has spent billions of dollars on roads affect this exercise? The Economist implies that this was some kind of gift to automobile drivers that Winston & Delucchi are happy to give them without cost. But that’s not true. Until 1975, road construction and maintenance was funded entirely by motorists via the gasoline tax (see Jose Gomez-Ibanez’s 1985 essay in a book reviewed here). During the high inflation period of the late 1970s and early 1980s, however, fees and taxes did not keep up with highway expenses. But over the entire 1975-1993 period, the federal gasoline tax increased from 4 to 18.4 cents per gallon (3.6 fold increase) while the GDP deflator increased only 1.3 fold.

The federal gasoline tax has not been increased since 1993, however, and according to our colleague Randal O’Toole, 2003 data suggest that motorists only paid approximately 89% of the total capital and maintenance costs of the highway system during that year.

So there are subsidies to motorists now, but they are tiny on a per-passenger-mile or vehicle-miles-traveled basis. And during the formative years of the highway system, motorists paid more than its costs. Hence, correcting the current imbalance between fuel tax revenue and road construction and maintenance - as Winston and Delucchi do - is sufficient.

Now, argument #3:

That omission is the most egregious, but it certainly isn’t the only one. The sources take the structure of the landscape to be exogenous, when in fact highway spending in outer suburbs reduces the cost of commuting from great distances, encouraging outward migration of urban populations. That, of course, then overwhelms existing infrastructure and generates new highway construction still farther out, continuing the outward spread of the city’s borders.

We have no complaint with the observation that long distance commuters are not paying the marginal costs associated with their commutes - and neither does Winston or Delucchi. We support getting those prices right via congestion pricing and user fees. and those costs are built into Winston and Delucchi’s calculations. But if we’re going to price road use efficiently, we should also price rail use efficiently. And doing so, as we said, would lead to more, not less, driving.

Finally, we arrive at argument #4:

In calculating the positive externalities generated by rail, Brookings Scholar Clifford Winston only considers the effect rail has on reducing highway congestion. But that’s far from the only positive externality produced by rail transit. Rail facilitates density in a way that highways cannot, producing and supporting the dense urban networks present in central cities. There is a long and rich literature on the positive externalities produced by such urban agglomerations; it has been suggested, for instance, that a doubling of urban population density leads to a 6% increase in productivity. Certainly that should be included in any consideration of the relative merits of mass transit.

If there are positive externalities generated by rail use beyond the effect of rail use on road congestion, let’s see some citations! We are unaware of any in the peer-reviewed urban economics literature. And remember, subsidized rail also contributes to urban sprawl because it allows people to work in the urban center and travel further out faster at peak rather than living closer to work.

There may be a case for the elimination of the gasoline tax, provided it is replaced with levies on the negative externalities produced by road transport. That case does not include a shift away from mass transit. If the Cato authors wish to make the point that transit use is bad on efficiency grounds, they need to work much harder.

You can lead a horse to water, but you cannot make him drink.

Cato “Neutered” on Electricity Deregulation?

Last week, Peter Van Doren and I had an op-ed in The Wall Street Journal that reflected on the record of electric utility restructuring in light of the recent rate hikes experienced in the “deregulated” states. Libertarian energy consultant Mike Giberson over at The Knowledge Problem, however, was unimpressed.

Giberson offers only two substantive criticisms. First, he takes issue with our claim that the case for vertical integration was scarcely heard during the debate over restructuring:

It isn’t clear from the article where Taylor and Van Doren were during the debates over unbundling, but delving into the voluminous public records of both federal and state regulators of the electric power industry would reveal that vertical integration has been among the matters discussed at length. Earlier in the article they quote MIT economist Paul Joskow, but if they were at all familiar with his work they would not make such “unfortunate” claims.

Vertical integration was in fact a big part of the policy conversation in the state legislatures and regulatory hearing rooms during the course of restructuring. But as Economist Robert Michaels at U. Cal., Fullerton argues, those discussions were superficial, uninformed, and politically charged conversations primarily concerning utility market power and the need to corral it. Paul Joskow’s work on this matter (which we are indeed well acquainted with) along with that of other academics who’ve investigated vertical integration in the electricity sector from an I/O perspective was given little serious attention by policymakers. That was our point.

Second, Giberson seems to take issue with our contention that vertical integration is an efficient means of remedying hold-up problems between generators and power distributors, facilitating efficient investment in transmission, and maintaining system reliability. Giberson finds it “curious that Cato Institute writers are so skeptical about the ability of decentralized arrangements (like prices and contracts) to lead to efficient results.”

Market arrangements indeed have their place, but if they were always preferable to alternative arrangements, then the firm as we know it would not exist – a point well made by Ronald Coase (no enemy of markets he) in his classic essay “The Nature of the Firm” back in 1937. Just because one has great faith in the power of markets does not necessarily mean that one should enter a daily spot market in the search for secretarial help or, alternatively, daily spot markets for electric power. For a longer discussion on why “decentralized arrangements (like prices and contracts)” are problematic in the electricity business, see this Cato study from the aforementioned Robert Michaels.

With the substance now put aside, let’s examine the kicker:

And it dawns on me that through it all, the Cato authors don’t advocate anything at all, not even the “true deregulation” that they describe in the final paragraph. They discuss history, explain some economics, call the loss of vertical integration unfortunate, speculate on preferences for contracts, and suggest that a totally unregulated world might turn out to be like the old regulated world.

We are to some extent guilty as charged. We did indeed spend a lot of our available word count explaining how electricity markets work. But it seemed to us that this was necessary in order to fully explain why the current emphasis on recent price increases in deregulated electricity regimes is misleading. Consumers seem advantaged by regulation during fuel-price upswings and disadvantaged by regulation during fuel-price declines. But over a longer time frame (1990-2006), the average price increases in regulated and deregulated regimes are not statistically different. Thus the differences between the old and new regimes are more apparent than real.

We go on to argue (as we did more robustly in this study published a few years ago) that a totally deregulated world of independent generators, transmitters, and distributors and consumers buying spot would not be efficient or stable because of the hold-up problem. We speculate that the arrangements to which firms and consumers would agree would resemble vertical integration which returns certainty for firms and price limits for consumers. Giberson might not like that argument, but it’s hard to miss.

Often Cato is bold, or insightful, or both, and sometimes it is over-dramatic in asserting the costs of this-or-that government program or the benefits of some tax cut or another, but almost always Cato offers clear advocacy for liberty. Taylor and Van Doren don’t give us that Cato in their rambling Wall Street Journal essay. Instead we get what amounts to an implicit defense of the old status quo.

While we do criticize the regimes produced by “restructuring,” we do not defend the old regime. In fact we do not defend any particular substantive market outcome at all. Instead, we defend an idea – that business owners – not politicians – should decide how market enterprises are organized and operated. If there is a more libertarian argument, then I have not heard it.