Southern’s Subsidies Subverted Sound Strategy

In recent House testimony, I said that energy subsidies should be repealed because they distort business decision making. They induce firms to invest in activities that do not make sense in the marketplace.

That appears to be the case with Southern Company’s “clean coal” plant in Kemper County, Mississippi. The plant is far behind schedule and massively over budget—a first-class boondoggle. The Wall Street Journal reports that the estimated cost has soared from $3 billion to $7.1 billion. (This says the original estimate was $2.2 billion). The utility’s customers could be in for a $4 billion rate hike.

What the WSJ leaves out is that the Kemper plant received federal subsidies and Obama administration support, which may have tilted company executives in favor of the wasteful project instead of a far cheaper natural gas plant. The project had been scheduled to receive hundreds of millions of dollars in grants and tax credits, although I understand that some of the bounty was later rescinded.

Federal subsidies covered only part of the original estimated cost, but they were likely the tail that wagged the dog. When subsidies induce private businesses to invest in dubious projects, the damage comes not just from wasting taxpayer dollars, but also from misallocating private investment funds.

More on energy subsidies, here, here, and here. More on Kemper, here, here, and here.

No Side Is ‘Shameful’ in Trump’s Change to Transgender Bathroom Policy

President Trump’s administration has rescinded the Obama administration’s “Dear Colleague” letter requiring that public schools let transgender students use the bathrooms and locker rooms of their choice. It was probably the right thing do, and there was nothing “shameful” about the decision: equally decent people can, and do, have competing views of what is good.

There is no reason, of course, to believe anything other than that the Obama administration’s initial guidance was well-intended, driven by a desire to see transgender students empowered to make decisions for themselves about who they are. It is also absolutely a legitimate worry that school districts might discriminate against transgender students.

But equally decent people could feel very uncomfortable sharing a bathroom or changing room with someone of the opposite biological sex — sex-based privacy has been a time-honored norm — and could also have religious objections to such mixing. What about their rights? There were also legitimate worries about the legality of the order, delivered as a sudden reinterpretation of long-standing regulations.

Finally, societal evolution takes time. It may well be better to let smaller units (states, communities, families) grapple with and adjust to social change than suddenly impose one vision of the good on everyone.

Of course, there may be no solution in a diverse school or district that equally respects the values and desires of all. This is a major reason that school choice is so crucial: it enables families and educators to freely choose the values they want taught and respected, rather than government choosing one side to win and the other to lose.

Hunger Is in Retreat, But Not in Socialist Venezuela

A shocking statistic has come to light: Venezuelans lost 19 pounds on average over the past year because of food shortages. 

There was a time when hunger was a near-universal experience. As Kevin D. Williamson put it, “Not long ago, the great dream and aspiration of most of the people walking this Earth was to have enough to eat, for themselves and for their children, and to be liberated from worrying about whether they would eat again tomorrow or the next day.”

Then, something changed. Exchange and specialization helped bring down food prices. A burst of innovations called the Green Revolution led to higher agricultural productivity and decreased food prices even further. Even as the world’s population grew, the market ensured that the supply of food rose to meet growing demand. 

The global numbers are heartening. The share of the world’s population suffering from hunger is shrinking. Despite population growth, the total number of undernourished persons is lower as well. Even those who are food-deprived are less severely malnourished than in the past. Humanity now produces more than enough food to theoretically feed everyone on Earth the recommended 2,000 calories per day.

Hunger was declining in Venezuela too until recently. The percentage of Venezuela’s population suffering from undernourishment fell from 14% in 1991 to “5% or lower” in 2015, the latest year for which the United Nations has data. Since then, the situation has rapidly deteriorated. In a single year, the number of cases of severely undernourished children in Venezuela’s capital city, Caracas, doubled

The reason? Venezuela’s socialist economic policies, briefly sustained by fleeting high oil prices, led to hyperinflation and a societal collapse. If Venezuela continues on its present course, hunger is likely to become more widespread. 

We can all be thankful that undernourishment has become rarer globally. But the case of Venezuela demonstrates that progress is not inevitable—suicidal economic policies, like socialism, can rapidly extinguish the prosperity we enjoy. 

Rio’s Olympic Disaster

“The legacy of the Rio Olympics is a farce,” writes sports columnist Nancy Armour in USA Today. She continues:

The closing ceremony was six months ago Tuesday, and already several of the venues are abandoned and falling apart. The Olympic Park is a ghost town, the lights have been turned off at the Maracana and the athlete village sits empty…. the billions that were wasted, the venues that so quickly became white elephants, the crippling bills for a city and country already struggling to make ends meet…

She notes that more and more cities are realizing that Olympic games are glamorous but not economically sound. I made that point two years ago when Boston withdrew its bid to host the 2024 Summer Olympics:

Columnist Anne Applebaum predicted a year ago that future Olympics would likely be held only in “authoritarian countries where the voters’ views will not be taken into account” — such as the two bidders for the 2022 Winter Olympics, Beijing and Almaty, Kazakhstan.

Fortunately, Boston is not such a place. The voters’ views can be ignored and dismissed for only so long.

The success of the “10 people on Twitter” and the three young organizers of No Boston Olympics should encourage taxpayers in other cities to take up the fight against megaprojects and boondoggles — stadiums, arenas, master plans, transit projects, and indeed other Olympic Games.

I cited then some of the evidence about the impact of the Olympics on host cities:

The critics knew something that the Olympic enthusiasts tried to forget: Megaprojects like the Olympics are enormously expensive, always over budget, and disruptive. They leave cities with unused stadiums and other waste.

E.M. Swift, who covered the Olympics for Sports Illustrated for more than 30 years, wrote on the Cognoscenti blog a few years ago that Olympic budgets “always soar.”

“Montreal is the poster child for cost overruns, running a whopping 796 percent over budget in 1976, accumulating a deficit that took 30 years to repay. In 1996 the Atlanta Games came in 147 percent over budget. Sydney was 90 percent over its projected budget in 2000. And the 
Athens Games cost $12.8 billion, 60 percent over what the government projected.”

Bent Flyvbjerg of Oxford University, the world’s leading expert on megaprojects, and his co-author Allison Stewart found that Olympic Games differ from other such large projects in two ways: They always exceed their budgets, and the cost overruns are significantly larger than other megaprojects. Adjusted for inflation, the average cost overrun for an Olympics is 179 percent.

In the latest edition of Cato Policy Report, Flyvbjerg examined “the ‘iron law of megaprojects’: over budget, over time, over and over again.”

Brazil has great resources, great ambitions, and great problems, including a vast corruption scandal that has taken down numerous public officials including President Dilma Rousseff. But the lives of its people will not improve through grandiose projects. Brazil needs financial reform, tax and regulatory reform, fiscal reform, and more. Megaprojects are not the road to prosperity.

Executive Agencies Don’t Deserve a Tip from Judges When They Rewrite the Law

The Constitution’s Framers had one primary thought in mind when they set out to draft the Constitution: Securing ordered liberty so that the people could pursue happiness. To accomplish this goal, they drew on the ideas of Enlightenment philosophers like Locke and Montesquieu to design a political system that divided power between the new national government and the states (federalism) and also among the federal branches (separation of powers). The separation of powers would be the front line of defense from an overreaching government, because it would allow each branch to “check” and “balance” the other—thereby limiting the ability of any one department to accumulate too much power over the people.

Yet the modern administrative state has been allowed to evade many of the Constitution’s structural protections for liberty. It has become what some have called the “fourth branch of government,” combining all three functions—legislative, executive, and judicial—into one body that does not have to jump through the Framers’ hoops. National Restaurant Association v. Department of Labor is a prime example of how far down the rabbit hole we have come from the Framers’ original vision.

In 2010, the U.S. Court of Appeals for the Ninth Circuit ruled that a section 203(m) of the Fair Labor Standards Act (FLSA) did not prevent employers from instituting a policy of tip-pooling (redistributing tips from individual employees to other workers) when the employer did not take a tip-credit (where the employer uses an employee’s tips to satisfy the FLSA’s minimum-wage requirement). The court held that the statute’s “plain meaning” did not explicitly forbid this practice, so it was legal.

The Department of Labor (DOL) didn’t like the court’s opinion, however, and in 2011 conducted a “rulemaking” that would reinterpret the FLSA to say that tip-pooling was illegal in certain situations—even when the employer didn’t take a tip-credit. The National Restaurant Association and several other groups challenged the rulemaking, arguing that an executive agency can’t ignore federal-court precedent and unilaterally rewrite a statute that is unambiguous. The district court agreed and quickly struck down the rulemaking. But the Ninth Circuit ignored its own 2010 precedent and upheld the DOL’s new statutory interpretation.

Undeterred, the groups sought en banc review (where all of the judges in the circuit rehear a case), but—over a strongly worded dissent, calling the circuit court’s reasoning “entirely alien to our system of laws”—the court declined the request. Cato has now filed an amicus brief supporting the National Restaurant Association’s petition for Supreme Court review.

We argue the circuit court’s opinion raises serious separation-of-powers concerns by allowing the DOL to exercise legislative power when it essentially rewrote an unambiguous FLSA provision. Moreover, upholding the new DOL regulation effectively overturned a federal court’s precedent in direct circumvention of the judicial branch’s duty to “say what the law is.” The Court should take this case and show that the Constitution’s separation of powers does not allow such judicial enabling of executive mischief. Administrative agencies simply cannot take it upon themselves to ignore or rewrite the law.

 

The Personal History Behind Cato’s Center for Constitutional Studies

As we approach Cato’s 40th anniversary, if you’re interested in knowing a little more about the origin and history of Cato’s Center for Constitutional Studies, which I founded 28 years ago, take a look at Mimesis Law’s lengthy interview of me that they posted just this morning.

A year ago they interviewed Wally Olson, who put them on my trail. This morning’s interview is actually more of a “life story”—from a boyhood in rural America, trapping muskrats and beaver and starting my school’s first rock-‘n’-roll band, through the twists and turns that brought me to today and the center. But in the course of telling the tale I discuss the intellectual history that led to the center’s creation and informed its mission And along the way I discuss some of the issues we’re still wrestling with. At the least, you’ll get a few laughs!

SNAP: $15 Billion on Junk Food

The Supplemental Nutrition Assistance Program (SNAP) aims for recipients to “make healthy food choices within a limited budget.” SNAP is supposed to “permit low-income households to obtain a more nutritious diet.”

However, the lofty goals of federal programs often differ from the actual results. It turns out that about $15 billion of SNAP benefits are for junk food. Apparently, recipients are not making the nutritious and healthy choices that the government promised.

SNAP, or food stamp, benefits totaled $67 billion in 2016. Food stamps can be used to buy just about any edible item in grocery stores other than alcohol, vitamins, and hot food. But exactly what is being purchased by the program’s 44 million recipients has been mainly shrouded in secrecy—until now.

A November study by the U.S. Department of Agriculture finally shed light on food stamp purchases. The study examined detailed data for SNAP and non-SNAP shoppers for one large food retailer over a one-year period.

The study found that SNAP shoppers bought slightly more junk food than non-SNAP shoppers. For example, 9.25 percent of total purchases by SNAP shoppers were for “sweetened beverages” such as cola, which compared to 7.1 percent for non-SNAP shoppers. At the same time, SNAP shoppers spent relatively less on nutritious foods such as fruits and vegetables.

For SNAP shoppers, “sweetened beverages,” “prepared desserts,” “salty snacks,” “candy,” and “sugar” accounted for 22.6 percent of purchases. These junk food items thus accounted for $15 billion of SNAP purchases in 2016, if the study is representative of all SNAP purchases.

SNAP is a bloated program, and cutting out junk food would be one way to reduce costs. The program was created to tackle hunger, but Harvard University’s Robert Paarlberg noted that on a typical day less than 1 percent of households now face “very low food security.” That low figure contrasts with the 17 percent of U.S. households that currently receive food stamps.

The main food-related health problem for low-income households today is not hunger, but obesity. CDC data show that people with low incomes are more obese than people with high incomes, on average. In general, low-income Americans are suffering not from too little food, but from too much of the wrong kinds of food.

Ending SNAP’s junk food subsidies would likely cut demand for the program and reduce taxpayer costs. If policymakers decided that food stamps could only be used for items such as fruits and vegetables, fewer people would use the program, which would be a good thing.

An even better reform would be to end federal involvement in food stamps. Each state could then decide on the overall level of benefits it wanted, and on whether taxpayers should be subsidizing cola, candy, crackers, and cookies.

For more on food stamps, see here and here.

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