Archives: 05/2018

For Lower Gas Prices, Scrap the Jones Act

Drawing attention to rising gas prices this week, Senate Minority Leader Charles Schumer (D-New York) called for President Trump to ease pain at the pump by leveraging his relationships with key OPEC leaders as well as the presidential bully pulpit to exert pressure on oil companies. “These higher oil prices are translating directly to soaring gas prices, something we know disproportionately hurts middle- and lower-income people,” the senator added.

While his apparent belief that gas prices are determined more by the whims of corporate leaders than market forces is severely misguided, Sen. Schumer’s stated concern for the welfare of American consumers is welcome. Rather than rely upon President Trump’s ability to cajole foreign and corporate leaders into lowering the cost of gas, however, Sen. Schumer should introduce legislation to repeal the Jones Act.

Passed in 1920, the Jones Act mandates that ships which transport goods between domestic ports be U.S.-built, U.S.-flagged, and at least 75 percent U.S.-owned and crewed. Such strictures, in turn, raise transportation prices by eliminating access to cheaper options which do not meet these requirements. This cost increase reverberates throughout the economy, with few parts harder hit than the energy sector. Although the total cost of the distortions imposed upon this key industry is unknown, anecdotal evidence suggests that it is significant. Consider:

  • A 2014 Congressional Research Service report found that the purchase price of U.S.-built tankers is “about four times the price of foreign-built tankers, and U.S. crewing costs are several times those of foreign-flag ships.” Given such a cost structure it’s no surprise the report also found that shipping crude oil from the Gulf Coast to the Northeast on Jones Act-compliant tankers costs roughly three times greater than shipping the oil a longer distance to Canada on foreign-flagged ships ($5 to $6 per barrel versus $2 per barrel). Professor James Coleman of Southern Methodist University, meanwhile, points out that refineries in this part of the country “pay more than three times as much to ship oil from Texas rather than from West Africa or Saudi Arabia.” 
  • 1999 Government Accountability Report (GAO) report stated that, incredibly, the cost to ship oil from Alaska’s North Slope aboard foreign-crewed and built ships to the U.S. Virgin Islands—which is exempt from the Jones Act—was approximately three times less than to the Gulf Coast on Jones Act vessels ($2.35 per barrel versus $7.15 per barrel).
  • A 2013 GAO report noted that “representatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries.” This occurs, the report added, “because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”
  • According to the CEO of the Overseas Shipping Group, a provider of energy transportation services, the cost of hiring a Jones Act ship for crude service is about three to four times higher than using a foreign-flagged vessel. 

This is but a sample of the costs imposed by the Jones Act, which drives up the price of gas and all manner of goods purchased by Americans. If Sen. Schumer and his fellow Democrats are serious about their desire to ease the financial burden placed on Americans by the rising cost of oil, scrapping or deeply reforming this nearly 100-year-old law would be an excellent place to start.

Alexandria, Virginia Gets Housing Affordability Wrong

Alexandria, Virginia’s city council successfully increased the meals tax on restaurants in its jurisdiction on May 10th. The Council’s plan is to dedicate the meals tax revenue to building affordable housing.

There are a variety of issues with the city council’s plan to increase taxes and provide affordable housing.

First, the tax is supposed to help low and moderate income Alexandria residents, but restaurant taxes are regressive: the shares of after-tax income spent on meals away from home by households in the lowest, second-lowest, second-highest, and highest income deciles are 20.4 percent, 7.9 percent, 4.4 percent, and 3.8 percent, respectively.

That means the meals tax would likely collect five times the share of after-tax income from low-income households as high-income families, as Michael F. Cannon points out in a recent Alexandria Times letter to the editor. In short, the meals tax is a regressive tax parading as a progressive measure.

Furthermore, the meals tax signals Alexandria believes it can tax and spend its way out of housing affordability problems. With as high as Alexandria housing prices are, Alexandria has no practical hope of doing that.

The median Alexandria, Virginia sale price in 2017 was over half a million dollars, and in certain neighborhoods like Potomac Yard / Potomac Greens, the median sale price is greater than three-quarters of a million dollars. The meals tax raises less than $5 million annually, which could provide 10 median Alexandria homes annually.

But Alexandria has more serious housing affordability problems than limited tax revenue. Like other cities, the cost of housing is driven by restrictive regulation. If residents wonder why the supply of affordable housing in Alexandria is dwindling, they need look no further than the city zoning map and the associated zoning ordinance.

Figure I: City of Alexandria Zoning Map

 Alexandria Zoning Map

A substantial portion of Alexandria property is zoned for single family residential, shown in pale yellow above. In a high demand place like Alexandria, just outside restrictively zoned Washington, D.C. this land would likely voluntarily be put to a higher use (e.g. multi-family residential) in the absence of the regulation.

It is true that portions of Old Town are zoned for townhomes, shown in dark yellow. But most of Old Town falls within a historic district, which means that substantial change is nearly impossible and redevelopment is subject to extensive regulation and oversight from city boards and commissions. In fact, the city has a 200 page design guideline guidebook on the special considerations associated with development in this historic downtown area alone.

The review process isn’t only heavy-handed in the historic district. In Alexandria, there are around 25 citizen boards managing architectural, archaeological, environmental, historical, urban design and related planning considerations for proposed development. This number excludes task forces with other specific planning functions, like determining parking standards for new development.

In general, multi-family residential is only allowed on Alexandria’s fringe, shown in orange. These implicit limits on housing supply and affordable housing design contained in Alexandria’s zoning code matter more than a meals tax garnering around $5 million annually ever will.

That’s because density limits, design guidelines, and historic districts substantially inflate housing costs. Academic research estimates zoning increases the cost of housing by 30-50% in some restrictively regulated coastal cities.

Developers will build new housing units if given the opportunity. And when housing supply meets the demand for housing, housing affordability will improve as outlined in detail in Zoning, Land-Use Planning, and Housing Affordability, a recent Cato policy analysis paper.

Alexandria’s city council doesn’t understand housing affordability. This feature makes them similar to other local and state governments in the U.S.  But if Alexandria genuinely wants to solve the affordability problem it will need a new strategy that prioritizes relaxing regulation and streamlines the development process.

A modified version of the article was originally published in the Alexandria Times

The Phillips Curve Is Dead (except in Federal Reserve and CBO models)

“Is the Phillips Curve Dead?” asked Princeton economist Alan Blinder in a May 3 Wall Street Journal article. The former Vice-Chairman of the Fed noted that “the correlation between unemployment and changes in inflation is nearly zero… Inflation has barely moved as unemployment rose and fell.”

For a veteran Ivy League Keynesian like Blinder to doubt the Phillips Curve was doctrinal heresy, comparable to a monetarist asking if money matters or a supply-sider wondering aloud if a 91% tax rate is better than a 28% rate.

Wall Street Journal columnist Greg Ip later explained the dilemma and expanded it: “Standard models of the economy are built on a simple relationship: When unemployment goes down, inflation eventually goes up. That relationship, dubbed the Phillips Curve, has looked sickly for years. In Japan, it may be dead.”  Unemployment is 2.5% in Japan, yet inflation is 1.1% and only 0.4% if we leave out energy and food (“core” inflation).  For that matter, the unemployment rate is 2.0% in Singapore yet inflation is 0.2%.

Paul Samuelson and Robert Solow first fabricated a “Phillips Schedule” in 1960 using a wage-push notion of inflation and U.S. data from 1934 to 1958.  Leaving aside the Great Depression and WWII price controls, they concluded “it would take more like 8 per cent unemployment to keep money wages from rising. And they would rise at 2 to 3 per cent per year with 5 or 6 per cent of the labor force unemployed.”  Despite caveats that this relationship might shift, American economists soon began speaking of a trade-off between lower unemployment and higher inflation, notably the alleged necessity to tolerate 4% inflation in order to get unemployment down to 4%.  Those statistical goals were replaced with others (the curve was said to have shifted), but such Phillips Curve trade-off never went away.

“Pushing the Economy Up the Phillips Curve” in Brad DeLong’s 2002 Macroeconomics textbook, for example, says because of “the Federal Reserve’s expansionary monetary policy… unemployment fell from 7 percent in 1986 to 5.4 percent in 1989.  As unemployment fell inflation rose from 2.6 percent in 1986 to 4.4 percent in 1989.”   Although that 3-year span is described as a short-term relationship, any student could be forgiven for thinking that if you want 2.6% inflation you’ll have to settle for 7% unemployment, but if you prefer 5.4% unemployment you’re likely to end up with higher (4.4%) inflation.  [In reality, no Phillips Curve could explain why PCE inflation briefly fell from 3.5% in 1985 to 2.2% in 1986, or why it recovered to 4.3% in 1989].

As Blinder and Ip observe, however, the Phillips Curve is embarrassingly out of touch with international and domestic evidence.  Yet the Federal Reserve’s “standard models of the economy,” like those of the Congressional Budget Office, remain critically dependent on it. They have no other inflation theory.

Rather than basing monetary policy on actual inflation data, diehard Phillips Curve loyalists assume that low unemployment is such a fool-proof indicator of invisible inflation that the Federal Reserve must now raise interest rates repeatedly and preemptively – with the unspoken goal of pushing unemployment up above the CBO’s current 4.73% estimate of the non-accelerating rate (NAIRU).

The late Bill Niskanen and I wrote an obituary for the Phillips Curve sixteen years ago.  Instead of the presumed negative relationship whereby a low unemployment rate supposedly causes to accelerate, we found “a strong positive relationship between the inflation rate and the unemployment rate two years later.”

inflatinon causes unemployment

Don’t take our word for it.  Look at the graph.

The blue line is the monthly adult unemployment rate, excluding teens.  The red line is a smoothed year-to-year trend in “core” PCE inflation, leaving out energy in particular to reveal that the 1970s inflations were definitely not just oil shocks.  

On any given month, the year-to-year trend of inflation would be mostly composed of old 11-months of old news, unlike the current jobless rate.  That makes it even more obvious that core inflation was rising well before the big spikes in unemployment in 1974-75 and 1980-82, and that inflation rose alongside high and rising unemployment (i.e., “stagflation”).  Inflation causes high unemployment, which does not mean low unemployment causes inflation.

As Blinder noted, there has been no significant change in overall inflation since 2000, regardless of the oil price spike in 2008.   On the contrary, with the exception of three recessions (one very bad), the period since 1983 mainly shows a long decline in inflation that was usually matched by long periods of falling unemployment. 

The Phillips Curve has finally been revealed as a stubborn old 1958-60 theory that cannot predict inflation but does predict that high inflation will end in high unemployment.

Government Claims It Has “Extensive” Analysis Backing the Travel Ban—It’s Not True

In justifying President Trump’s travel ban to the Supreme Court last month, his attorneys repeatedly referenced a confidential report. They told the Court that this “extensive” analysis of “every country in the world” resulted from a “worldwide multi-agency review” and proves that the president did not act with religious animus. In a court filing, they said it was “thorough.” Yet they refuse to release it, and the information that they have released about it refutes their claim that it was extensive. In fact, it was far from rigorous.

In response to a lawsuit by the Brennan Center for Justice in New York, the government disclosed that its final secret report filed in September was just 16 pages with a one-page attachment. Yet the president claims it reviewed “more than 200 countries,” meaning it covered each country in less than a tenth of a page. On a typical 600-word page, that’s fewer than 60 words—significantly shorter than this paragraph—to review the identity systems, information practices, and security situation in every country in the world.

We now know that this 60-word average is actually too generous for most countries because the government has said that the report included the information on the eight targeted countries and the explanation for the ban contained in the president’s 12-page travel ban order. If it dedicated the other five pages solely to the non-travel ban countries, this would leave just 16 words for each. “The Democratic Republic of the Congo” would use a third of its word allotment on its name alone.

Such a bizarre result raises the distinct possibility that the entire review of the non-travel ban countries may have been included in the one-page attachment to the report intriguingly entitled “assessment of countries’ information-sharing capabilities and vetting procedures.”

In any case, to fully appreciate how absurd it is to claim that this 17-page report was exhaustive, consider that the State Department issues an annual report on terrorism including details of the policies and situation in most countries in the world. Last year’s report was 447 pages. The travel ban has nine such factors that the government claims to have extensively studied, yet its entire 17-page report is 4 percent as long.

Beyond its length, contradictions in the known contents of the report further raises the suspicion that the government might be misstating its conclusions. The president’s order tells us that the report laid out nine criteria against which it assessed every country, and it then summarizes the report’s findings for each of the banned countries. Yet in several cases, its findings show that countries on the list were assessed against stricter criteria.

For instance, the being-a-terrorist-safe-haven criterion was increased to having any terrorists active in the area for Chad, or being a source of terrorist threats for Iran—neither of which are terrorist safe havens, according to the State Department. Not having an electronic passport was increased to not having one that is recognized internationally for Somalia, while regularly refusing deportees—little cooperation—was increased to anything less than full cooperation with deportees for Libya.

These subtle raisings of the bar occurred even while nine actual terrorist safe havens got a pass, along with a dozen countries that regularly refuse deportees and dozens more that have no electronic passport at all. It appears that the government’s secret report arbitrarily raised the bar for travel ban countries.

The point is not whether these criteria are legitimate. What matters is whether the Supreme Court can believe the government’s claims about its report.

During oral arguments, Solicitor General Noel Francisco told Justice Sonya Sotomayor that the president’s animus against Muslims couldn’t have affected the process because the agencies were able “to construct and apply this neutral standard to every country in the world.” Sotomayor challenged him, asking why the report was not available for them to review. Francisco only responded that the justices “owe” the president “a very strong presumption that what is being set out there is the truth.”

Yet the length of the report by itself gives the justices a very good reason to conclude that the government’s report did not actually assess every country in the world in 16 words or less. At the same time, the inconsistency between the stated criteria and the criteria actually applied to the travel ban countries casts doubt on the claim that the report’s standard was, in fact, neutral.

Maybe the president could rebut this impression, but any presumption that he had in his favor at the outset should be forfeited based on what we know now. The best evidence indicates that his “extensive” review simply never happened.

Immigrant Welfare Consumption: A Response to Richwine

Jason Richwine recently published a short criticism of a new brief that Robert Orr and I wrote about immigrant and native benefit levels and use rates for means-tested welfare and entitlement programs.  This is another in a long series of blog post responses between those who support different methods for measuring native and immigrant welfare consumption so the response is wonky and does not revolve around a central question.  The title of Richwine’s criticism is “Obfuscating the Immigrant-Welfare Debate.”  Below, Richwine’s comments will be in quotes and my responses will follow.

“A few years ago I noted that ‘the amnesty movement has turned the political numbers game into an art form, systematically obscuring the trade-offs inherent in immigration policy.’ The movement has reached new heights of obfuscation with Alex Nowrasteh and Robert Orr’s Cato Institute study, ‘Immigration and the Welfare State.’”

Richwine hid half of our title: “Immigration and the Welfare State: Immigrant and Native Use Rates and Benefit Levels for Means-Tested Welfare and Entitlement Programs.”  Our entire title is important to defusing many of Richwine’s other complaints later in his piece.  The charge of obfuscation is serious but cutting off three-quarters of the words in our title does not enhance clarity.

“The Nowrasteh-Orr study says that’s all wrong. In fact, immigrants receive 39 percent less in welfare benefits than natives on a per capita basis. How is this possible? By including Social Security and Medicare as ‘welfare,’ for starters.”

As the title of our brief states, we included entitlement programs as part of the welfare state.  As we further explained in the first two sentences in our brief, we included them because they accounted for about 65 percent of all federal benefits outlays in 2016.  It is impossible to discuss the welfare state or the impact that immigrants have on it without including entitlement programs because they comprise its largest share.

Free Trade Is Good for Both Americans and Non-Americans

Trade headlines are getting more and more absurd. The Commerce Department apparently will investigate whether car imports impair national security and thus require a 25% tariff, which one trade lawyer said would prompt “pant-wetting laughter — followed by retaliation” among U.S. trading partners. Although maybe, as the linked article suggests, this is all just to put pressure on Mexico during the NAFTA talks, so who knows if it means anything. It’s very hard to say what is going on or where any of this is going. Perhaps, then, this would be a good time to take a break from the headlines and consider some more general trade issues.

I was reading a recent New Yorker article entitled “Is Capitalism a Threat to Democracy?” and, not surprisingly, I came across a lot of points that irritated me. In crafting a letter to the editor, it occurred to me that if I wanted it published, it would be better to focus on just one issue rather than send them a long list of complaints. Here’s the letter I sent, as published:

In Caleb Crain’s essay about whether capitalism poses a threat to democracy, he discusses Robert Kuttner’s views on the impact of free trade but leaves out a key consideration (Books, May 14th). Beyond the impact that free trade has on Americans, its benefits for the developing world should not be ignored. Hundreds of millions of people have been helped out of poverty by an American-led system of trade liberalization. Perhaps this will not convince American voters, but it should count for something.

That was the version as edited by the New Yorker. The letter I sent was a little different, in that I had a parenthetical as follows: “Perhaps this will not convince American voters (although if it were ever pointed out to them, they might approve), … “

One of the things Donald Trump has shown us is that you can say unorthodox things and change the debate, as it turns out people believe things we were not aware of. This can be a bad thing, but I can imagine that it might also be a good thing. What if we had a politician who explained how Americans benefited from free trade, and then also noted that free trade had helped bring hundreds of millions of people in other countries out of poverty. Isn’t it likely that many people would think that was pretty good? Couldn’t that actually generate support for free trade?

Of course, there may be a group of people that doesn’t care about things that happen outside of the United States, and are suspicious that helping non-Americans must mean hurting Americans. But don’t most people care a little about what happens elsewhere? I hope so, but I suppose we’ll never know, because the issue of helping others through free trade is almost never mentioned. It’s just not a significant part of the public debate. As a result, we really have no idea if Americans care about this, and whether it could generate more support for free trade. It would be nice if someone gave this a try, though. Trump has shown us that unorthodox strategies can work. If someone tried out a positive unorthodox message, we might be pleasantly surprised by the results.


That Time When They Censored Fahrenheit 451

The reviews of HBO’s “Fahrenheit 451” haven’t been so good, but at least the publicity should lead more people to read a great dystopian novel. Talking about the book many years later, Bradbury said, “I wasn’t worried about freedom, I was worried about people being turned into morons by TV…the moronic influence of popular culture through local TV news and the proliferation of giant screens and the bombardment of factoids.” If only he could see our current culture, where TV news agitates viewers into warring tribes.

But he certainly portrayed a society in which an authoritarian government burns books, and most people have seen it as a powerful warning about censorship. Which makes it particularly ironic, and more significant every day, that Fahrenheit 451 itself was censored – trimmed, expurgated, bowdlerized – by people who no doubt thought they had the best of intentions.

When Bradbury discovered what had been done, he wrote this Coda to the 1979 Del Rey edition. It’s worth reading today. What he said then is still true: “There is more than one way to burn a book. And the world is full of people run­ning about with lit matches.” Read the Coda, then read the book:

About two years ago, a letter arrived from a solemn young Vassar lady telling me how much she enjoyed reading my experiment in space mythology, The Martian Chronicles.

But, she added, wouldn’t it be a good idea, this late in time, to rewrite the book inserting more women’s characters and roles?

A few years before that I got a certain amount of mail concerning the same Martian book complaining that the blacks in the book were Uncle Toms and why didn’t I “do them over”?

Along about then came a note from a Southern white suggesting that I was prejudiced in favor of the blacks and the entire story should be dropped.

Two weeks ago my mountain of mail delivered forth a pipsqueak mouse of a letter from a well-known publishing house that wanted to reprint my story “The Fog Horn” in a high school reader.

In my story, I had described a lighthouse as hav­ing, late at night, an illumination coming from it that was a “God-Light.” Looking up at it from the view-point of any sea-creature one would have felt that one was in “the Presence.”

The editors had deleted “God-Light” and “in the Presence.”

Some five years back, the editors of yet another anthology for school readers put together a volume with some 400 (count ‘em) short stories in it. How do you cram 400 short stories by Twain, Irving, Poe, Maupassant and Bierce into one book?

Simplicity itself. Skin, debone, demarrow, scarify, melt, render down and destroy. Every adjective that counted, every verb that moved, every metaphor that weighed more than a mosquito—out! Every simile that would have made a sub-moron’s mouth twitch—gone! Any aside that explained the two-bit philosophy of a first-rate writer—lost!

Every story, slenderized, starved, bluepenciled, leeched and bled white, resembled every other story. Twain read like Poe read like Shakespeare read like Dostoevsky read like—in the finale—Edgar Guest. Every word of more than three syllables had been ra­zored. Every image that demanded so much as one instant’s attention—shot dead.

Do you begin to get the damned and incredible picture?

How did I react to all of the above?

By “firing” the whole lot.

By sending rejection slips to each and every one. By ticketing the assembly of idiots to the far reaches of hell.

The point is obvious. There is more than one way to burn a book. And the world is full of people run­ning about with lit matches. Every minority, be it Baptist / Unitarian, Irish / Italian / Octogenarian / Zen Buddhist, Zionist/Seventh-day Adventist, Women’s Lib/ Republican, Mattachine/ Four Square Gospel feels it has the will, the right, the duty to douse the kerosene, light the fuse. Every dimwit editor who sees himself as the source of all dreary blanc-mange plain porridge unleavened literature, licks his guillotine and eyes the neck of any author who dares to speak above a whisper or write above a nursery rhyme.

Fire-Captain Beatty, in my novel Fahrenheit 451, described how the books were burned first by minori­ties, each ripping a page or a paragraph from this book, then that, until the day came when the books were empty and the minds shut and the libraries closed forever.

“Shut the door, they’re coming through the win­dow, shut the window, they’re coming through the door,” are the words to an old song. They fit my life-style with newly arriving butcher/censors every month. Only six weeks ago, I discovered that, over the years, some cubby-hole editors at Ballantine Books, fearful of contaminating the young, had, bit by bit, censored some 75 separate sections from the novel. Students, reading the novel which, after all, deals with censorship and book-burning in the fu­ture, wrote to tell me of this exquisite irony. Judy-Lynn Del Rey, one of the new Ballantine editors, is having the entire book reset and republished this summer with all the damns and hells back in place.

A final test for old Job II here: I sent a play, Leviathan 99, off to a university theater a month ago. My play is based on the “Moby Dick” mythology, dedi­cated to Melville, and concerns a rocket crew and a blind space captain who venture forth to encounter a Great White Comet and destroy the destroyer. My drama premieres as an opera in Paris this autumn.

But, for now, the university wrote back that they hardly dared do my play—it had no women in it! And the ERA ladies on campus would descend with ball-bats if the drama department even tried!

Grinding my bicuspids into powder, I suggested that would mean, from now on, no more productions of Boys in the Band (no women), or The Women (no men). Or, counting heads, male and female, a good lot of Shakespeare that would never be seen again, especially if you count lines and find that all the good stuff went to the males!

I wrote back maybe they should do my play one week, and The Women the next. They probably thought I was joking, and I’m not sure that I wasn’t.

For it is a mad world and it will get madder if we allow the minorities, be they dwarf or giant, orangu­tan or dolphin, nuclear-head or water-conversation­ist, pro-computerologist or Neo-Luddite, simpleton or sage, to interfere with aesthetics. The real world is the playing ground for each and every group, to make or unmake laws. But the tip of the nose of my book or stories or poems is where their rights end and my territorial imperatives begin, run and rule. If Mor­mons do not like my plays, let them write their own. If the Irish hate my Dublin stories, let them rent type-writers. If teachers and grammar school editors find my jawbreaker sentences shatter their mushmilk teeth, let them eat stale cake dunked in weak tea of their own ungodly manufacture. If the Chicano intel­lectuals wish to re-cut my “Wonderful Ice Cream Suit” so it shapes “Zoot,” may the belt unravel and the pants fall.

For, let’s face it, digression is the soul of wit. Take philosophic asides away from Dante, Milton or Hamlet’s father’s ghost and what stays is dry bones. Laur­ence Sterne said it once: Digressions, incontestably, are the sunshine, the life, the soul of reading! Take them out and one cold eternal winter would reign in every page. Restore them to the writer—he steps forth like a bridegroom, bids them all-hail, brings in variety and forbids the appetite to fail.

In sum, do not insult me with the beheadings, finger-choppings or the lung-defiations you plan for my works. I need my head to shake or nod, my hand to wave or make into a fist, my lungs to shout or whis­per with. I will not go gently onto a shelf, degutted, to become a non-book.

All you umpires, back to the bleachers. Referees, hit the showers. It’s my game. I pitch, I hit, I catch. I run the bases. At sunset I’ve won or lost. At sunrise, I’m out again, giving it the old try.

And no one can help me. Not even you.