The federal debt is $26.3 trillion and growing, having increased by a trillion dollars in just 40 days prior to last Friday. There’s too much complacency about the size of that debt, and much of this complacency can be traced to a 2013 study by the Institute for Energy Research estimating the value of federal land and energy resources to be around $200 trillion.
Since then, that study has been cited in Forbes, Time, MarketWatch, and by various bloggers, as well as President Trump’s staff, all of whom argue that don’t need to worry about the size of the debt because we can pay it off by selling federal assets. Unfortunately, this is based on a serious misreading of the IER study, mainly that the study used gross resource values, not the prices the federal government could get for its resources.
For example, the study assumed that oil is worth $100 a barrel, which is the price at a refinery. From this must be deducted the costs of finding, extracting, and transporting the oil to the refinery. The federal government’s share of the oil it sells was about $12 a barrel in 2013 and, with declining oil prices, about $9 a barrel in 2019.
The Institute for Energy Research may have understood the difference between gross and net values, but none of the people quoting them did. Moreover, I haven’t seen any indications that the institute bothered to correct these misinterpretations.
Worse, federal resources include so much oil, natural gas, and coal that it will take hundreds of years to extract it all. Federal coal reserves in the contiguous 48 states alone represent 1,300 years of American coal consumption. This means we can’t simply multiply the price of coal per ton by the number of tons owned by the federal government; we have to discount future coal mining by an appropriate interest rate.
Using a 3 percent discount rate, and assuming federal oil, gas, and coal is produced at a rate equal to half of all U.S. production (which is far faster than it is being produced today), all energy resources owned by the federal government are worth around $2 trillion, not $200 trillion. At a 4 percent discount rate, the value is reduced to $1.5 trillion. Even these numbers are questionable because more than 80 percent of the federal government’s oil is shale oil, which is the most expensive to extract, so royalties paid by oil producers for that oil will probably be lower than for other energy minerals.
Further, it is easily possible that energy substitutes for oil, gas, and coal will become available and economical long before the federal resources are exhausted. You can see my detailed calculations along with other caveats in this four‐page paper.
To this can be added the value of federal lands. The federal government owns about 623 million acres of land. A 2015 paper from the Bureau of Economic Analysis estimated the 464 million acres of land in the contiguous 48 states was worth an average of $4,100 per acre, for a total of $1.8 trillion.
There are problems with this number as well. First, about a third of these lands are in national parks, wilderness areas, and wildlife refuges that Congress would never dare to sell. To collect total revenues of $1.8 trillion, the remainder would have to be worth $7,200 an acre.
Perhaps half of the remainder are forest lands, but such lands are generally not worth $7,200 or even $4,100 an acre. Weyerhaeuser recently sold 630,000 acres of forest lands in Montana for $230 an acre. Even in the Oregon Coast Range, which has some of the most productive timberland in the world, land typically sells for under $4,000 an acre. Timber and timberland values are low because, says the Forest Service, the United States is growing timber far faster than it is cutting it.
Some of the remaining land might be considered agricultural and is used for grazing cattle and other domestic livestock. But the United States has 1.1 billion acres of private agricultural lands and only uses about 350 million of them to grow all the crops we need to feed ourselves and our livestock plus export food and grow corn for ethanol. Most federal lands in Alaska, incidentally, are also in national parks and/or are tundra that certainly can’t be sold for $4,100 an acre.
In short, the federal government is even less likely to get $1.8 trillion for its land than it is to get $2.0 trillion for its energy resources. Selling all of these resources will cover, at most, 14 percent of the national debt as it stood last week, and probably a lot less. This means no one should be complacent about the size of the national debt thinking that the federal government has the resources to cover it.
It’s an election year, so it must be time for some grandiose infrastructure proposals. Representative Peter DeFazio (D-OR), chair of the House Transportation and Infrastructure Committee, has come out with a $494 billion five‐year transportation proposal, which is a huge boost from Congress’ 2015 five‐year spending package of $305 billion. Congress writes a new highway & transit package about every five or six years; the 2015 one expires on September 30 of this year.
In response, the Trump administration is rumored to finally be coming out with his $1 trillion infrastructure plan. Candidate Trump famously promised to spend $1 trillion on infrastructure in 2016 in response to Hillary Clinton’s proposal to spend half a trillion on infrastructure. Campaign background documents clarified that he didn’t expect the federal government to spend $1 trillion but merely to give private investors incentives to spend that much money. Nothing much happened with that plan after he took office.
Now that the 2015 highway & transit package is about to expire, the Trump administration is planning to build its infrastructure plan around its renewal. On one hand, the administration wants to spend less money that DeFazio’s plan. On the other hand, it wants to reach the magic number of $1 trillion. To do both of these things, it will propose not a five‐year plan but a ten‐year plan that spends less each year than DeFazio’s plan but more in total.
Specifically, the draft Trump package would spend $810 billion on highways & transit over ten years. To round the total up to $1 trillion, another $190 billion is thrown in for rural broadband, 5G cell services, and other non‐transportation infrastructure.
Even $81 billion a year is far more than the federal government collects in highway user fees. When Congress created the Interstate Highway System in 1956 and dedicated federal gasoline taxes and other motor vehicle excise taxes to that system, Tennessee Senator Al Gore — the former vice-president’s father — insisted that it be on a pay‐as‐you‐go basis, in other words, that the highways would only be built as fast as the money came in for them.
Gas taxes are supposed to be user fees, but because we call it a tax, it got caught up in the pledges not to increase taxes many Congressional candidates made in the 1990s. As a result, the federal gas tax hasn’t been increased since 1993. Considering inflation and increased fuel economy, that means drivers are paying only about 40 percent as much today for every mile they drive as they did in 1993.
Instead of raising gas taxes, Congress increased deficit spending. In 1996, Congress abandoned Gore’s pay‐as‐you‐go rule and decreed that the federal government should spend as much money as was projected to come in, not how much it actually collected. This became important in the 2008 financial crisis, when gas tax and other highway revenues declined. Since then, Congress has supplemented those revenues with something like $140 billion in deficit spending.
The Trump plan would have less deficit spending than the DeFazio plan, but considerably more than the 2015 transportation bill. While the 2015 bill required about $100 billion in deficit spending over five years, considering that the pandemic is reducing highway revenues the Trump bill is likely to require about $400 billion over the first five years and more after that.
In 1991, Congress created a program called New Starts to fund up to 50 percent of the cost of light‐rail and other obsolete transit lines. By increasing traffic congestion and promoting high taxes and wasteful spending, this program has probably done more damage to American cities than any federal program since the urban renewal projects of the 1950s.
The DeFazio bill would increase the federal government’s share of New Starts money to 80 percent. More wisely, the Trump plan would cut this program altogether and spend money instead on rehabilitating existing rail lines. Since the transit industry has a $100 billion infrastructure backlog, rehabilitation makes more sense than building new lines, but in many cases it would be better to simply replace trains with buses when the rail lines wear out.
Although the Trump plan would end New Starts, one draft of the plan would create a brand‐new program promoting intercity passenger trains. Since they are just as obsolete as light rail, this would merely trade in one wasteful program for another.
None of these plans take into account the effect of the pandemic, which is likely to accelerate the decline in transit ridership and growth of auto driving. Transit ridership was already falling before the pandemic, and the pandemic reduced ridership for some transit agencies by more than 95 percent. Many of these riders will never go back to transit. Any infrastructure bill passed by Congress needs to account for these changes and the futility of trying to get people out of their cars when cars are the safest way to travel during an epidemic.
Trump’s promise of a $1 trillion infrastructure plan conflicted with his promise to “drain the swamp” or reduce federal bureaucracy. We don’t need a federal program for 5G cell networks; private industry will do that. We don’t need a federal program for rural broadband; having slower internet is one the trade‐offs people accept for living in rural areas. We don’t need to continue, much less expand, a federal program for the obsolete transit industry. Finally, we don’t need to use deficit spending to subsidize highways; highway users will pay for the roads they drive on if we ask them to, especially if they know the money they are paying isn’t be diverted to transit boondoggles.
Governments often fail because they tend not to learn lessons. They make similar mistakes over and over for reasons described in this study.
The FDA botched its COVID-19 response by using its regulatory powers to monopolize the development of virus tests. I have not heard any apologies for the failure or that any officials have been fired. As a Wall Street Journal investigation of HHS leadership suggests, the gross testing failure has led to lots of finger pointing, but not institutional reforms.
After the testing debacle, one might think that federal leaders would hesitate to impose further one‐size‐fits‐all solutions for COVID-19. But no—the Wall Street Journal reports that House Democrats want to require OSHA “to order all companies to implement comprehensive plans to protect workers who continue in their jobs during the pandemic. The new, emergency standard would have to be issued within seven days after any legislation is signed into law.”
Thus, in seven days federal bureaucrats would apparently write‐up a Giant Safety Plan to impose on millions of businesses in hundreds of industries across our huge and diverse nation. That makes no sense.
Federal policymakers seem to have little comprehension that their actions often sideline the vast brain power and innovation that lives outside of Washington. At the stroke of a pen, federal regulations nullify the experimentation, dynamism, and speed that America’s private sector can mobilize to solve problems.
As they consider imposing COVID-19 safety regulations, policymakers should ponder the pro‐active steps that businesses are already taking or actively considering, as discussed in another Wall Street Journal article. Businesses are separating workspaces, taking temperatures and screening health at work entrances, testing employees before they get to work, closing lunch rooms, installing workspace partitions, adjusting shifts, modifying production lines, changing entrances and exits, closing facilities and tracing contacts if workers test positive, placing materials down rather than handing them to others, sanitizing workspaces, having safety experts instruct workers, spacing bathroom urinals, wearing electronic bands to alert workers if others are too close, and providing masks, gloves, and hand sanitizer.
A central plan quickly thrown together in Washington could not impose a “best” way for millions of businesses to install these sorts of changes. Every business is unique. Here are some reasons why allowing businesses to address their own safety challenges is superior to top‐down federal mandates:
Trial‐and‐Error. The Journal story puts a negative spin on diverse business approaches to safety as a “patchwork” and “ad hoc.” But anyone who studies innovation knows that trial‐and‐error processes are crucial to economic and societal improvements. Private institutions change direction all the time as they try different things and receive feedback from stakeholders. To discover the best ways to adjust each workplace for COVID-19, businesses need the freedom to experiment and to change course.
Government regulations undermine the steady improvements that are the hallmark of markets and free societies. Imposing COVID-19 safety regulations would reduce business incentives to implement new and better approaches. The question around every workplace would change from “Are we doing this safely and can we do it better?” to “Are we conforming to the OSHA rules?”
Horizontal Learning. Volkswagen is reopening some of its European factories after making 100 workplace changes. VW has been flooded with requests from other businesses about the safety procedures it is using, and so the company has posted its ideas online. American businesses are also studying Chinese businesses that were able to open safely. This sort of horizontal learning is superior to the often‐ill‐informed edicts from Washington. Similarly, horizontal sharing of resources during crises is better than vertical intervention, as discussed here.
Costs and Benefits. In theory, federal bureaucrats are supposed to design regulations by comparing the costs and benefits of various possible rules, but the process is a crude way of making decisions in an economy, even after rules have been studied for years. In the current crisis, regulators would have little time to even try and make balanced decisions. Business leaders know their own facilities, employees, and customers, and they can make better reopening decisions based on their local knowledge.
Flexibility. The nature of the COVID-19 threat will change over time. Scientists may learn more about virus transmission on surfaces and in the air. Drugs may be developed to reduce the health risks. New safety approaches and technologies may be developed. As such, businesses need the freedom to adjust their safety procedures over time. Regulations would lock‐in rules that may be quickly outdated as conditions change.
Today marks the 50th anniversary of the first celebration of Earth Day. The Simon Project is happy to announce the release of The Simon Abundance Index 2020. This year’s Index covers the period between 1980 and 2019.
The main findings of the report are as follows:
Between 1980 and 2019, the average time price of 50 basic commodities fell by 74.2 percent. That means that for the same length of time that a person needed to work to earn enough money to buy one unit in our basket of 50 commodities in 1980, he or she could buy 3.87 units in 2019. The average individual level of abundance, in other words, rose by 287.4 percent. That amounts to a compound annual growth rate of 3.63 percent and implies a doubling of abundance every 19.45 years.
The price elasticity of population (PEP) allows us to measure sensitivity of resource availability to population growth. Between 1980 and 2019, the world’s population increased from 4.458 billion to 7.677 billion or by 73.2 percent. The time price of commodities fell by 74.2 percent. As such, the time price of commodities declined by 1.014 percent for every 1 percent increase in the world’s population. Put differently, over the last 39 years, every additional human being born on our planet appears to have made resources proportionately more plentiful for the rest of us.
The Simon Abundance Index uses the time price of commodities and change in global population to estimate global resource abundance. The Index represents the ratio of the change in population over the change in the time price, times 100. It has a base year of 1980 and a base value of 100. In 2019, the Index reached a level of 670.9. That is to say that the Earth as a whole was 570.9 percent more abundant in 2019 than it was in 1980.
The accompanying video can be found here.
Last week, I pointed out a recent report that blamed much of the spread of COVID-19 in New York City on the subway system. Recently, I’ve collected a series of memos suggesting that New York’s Metropolitan Transportation Authority (MTA) is specifically culpable in this spread.
During the 2012 influenza epidemic, the MTA issued a policy directive stating that the agency would keep a six‐week supply of sanitizer wipes, sanitizer gel, and N95 respirators on hand for use by employees. The directive specifically stated that the masks would be available for bus drivers, station attendants, train conductors, and cleaners, among others.
The first COVID-19 death in America was reported by Washington state on February 29, 2020. Rather than make its supposed six‐week stockpile of masks available to its employees, MTA issued a memo on March 6 forbidding employees from wearing masks, even if they had their own masks. The memo worried that, if bus operators and station attendants were allowed to wear masks, it could lead to “panicked purchasing of facemasks … thereby putting health care providers and their communities at greater risk.”
Admittedly, as of March 6, there was still some debate among epidemiologists about whether healthy people needed to wear masks to protect themselves from the virus. But it is one thing to not mandate that masks be worn; it is quite another to forbid employees from wearing them. MTA also apparently failed to follow its own policy directive to maintain a six‐week supply of respirators.
Nine days later, on March 15, MTA reported that the first of its employees had tested positive for the coronavirus. However, it wasn’t until March 30 that MTA rescinded its order forbidding employees from wearing masks. It may only have been a coincidence that MTA’s CEO, Patrick Foye, had tested positive for COVID-19 the day before or that the first deaths of two MTA employees from coronavirus had taken place on March 26.
On April 9, MTA announced that it had acquired 75,000 masks and had made them available to its workers “since March 1.” Technically, that was true, but it didn’t begin distributing them until around March 31. When employees complained that MTA had not made the masks available before then, MTA officials grumbled that it was “a transportation organization, not a medical provider.” So much for the 2012 policy directive.
On April 16, MTA finally issued a bulletin mandating that both employees and passengers wear masks. But by that time, more than 70 MTA employees had died of the coronavirus and at least 6,000 were in quarantine.
The MTA also signed a stipulation with the local transit union agreeing to pay out $500,000 in death benefits to any active employees who died after contracting the coronavirus, without debating whether the coronavirus was the actual cause of death or whether the employee had been infected when on duty. Employees who had lost friends to the virus suspect that the agency agreed to this to minimize the chance of lawsuits for much larger amounts due to its failure to protect its own employees.
Now that the virus may be winding down in New York, several city council members are urging Governor Cuomo to shut down the subways. In retrospect, however, it is clear that Cuomo should have shut MTA down as soon as he realized the pandemic would be serious.
As I noted last week, academic studies published in 2011 and 2018, among others, made it clear that, in the event of a pandemic, transit systems would likely be a major source of infection. One even found that people who rode transit were nearly six times more likely to have acute respiratory infections than those who didn’t.
Rather than shut down, however, MTA and other transit agencies continue to operate, insisting that they are providing a vital service for “essential workers.” The reality is that those essential workers would be much safer getting to work in private automobiles than taking transit.
Sit‐down restaurants and bars have been shut down. Public officials are discouraging or even forbidding people from doing “unnecessary travel,” even if it is to visit a second home where they might be able to socially distance themselves better than in their first, more urban home. All sorts of other rules are being passed, all supposedly for our own good.
So why are urban transit systems still running? A 2018 study found that “mass transportation systems offer an effective way of accelerating the spread of infectious diseases.” A 2011 study found that people who use mass transit were nearly six times more likely to have acute respiratory infections than those who don’t. Not surprisingly, a study published a few days ago found that New York City subways were “a major disseminator — if not the principal transmission vehicle — of coronavirus infection.”
Transit agencies say they are helping “essential workers” go about their business. But if they are so essential, isn’t it important to find them a safe way of getting to work? If we truly cared about people’s safety, then transit services should have shut down at the same time we closed other non‐essential businesses and asked people to stay at home.
I don’t think it is a coincidence that 44 percent of all transit rides in 2019 took place in the New York‐northern New Jersey urban area and, at last count, 45 percent of all COVID-19 fatalities were recorded in this same area. When I pointed this out to Hawaiian transportation engineer Panos Prevedouros, he did a more detailed analysis showing a strong state‐by‐state correlation between transit and coronavirus.
Unfortunately, the transit lobby has successfully turned government‐subsidized transit into a sacred cow. Transit is supposedly greener than driving when in fact it’s an energy hog. Transit is supposedly needed to help poor people get to work when in fact the people most likely to commute by transit are those earning more than $75,000 a year.
When the pandemic took away most of transit’s customers, instead of shutting down, which would have been the responsible thing to do, transit agencies demanded that Congress give them $25 billion, tripling federal support to transit this year. Thanks to transit’s sacred cow status, Congress agreed without any serious debate.
Effectively, Congress rewarded the agencies for spreading disease. It would have been better to use that money to help transit‐dependent essential workers buy a car so they could have a safe way of getting to work.
Now transit agencies are beginning to fret that they’ll need even more money soon. Instead, it’s time to shut down transit systems for the duration, and start a debate about what kind of transportation we will need with the pandemic is over.
A new oil deal led by the United States, Russia, and Saudi Arabia promises to withhold 9.7 million barrels of crude oil a day from global markets – over 13 percent of the world’s daily supply. The deal is in response to cratering demand for gasoline as millions stay home to prevent the spread of COVID-19 and as businesses reduce their energy utilization.
Limiting crude oil supply to inflate oil prices is a sharp reversal of previous U.S. policy. As recently as last September experts worried of the damage that high oil prices would cause the U.S. economy, and the U.S. has a historically antagonistic relationship with OPEC. Current worry over low prices is, at a minimum, surprising.
So why the change of heart? A glance at the S&P 500 Energy Sector tells part of the story. From January 1 to March 18 the index dropped by 60 percent. Markets have rebounded somewhat since then but still remain at barely half their six‐month high.
The other part of the story is crony capitalism: after the oil sector lobbied for but failed to get $3 billion in stimulus funding, President Trump directed the Department of Energy to make purchases to fill the strategic petroleum reserve anyway. More explicitly, he said, “[Russian President Vladimir Putin, Saudi Arabian King Salman, and I] had a big talk as to oil production and OPEC and making it so that our industry does well and the oil industry does better than it’s doing right now.” Later he directly acknowledged the change of heart, saying, “I hated OPEC. You want to know the truth? I hated it — because it was a fix. But somewhere along the line that broke down.”
Yet trying to raise oil prices is insane economic policy. Lower prices are bad for sellers but good for consumers and non‐oil‐producing businesses. Thus the dramatic drop in oil prices over the past two months is one of the few silver linings in the current economic situation.
At best, the oil deal will temporarily prop up the struggling U.S. energy sector. At worst, it will enrich oil companies and their shareholders at the expense of struggling Americans. The U.S. has criticized OPEC’s manipulation of oil prices for decades, but now we are complicit.