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It Won’t Do Any Good, But Let’s Do It Anyway

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Oregon has a plan to reduce greenhouse gas emissions by forcing electric companies to stop burning coal and to get half their energy from renewable resources. It sounds like a great plan, but like so many government plans, it has a few flaws.

First, it won’t reduce greenhouse gas emissions. Second, it will increase energy prices, thus reducing the viability of Oregon’s economy.

At least, that’s the conclusion of Oregon’s Public Utility Commission, the three-member board that is supposed to regulate electric utilities. The only problem is that the commission was never consulted about the energy plan, suggesting that the state is listening only to groups who are already true believers.

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Three Months of Work for a Three-Week Bill

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After three months of debate, Congress has agreed to extend federal highway and transit spending for three weeks. Authority to spend federal dollars (mostly from gas taxes) on highways and transit was set to expire tomorrow. The three-week extension means that authority will expire on November 20.

Many members in Congress hope that the three-week delay will allow them to reconcile the House and Senate versions of a six-year bill. Among other things, the Senate version spends about $16.5 billion more than the House bill, $12.0 billion on highways and $4.5 billion on transit. The two bills also use different sources of revenue to cover the difference between gas tax revenues and the amounts many members of Congress want to spend.

To cover this difference, the Senate bill, known as the “Developing a Reliable and Innovative Vision for the Economy Act” or DRIVE Act, provides three years of funding by supplementing gas taxes with new customs, air travel, and mortgage-backed securities guarantee fees. The House bill, called the Surface Transportation Reauthorization and Reform Act, doesn’t offer any source of funds; instead, House Transportation & Infrastructure Committee Chair Bill Shuster merely expressed hope that the House Ways & Means Committee would find a source of funds.

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The Clock Is Ticking

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Because authority to spend federal dollars on highways and transit expires at the end of this month, the House Transportation and Infrastructure Committee (or, to be precise, the chair of that committee, Bill Shuster) has proposed a new bill titled the Surface Transportation Reauthorization and Reform Act. Like the Senate bill proposed last July, the House bill authorizes spending for six years but only provides funding for the first three.

Although the bill promises to “streamline environmental review,” it also adds several new–and probably unnecessary–programs to the existing bureaucracy. These include:

  1. A “Nationally Significant Freight and Highway Projects Program.” Since we already have an Interstate Highway System, a U.S. Highway System, and a National Highway System, a National Freight Highway System seems redundant.
  2. A “National Surface Transportation Innovative Finance Bureau.” Unfortunately, all too often, “innovative finance” means finding a creative way to stick it to the taxpayers.
  3. Funding for vehicle-to-infrastructure communications equipment. However, in the opinion of many experts, such equipment will soon be rendered obsolete by self-driving cars.

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Although the House and Senate now each have six-year bills, the two do not agree on many details. Most importantly, the two differ on where they will get the $10 billion to $15 billion a year needed to continue deficit spending. Thus, many observers believe that Congress will do little more than pass another short-term extension at the end of this month. The big question is whether it will be a two-month extension or a six- (or more) month extension. If the latter, little more (other than additional extensions) is likely to happen in 2016 as it is an election year. If they pass a two-month extension, however, it may signal that they are serious about resolving their differences so they can pass a true six-year bill before the end of this year.

Volkwagen’s Disgrace

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The Environmental Protection Agency says Volkswagen programmed the emissions control systems on 482,000 cars it sold in the U.S. to work only when they were being tested by air quality regulators. Included are Diesel versions of the Jetta, Golf, Passat, Beetle, and Audi A3 sold between 2009 and 2015. When they weren’t being tested, the cars got better fuel mileage but spewed nearly 40 times more nitrogen oxides into the air. (There’s no reports that other pollutants increased.) Far from denying the accusation, Volkswagen has apologized and halted sales of the offending cars.

Volkswagen (which also makes Audi, Bentley, Bugatti, Lamborghini, Porsche, and several other brands that are not sold in the U.S.) had hopes of dramatically increasing its market share in the United States. But this news is a black mark on the company, both from a public relations view and a penalty view, as fines could be as high as $18 billion. As one industry observer says, “this is a disaster of monumental proportions” for the company, whose share price has fallen more than 20 percent since the EPA announcement.

While the Antiplanner has admired Volkswagen for its pioneering work with self-driving cars, the truly sad part is that this may perpetuate American resistance to Diesel power. Based on research by MIT scientists, it is likely that three simple technologies will allow auto manufacturers to cost-effectively meet Obama’s 54.5 mpg target by 2025: streamlining, use of aluminum in place of steel (carbon does even better but is far more costly), and Diesel engines, which are popular in Europe but not so well regarded here. While Diesels aren’t absolutely critical to meeting the fuel-economy targets, they are more cost-effective than most alternatives.

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Congressional Update

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The law that authorizes the federal government to collect gas taxes and spend them on highways and transit last expired in July. Normally, Congress extends the law for six years, but it is currently gridlocked and so in July it extended it through the end of October.

The Senate offered a six-year bill, but only had enough money to fund it for three years. Lacking a similar bill, the House passed the three-month extension and the Senate went along.

Now, the House Transportation and Infrastructure Committee is rumored to have a six-year bill, or possibly a three-year bill. A minor stumbling block is that Republicans were proposing to cut spending for bicycles, which left Democrats incensed. A bigger stumbling block is that there is still no consensus about where the money is going to come from to cover the $12 billion to $15 billion annual deficits in the bill, as Congress is not willing to either raise gas taxes or reduce spending.

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A Businessman for President?

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Donald Trump leads in the polls with 23 percent of Iowa Republicans, while Rand Paul, the most libertarian candidate of the bunch, scores a measly 4 percent. Perhaps the “libertarian moment” is already over.

The Antiplanner won’t comment on many of the things candidate Trump has said, other than they are often ridiculous. But one thing said about Trump is that he would make a better president because he is a businessman, not a professional politician. People apparently imagine that Trump’s business experience would make him a better guardian of taxpayer dollars.

In fact, there’s no reason to expect that. People who think business people would make good political leaders are confusing business with economics. Economists ask, “are the benefits greater than the costs?” and “who benefits and who pays?” Business people don’t ask these questions; they only ask, “can we generate revenues greater than costs?”

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Oil Wars

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Shortly after the Antiplanner commented on low oil prices last April, the Saudis admitted that their goal in flooding the market with oil was to drive out high-cost producers such as owners of shale-oil and off-shore wells. Now it appears that this policy has backfired on the Saudis, as their economy is hurting from the low oil prices while the shale industry continues to produce oil.

The problem for the Saudis, says one analyst, is that low prices might hurt high-cost producers, but the shale frackers “are mostly mid-cost.” thanks partly to new technologies. This means that, once they’ve made the initial investment in drilling and fracking, they can continue to extract oil, covering their operating costs even when prices are low and won’t be put out of business by a temporary surge in production in the Mideast.

Meanwhile, the Saudi government has seen its revenues decline by more than 30 percent. This has led Standard & Poors to downgrade Saudi credit ratings, saying that the country’s economy is “undiversified and vulnerable to a steep and sustained decline in oil prices.”

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More Gridlock Than Ever

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Yesterday, the Senate passed a six-year transportation bill that increases spending on highways and transit but only provides three years of funding for that increase. As the Washington Post commented, “only by Washington’s low standards could anyone confuse the Senate’s plan with ‘good government.'”

Meanwhile, House majority leader Kevin McCarthy says the House will ignore the Senate bill in favor of its own five-month extension to the existing transportation law. Since the existing law expires at the end of this week, the two houses are playing a game of chicken to see which one will swerve course first and approve the other house’s bill.

As the Antiplanner noted a couple of weeks ago, the source of the gridlock is Congress’ decision ten years ago to change the Highway Trust Fund from a pay-as-you-go system to one reliant on deficit spending. This led to three factions: one, mostly liberal Democrats, wants to end deficits by raising the gas tax; a second, mostly conservative Republicans, wants to end deficits by reducing spending; and the third, which includes people from both sides of the aisle, wants to keep spending without raising gas taxes.

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Gridlock II

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Congress has three work weeks to figure out what to do about the highways & transit law that expires on July 31. As noted here a month ago, Congress remains gridlocked over the issue. Two weeks ago, the Senate Environment & Public Works Committee bravely passed a bill that increases spending by 3 percent, but failed to spell out where that money would come from.

That’s the heart of the issue: Congress is spending $52 billion a year on highways and transit, but is collecting only $40 billion a year in gas taxes and other highway user fees. Though there are just two political parties, the gridlock results from the fact that there are four different factions, each with its own solution to the problem of how to reconcile the difference between spending and revenues.

First are those who want to raise highway user fees to cover the entire $52 billion, and maybe a little more. A six-cent increase in taxes would cover the $52 billion, while even a nine-cent increase would still result in a tax that, after adjusting for inflation, would be less than it was in 1994, the last time it was increased.

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Austerians or Common-Sensicans?

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The Greek debt crisis has Paul Krugman waging a verbal war against those he called Austerians, meaning economists who think the solution to being up-to-your-ears in debt is to cut back on spending. (It’s also a pun on Austrian economics, which generally opposes government intervention in just about anything.)

“Greece was overspending, but not by all that much,” claims Krugman. “It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170 percent of GDP despite savage austerity?” The answer, he argues, is the austerity measures themselves “are the obvious culprits.”

Never mind the fact that tax avoidance in Greece is a national sport, that Greece doesn’t bother to make sure people pay user fees for public services like rail transport, and despite collecting so little fares the country lavishly pays rail workers an average of nearly $75,000 a year so that the rail system costs seven times as much to operate as it returns in revenues. Krugman’s solution is to spend more, thus effectively excusing people for not paying taxes or fares and for demanding high pay and pensions for jobs that produce little economic benefit.

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