Guest Post
written by: Jonathan Tancer
edited by: Marc Tancer
written one week after Hurricane Sandy in the midst of power outages and gas lines in New Jersey
(I've only edited my brothers spelling and grammar, and added a couple points here or there, and wrote the last paragraph)
People, the reason why the gas lines are so long is because of the bogus law that prohibits "price gouging". I am a registered Republican and I disagree with Chris Christie for not reversing the "price gouging" law during this time.
Supply side:
There is not a shortage of gasoline*, there is a shortage of pumping stations. If more stations were open, the perceived "shortage" would be much less. By removing the price increase cap, more stations would be open. If gas station owners were able to charge more, they could afford to become more creative. For example, it might be economical and profitable to burn their own gas to run generators in order to pump gas if gas was allowed to go to $5 or $7 or how ever much the markets dictates per gallon. Also, receiving a shipment from further away might cost a gas station more money, but the station cannot by law increase their prices to consumers by more than 10%, so this might not be economical either. Perhaps most importantly, as a general matter of natural disasters, the best way to encourage individuals and companies in other states to come to provide goods or services is to allow the prices to increase! They in fact they might need to be paid much more in the wake of a natural disaster to compensate for the risk they are taking by going into or shipping something into a dangerous area. Imagine I owned a gasoline refinery. If I could sell my gas for the same price in PA is I could sell it for in Jersey, but New Jersey was half way under water, I wouldn't risk my workers, delivery trucks, or gasoline... I wouldn't send them to New Jersey. But if gas went to $7/gallon, maybe I would take the risk. I don't pretend to know because I don't own a refinery, but this is a decision best made by those who do!
Nj is full service, gas attendants have to be paid. A gas station may normally have just one or two attendants, but to keep the lines moving the owner may want to have more attendants, as many as one person per pump! Because stations are prohibited from increasing the price they can't afford to hire more workers to keep the line moving.**
Demand side:
By artificially keeping the price of gas down in a time of "shortage" the government is creating artificial demand.
People see long lines (caused by the supply factors discussed above) and that causes people to panic and run to the gas station on a daily basis, even if it is just to top off the tank. The lines become even longer, and people burn 60 miles of gas waiting in a 2 hour gas line, further wasting more of the scarce resource.
This confluence of a sort of crazed demand and stunted supply will always create long lines which could lead to worse problems.
As a matter of principle, if I as a hardworking American am willing to pay $10 a gallon for gasoline in order to not wait in line for it, why should the government say no?
There will be talk about how increased prices will hurt the poor. I have no doubt it would hurt the poor directly. I think it would hurt the poor the most; the poor consume much more gasoline (and other necessities... food for example) than the rich do as a percentage of their income or wealth. However, we need to look at the seen versus the unseen and how the alternative (anti-price gouging laws) might be worse for the poor, and for society. If a poor person has a minimum wage job and is living paycheck to paycheck, it is very likely that he cannot miss much work if he wants to stay afloat. I work, as many of you do, and I know that if I had to wait on a 5 or 6 hour line for gasoline, there is no doubt I would miss work. It is the poor who most need to continue working, and gas lines will force everyone to miss work. Every non-ultra-wealthy consumer would suffer from $6, or $10 gasoline, but would this temporary suffering which may last a couple of weeks be worse than missing work? I suppose that's subjective, but I say no, it would not be worse than missing work. Also, society cannot afford to allow those with certain high skilled jobs to miss work either. An ER doctor can afford $10/gallon gas, but he cannot afford to be waiting on a 5 hour line when there are all of these emergency patients who get hurt as a result of the natural disaster! Now, the people in between the minimum wage worker and the ER doc are the ones who actually produce and deliver food, energy, and other physical goods, and provide people with services, if they are forced to wait on gas lines instead of working, the economy would definitely suffer... as production is stunted.
*By definition, the difference in the amount of gasoline demanded and supplied at price created by a government price control is a shortage, so this was actually a gasoline shortage. But the subsequent point is very legitimate and important.
** Christie also should have stopped enforcing the full service law in New Jersey. That would have, at least to a small extent, helped reduce the lines.
Thursday, November 15, 2012
Sunday, November 4, 2012
Jill Stein's Green New Deal
As I promised several weeks ago, here is a commentary on the Green Party's nominee for President Jill Stein's "Green New Deal." It will be abbreviated so I can comment on as much of it as I can in one blog post.
First I want to comment that I think she's probably an honest person who actually wants what's best for America, as opposed to Mitt Romney and Barack Obama. And at least she's a physician, not an attorney... so I can give her credit for that. While I believe her Green New Deal is based on her honest beliefs and not on corruption, it is, like most policies, a result of good intentions but will have numerous disastrous unintended consequences. Perhaps her two arrests have been kind of planned by her to get publicity, but maybe they weren't; maybe they resulted from her emotional responses to very important issues. So I'm about to say all of the following, which many of you won't like. I just wanted to let you know that I think she is coming from the right place, I'm just going after her proposals.
The Green New Deal:
I. Economic Bill of Rights
1. Her economic bill of rights makes no sense - as rights are things that individuals hold as human beings, against other people and against the state. She is talking about "positive rights" - or the state using force against some for a supposed benefit to others. And a "right to full employment" also demonstrates a dangerous misunderstanding of how labor and capital work. She also shows extreme political naivete by thinking that an employment program could be nationally funded but locally controlled. Just like education, the feds will regulate in politically arbitrary ways as long as they fund it.
2. "Right to living wage, ..." etc. This is also a positive right, which goes against what rights are. For the state to pretend to guarantee a living wage to each worker, it must violate others' property rights. To take from some productive effort to cover an artificially higher wage. Also, everyone has the right to free assembly and association. This means workers cannot be prevented by government from joining together, but employers still have the same rights than workers do. Employers should not be required to lay off those who are striking and holding up production. The less production there is in the economy, the less wealth is being created and standards of living will not increase as quickly, or may even go down.
3. A Medicare for all system exists in Canada. There are long lines for medical care in Canada, and the system is bankrupt. We need to reverse the economic effects of the HMO Act, and phase out Medicare. Our economy can't afford to be directing so much capital for such unhealthy results as the managed third party payment system coupled with the FDA/Big PHARMA complex has given us.
4. Again she believes something can be federally funded but locally controlled. It's laughable politically. We certainly do need a locally controlled education system, though. Student loan debt should NOT be forgiven. This would be a huge moral hazard which would perpetuate the problem. Just like how the financial sector had explicit and implicit government guarantees during the housing bubble which encouraged it to grow, the government guarantees of all of the student loans is in my estimation the second biggest reason that tuition has got so out of control (the biggest reason is inflation). However, in support of college students, future student loans should be dischargeable in bankruptcy. And perhaps past student loans should be retroactively made dischargeable (I haven't though through that in particular). Anything that can be done to liquidate bad college debt and encourage tuition to decrease should be considered. Except they shouldn't just be forgiven. After a student loan is discharged in legitimate bankruptcy, the borrower should have some sort of impaired credit for a time, but let the market (ratings agencies and private individuals in general) decide what people's credit should be.
5. Good intentions- get people into homes, hault foreclosures, all noble goals. But economically, these policies have the same effects of the policies which caused the housing bubble from 2001-2006 which led to the Great Depression that began in December 2007 and the financial crisis in 2008. We need to allow foreclosures, but certainly the feds should have an investigation of the robo-signing fraud, where judges didn't even examine documentation presented by banks, and just signed off on foreclosures.
6. Publicly owned utilities would lead to technological stagnation and long term physical deterioration of the utilities. This kind of centralization could also lead to the possibility that a natural disaster would knock out a monopoly, which would be slow to respond, instead of in a private profit seeking market, utilities would be up much faster. Also, since when did progressives believe in centralization? I thought they like decentralized power?
7. Allowing individuals or businesses to pay less in taxes is NOT a subsidy. [In an economic sense, I do see it as potentially distortionary, and having an effect as a subsidy.] This thinking suggests that the state owns 100% of one's productive effort, and allows the individual to keep some of it. If it allows the individual to keep more, it is a cost. That is the thinking that has led to our horrible tax system.
II. A Green Transition
This part of the Green New Deal is the perfect example of what Hayek called "The Pretense of Knowledge." Jill Stein believes that she knows what forms of energy are clean and economical. Only the market can decide what is economical. Of course, if there was no corporate tax and no income tax, the tax breaks which do benefit certain oil companies over other businesses wouldn't exist. This would help balance the playing field and allow for more competitiveness.
III. Real Financial Reform
Democratizing the central bank, putting it under Treasury, might be marginally better than what we have now in a philosophic sense- that as long as there is paper money ordained by the government, it should be issued by the government as opposed to by a government ordained private institution. However, practically speaking, it would probably be worse. It would no longer be a shell game between Congress and the Fed, and it will become even more obvious to markets that the central bank monetizes government debt. This would lead to a quick deterioration of markets.
How does she intend to break up banks which she decides are too big to fail. Of course the moral hazard of too big to fail is a big problem. But you need not break up the banks. You may need only allow them to fail or succeed on their own merits, and simply remove the guarantee to bail them out, and ensure markets that the government will not bail them out.
I agree with her on something! End bailouts for financial industry!
How does she want to regulate financial derivatives? Why does she want to regulate financial derivatives. It might sound good to people who know that derivatives proliferated during the bubble and had something to do with the crash. But let me tell you, derivatives didn't lead to the crash. Derivatives proliferated for the same reason that the housing bubble was growing - there was all of this excess liquidity and prices were going up and all of these people were borrowing money and feeling good. But the derivatives didn't cause the crisis. In fact, those who profited by being long credit default swaps deserved all of the money they earned - because their purchase of CDSs sent a signal to markets that there were people who did believe that defaults were going to be widespread and the whole system was unsustainable. I love the concept of derivatives. They smooth out markets and benefit both of those who enter into them.
The only part of Glass-Steagall that Bill Clinton repealed was the prohibition against a commercial bank and an investment bank being owned by the same entity. Perhaps repealing this prohibition made it physically easier to commit fraud by using some clients' money as it was not supposed to be used, but it did not make it legal. Talk about Glass-Steagall in relation to this current depression is a red herring.
A 90% tax on bailed out bankers would violate the Constitution. The Constitution prohibits Congress pass ex post facto laws and bills of attainder. This proposal is both an ex post facto law and a bill of attainder. The bailouts were wrong, but let's not do more wrong! Two wrongs don't make a right.
I might cover Part IV - A Functional Democracy tomorrow. I am very disappointed that their reference to their desire to cut military comes as only the last point in their entire platform; it is curt but specific, and agreeable. But it really doesn't give the important explanations as to why this is so important. But I can not continue this post tonight. I didn't go into detail as far as the economic machinations which are behind the numerous assertions I made above. However, I have described probably each and every idea in depth in the past. And if you do like what she has to say, then fine, vote for her. It certainly is a better vote than for Obama or Romney.
Peace
First I want to comment that I think she's probably an honest person who actually wants what's best for America, as opposed to Mitt Romney and Barack Obama. And at least she's a physician, not an attorney... so I can give her credit for that. While I believe her Green New Deal is based on her honest beliefs and not on corruption, it is, like most policies, a result of good intentions but will have numerous disastrous unintended consequences. Perhaps her two arrests have been kind of planned by her to get publicity, but maybe they weren't; maybe they resulted from her emotional responses to very important issues. So I'm about to say all of the following, which many of you won't like. I just wanted to let you know that I think she is coming from the right place, I'm just going after her proposals.
The Green New Deal:
I. Economic Bill of Rights
1. Her economic bill of rights makes no sense - as rights are things that individuals hold as human beings, against other people and against the state. She is talking about "positive rights" - or the state using force against some for a supposed benefit to others. And a "right to full employment" also demonstrates a dangerous misunderstanding of how labor and capital work. She also shows extreme political naivete by thinking that an employment program could be nationally funded but locally controlled. Just like education, the feds will regulate in politically arbitrary ways as long as they fund it.
2. "Right to living wage, ..." etc. This is also a positive right, which goes against what rights are. For the state to pretend to guarantee a living wage to each worker, it must violate others' property rights. To take from some productive effort to cover an artificially higher wage. Also, everyone has the right to free assembly and association. This means workers cannot be prevented by government from joining together, but employers still have the same rights than workers do. Employers should not be required to lay off those who are striking and holding up production. The less production there is in the economy, the less wealth is being created and standards of living will not increase as quickly, or may even go down.
3. A Medicare for all system exists in Canada. There are long lines for medical care in Canada, and the system is bankrupt. We need to reverse the economic effects of the HMO Act, and phase out Medicare. Our economy can't afford to be directing so much capital for such unhealthy results as the managed third party payment system coupled with the FDA/Big PHARMA complex has given us.
4. Again she believes something can be federally funded but locally controlled. It's laughable politically. We certainly do need a locally controlled education system, though. Student loan debt should NOT be forgiven. This would be a huge moral hazard which would perpetuate the problem. Just like how the financial sector had explicit and implicit government guarantees during the housing bubble which encouraged it to grow, the government guarantees of all of the student loans is in my estimation the second biggest reason that tuition has got so out of control (the biggest reason is inflation). However, in support of college students, future student loans should be dischargeable in bankruptcy. And perhaps past student loans should be retroactively made dischargeable (I haven't though through that in particular). Anything that can be done to liquidate bad college debt and encourage tuition to decrease should be considered. Except they shouldn't just be forgiven. After a student loan is discharged in legitimate bankruptcy, the borrower should have some sort of impaired credit for a time, but let the market (ratings agencies and private individuals in general) decide what people's credit should be.
5. Good intentions- get people into homes, hault foreclosures, all noble goals. But economically, these policies have the same effects of the policies which caused the housing bubble from 2001-2006 which led to the Great Depression that began in December 2007 and the financial crisis in 2008. We need to allow foreclosures, but certainly the feds should have an investigation of the robo-signing fraud, where judges didn't even examine documentation presented by banks, and just signed off on foreclosures.
6. Publicly owned utilities would lead to technological stagnation and long term physical deterioration of the utilities. This kind of centralization could also lead to the possibility that a natural disaster would knock out a monopoly, which would be slow to respond, instead of in a private profit seeking market, utilities would be up much faster. Also, since when did progressives believe in centralization? I thought they like decentralized power?
7. Allowing individuals or businesses to pay less in taxes is NOT a subsidy. [In an economic sense, I do see it as potentially distortionary, and having an effect as a subsidy.] This thinking suggests that the state owns 100% of one's productive effort, and allows the individual to keep some of it. If it allows the individual to keep more, it is a cost. That is the thinking that has led to our horrible tax system.
II. A Green Transition
This part of the Green New Deal is the perfect example of what Hayek called "The Pretense of Knowledge." Jill Stein believes that she knows what forms of energy are clean and economical. Only the market can decide what is economical. Of course, if there was no corporate tax and no income tax, the tax breaks which do benefit certain oil companies over other businesses wouldn't exist. This would help balance the playing field and allow for more competitiveness.
III. Real Financial Reform
Democratizing the central bank, putting it under Treasury, might be marginally better than what we have now in a philosophic sense- that as long as there is paper money ordained by the government, it should be issued by the government as opposed to by a government ordained private institution. However, practically speaking, it would probably be worse. It would no longer be a shell game between Congress and the Fed, and it will become even more obvious to markets that the central bank monetizes government debt. This would lead to a quick deterioration of markets.
How does she intend to break up banks which she decides are too big to fail. Of course the moral hazard of too big to fail is a big problem. But you need not break up the banks. You may need only allow them to fail or succeed on their own merits, and simply remove the guarantee to bail them out, and ensure markets that the government will not bail them out.
I agree with her on something! End bailouts for financial industry!
How does she want to regulate financial derivatives? Why does she want to regulate financial derivatives. It might sound good to people who know that derivatives proliferated during the bubble and had something to do with the crash. But let me tell you, derivatives didn't lead to the crash. Derivatives proliferated for the same reason that the housing bubble was growing - there was all of this excess liquidity and prices were going up and all of these people were borrowing money and feeling good. But the derivatives didn't cause the crisis. In fact, those who profited by being long credit default swaps deserved all of the money they earned - because their purchase of CDSs sent a signal to markets that there were people who did believe that defaults were going to be widespread and the whole system was unsustainable. I love the concept of derivatives. They smooth out markets and benefit both of those who enter into them.
The only part of Glass-Steagall that Bill Clinton repealed was the prohibition against a commercial bank and an investment bank being owned by the same entity. Perhaps repealing this prohibition made it physically easier to commit fraud by using some clients' money as it was not supposed to be used, but it did not make it legal. Talk about Glass-Steagall in relation to this current depression is a red herring.
A 90% tax on bailed out bankers would violate the Constitution. The Constitution prohibits Congress pass ex post facto laws and bills of attainder. This proposal is both an ex post facto law and a bill of attainder. The bailouts were wrong, but let's not do more wrong! Two wrongs don't make a right.
I might cover Part IV - A Functional Democracy tomorrow. I am very disappointed that their reference to their desire to cut military comes as only the last point in their entire platform; it is curt but specific, and agreeable. But it really doesn't give the important explanations as to why this is so important. But I can not continue this post tonight. I didn't go into detail as far as the economic machinations which are behind the numerous assertions I made above. However, I have described probably each and every idea in depth in the past. And if you do like what she has to say, then fine, vote for her. It certainly is a better vote than for Obama or Romney.
Peace
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