Thursday, May 24, 2018

Government Built Mass Transit Can Lead To Segregation

See Streetcars, Subways and Segregation by Alex Tabarrok.

"In the NBER reporter, Allison Shertzer and Randall P. Walsh summarize some of the recent research on urban segregation. As a cause of early 20th century segregation, Shertzer and Walsh put somewhat more weight on white flight and local land use regulations and somewhat less on redlining and discrimination by the Federal government (although all causes were important).

One point which I had not previously considered is that technology interacted in important but unintended ways with preferences for segregation:
We hypothesize that public transportation was critical for the acceleration of white flight because streetcars and subways significantly reduced the cost of living further away from employment centers. Household preferences for racial composition could have interacted with municipal infrastructure investments to increase residential segregation. Such a finding would further underscore the lesson that policies that were race-neutral on their face likely contributed to the development of segregated cities."

The U.S. now spends about 23 times as much per pupil as it did in 1919

See Show Me the (Education) Money, Finale! by Neal McCluskey of Cato.

"Long-Term, National: Money and Employees Have Poured In

Now that we’ve looked at scads of data—on spending, staffing, salaries—what can we conclude about the state of resources in public schools?

First, we need to recognize that the period since the Great Recession has been an anomaly in nearly a century of education spending. Whether in total or on a per-pupil basis, until the Great Recession we rarely saw spending decrease, especially after 1943. In the 1919-20 school year, adjusted for inflation, we spent $13.2 billion on public elementary and secondary education. In 08-09 we spent almost $690 billion, or about 52 times as much. Of course enrollment also grew—we only spent about 23 times as much per pupil!

What was the magnitude of the retrenchment between the peak spending year of 08-09 and the recession spending trough, 12-13? Total spending fell from about $690 billion to $636 billion, or 7.8 percent. The average per-pupil expenditure dropped from $13,816 to $12,621, an 8.6 percent decrease. Those dips aren’t nothing, but they are hardly catastrophic. And as of 14-15—the most recent year with federal data—total spending was back up to nearly $668 billion, and per-pupil spending to $13,119.

Teaching staff has also increased long-term. In previous posts we went back to 69-70 for data, but could have gone back to 1955 for national-level figures. Between that year and 2008, public schools went from about 3.7 teachers for every 100 students to 6.5, or about a 76 percent increase. That dropped just slightly—to 6.3 teachers per 100 students—in 2012.

Teaching staff grew notably over the decades, but non-teaching staff growth has been far more remarkable. Going back to 1949-50, administrative staff per pupil has more than doubled, though still with only one administrator per 325 students. Support staff has grown more than three times larger, from 1 staffer per every 81 kids to about 1 per 26 students. Principals and assistant principals have more than doubled per-pupil.

Even with massive increases in resources, we haven’t seen inflation-adjusted teacher salaries increase all that much. Since 69-70—the farthest back federal data go—salaries have only risen about 6.4 percent. Total per-pupil expenditures, in contrast, grew by around 130 percent. What gives?
All that hiring, especially of non-teachers, for one thing. We’ve hired more teachers relative to enrollment, while teachers as a share of all public schooling staff dropped from over 70 percent in 1949-50 to just below 50 percent in fall 2015. Overall, in 1949-50 there were 19.3 students per staff member of all types—teachers, administrators, guidance counselors. In 2015 there were only 7.9. That’s a lot more salaries over which to spread money. We have also seen benefits’ share of compensation grow (see below). In 00-01 benefits accounted for 17 percent of total, current per-pupil expenditures in public schools, and salaries 64 percent. In 14-15 benefits had moved up to 23 percent and salaries 57 percent.

Short-Term & In Some States: A Historically Rare Case of (Some) Cuts

The Great Recession precipitated real cuts, something seldom seen in public schooling since the early 20th Century. But the cuts were limited, varied greatly by state, and did not occur in all areas of spending.

Between 99-00 and 14-15—the time period for which we could put together consistent, total state-level spending—outlays per-pupil nationally rose from $11,510 to $13,119, though they dropped from a peak of $13,816 in 08-09. Various services, meanwhile, saw increasing outlays not just through the whole period, but also after the recession. This is consistent with a very long-term trend: hiring more and more non-instructional staff, perhaps to deal with ever-increasing bureaucratic demands on schools, as well as assigning to schools increasing non-academic missions. The area where we saw the most significant drop in spending was capital outlays—buying land and erecting buildings.

How about specifically in the restive states? Spending cuts were not necessarily the name of the game. Arizona—which has seen huge increases in enrollment since 1969-70—increased overall spending between 99-00 and 14-15, with a big increase between 99-00 and 07-08. But that could not keep up with enrollment; on a per-pupil basis spending dropped over the period. Colorado also saw overall spending rise, but it just barely fell short of keeping per-pupil funding equal from the beginning to the end of the period. North Carolina increased overall spending slightly, but saw a decline per-pupil. Kentucky, Oklahoma, and West Virginia, in contrast, saw both overall and per-pupil spending increase.

In terms of what’s been trimmed, some buffeted states saw significant cuts in capital outlays, but that category of spending tended to be very volatile. Generally, states seemed to largely protect or even increase instructional spending, while all saw increases in spending for various types of services, a finding consistent with the increased administrative spending and staffing we have seen nationally. All except Kentucky and Oklahoma have had decreasing teacher salaries since 99-00, and every one of the hot-spot states has seen long-term stagnation in teacher salaries, which is roughly the national trend.


If someone tells you that public school spending has been “gutted” or “cut to the bone,” or any other body-destroying description, the first thing to note is that for many decades prior to the Great Recession we shoved so much food into the public schooling system that it would more accurately have been seen as threatened with obesity than “gutting.” Even since the recession, we haven’t typically gutted anything—significant funding has still flowed—and that includes in most embattled states. That said, at least based on salaries, teachers have seen their compensation stagnate. However, a lack of overall public schooling resources is not to blame for this. It is other things: huge increases in hiring of non-teachers, and compensation moving more toward benefits than salaries."

Wednesday, May 23, 2018

Socialist Policy Tanked Venezuela's Economy, Not Falling Oil Prices

Socialism is why Venezuela's economy is so much worse than other oil-dependent nations

By Julian Adorney at FEE.
"Left-wing commentators are struggling to come to grips with Venezuela’s economic collapse. In early August, Stanford University professor Terry Lynn Karl joined the chorus claiming that falling oil prices are the problem.

It’s true that the price of oil fell from around $100 per barrel in 2014 to around $50 in 2017. But socialist policies exacerbated the oil crisis and created the poverty we see in Venezuela today.

Resources Don’t Dictate Prosperity

Free-market societies are less affected by falling commodity prices, in part because their wealth does not rely on raw materials.

Hong Kong and Singapore are two of the wealthiest economies in the world, with a 2016 gross domestic product per capita of $57,676 and $84,821, respectively. What turned these resource-barren spits of land into thriving metropolises, with bustling commerce and a prosperous middle class? Economic freedom.

It takes an average of just two days to start a company in Hong Kong — three in Singapore. Singapore has one business per 350 people, which means competitive enterprises constantly vie for consumers’ money with innovations and excellent service. Both economies encourage investment and trade, which allows consumers and businesses to benefit from the wealth and ideas of other nations.

According to the Fraser Institute’s “Economic Freedom of the World: 2016 Annual Report,” Hong Kong and Singapore are the two most free economies on earth. As the Fraser economists note, “countries with institutions and policies more consistent with economic freedom have higher investment rates, more rapid economic growth, higher income levels, and a more rapid reduction in poverty rates.” Free markets encourage trade, entrepreneurship, and investment, which create wealth.
By contrast, the poorest economies in the world are characterized by oppressive government intervention. In 2014, the 40 least economically free nations had an average per capita GDP of $5,471 (in 2011 dollars). Compare that to $41,228 for the freest 40 nations.

Abundant natural resources cannot make up for a lack of freedom. Iran has over 150 billion barrels of oil reserves but is one of the 10 least economically free nations in the world. Price controls and industry subsidies crippled their economy for decades, and the government strictly limits access to financing for business. Iran’s GDP per capita in 2014, before oil prices fell, was just $6,007.

How Venezuela’s Oil Industry Fell Apart

In Venezuela’s case, a government takeover of the oil industry reduced supply, sowing the seeds of future impoverishment. The oil industry was nationalized in 1976, but, wary of the mismanagement and corruption of other nationalized oil companies like Pemex, Venezuela let PetrĂ³leos de Venezuela (PDVSA) operate as a mostly private company with decision-making freedom and competent business managers.

When Hugo Chavez took power in 1999, he curtailed this freedom. Chavez closed Venezuela's oil fields to foreign investment and stopped reinvesting oil proceeds in the company. He fired 18,000 workers at PDVSA, replacing professional oil employees with inept but politically loyal workers. Bids started taking months longer to complete as staff kept changing their technical specifications. Fatal accidents and fires became more common because Chavez’ yes-men didn’t understand how to safely run an oil refinery. PDVSA middle managers required Rolex bribes to schedule meetings.

Chavez pushed for a natural gas pipeline from Venezuela to Brazil. According to Luis Giusti, who competently ran the pre-Chavez PDVSA, this would “bring gas that does not exist to markets that do not exist.”

Predictably, oil production collapsed: The Washington Post notes that production fell 25 percent from 1999 to 2013. PDVSA made its decisions based on politics rather than the needs of consumers, and output plummeted as a result.

Had Chavez instead privatized the oil industry, Venezuela would have enjoyed more oil, delivered more efficiently, and would have suffered less waste and corruption. When China privatized Venezuela’s agriculture industry, agricultural yields increased. In a working paper for the World Bank, economists Sunita Kikeri and John Nellis explain that privatization improves performance. When private companies compete and innovate, they can reduce waste and more efficiently manage resources to create more value.

Even as Venezuela suffocated its oil industry, socialist policies in other industries left the country more reliant on oil. When Venezuela nationalized manufacturing, output dropped to 1965 levels. Nationalizing electricity led to rolling blackouts, and a government takeover of supermarkets and farms created food shortages. Price controls on key goods gave companies little incentive to produce, a fact not helped by government raids on businesses that Chavez felt were operating below capacity.

It Could Have Been Different

 Healthy non-oil industries could have diversified Venezuela’s economy and blunted the impact of falling oil prices. By strangling them, Chavez and his successor, Nicolas Maduro, forced the economy to rely more on oil at precisely the wrong time.

In 1998, oil represented 77 percent of Venezuela’s exports; by 2011, that number had risen to 96 percent. Production plunged, but it still represented an ever-growing slice of an ever-shrinking pie.
Commentators who dismiss Venezuela’s suffering as being caused by the oil crisis need to explain why other oil-dependent countries have not collapsed. According to the World Bank, seven nations rely more on oil than Venezuela. All seven saw economic growth from 2013 to 2017. Had Venezuela emulated the economic freedom of nations like Chile, its people would not be starving in the streets."

The Cost Of Waiting For Health Care In Canada

See The Private Cost of Public Queues for Medically Necessary Care, 2018 by Bacchus Barua and Sazid Hasan of the Fraser Institute.

  • One measure of the privately borne cost of wait times is the value of time that is lost while waiting for treatment.
  • Valuing only hours lost during the average work week, the estimated cost of waiting for care in Canada for patients who were in the queue in 2017 was about $1.9 billion. This works out to an average of about $1,822 for each of the estimated 1,040,791 Canadians waiting for treatment in 2017.
  • This is a conservative estimate that places no intrinsic value on the time individuals spend waiting in a reduced capacity outside of the work week. Valuing all hours of the week, in-cluding evenings and weekends but excluding eight hours of sleep per night, would increase the estimated cost of waiting to $5.8 billion, or about $5,559 per person.
  • This estimate only counts costs that are borne by the individual waiting for treatment. The costs of care provided by family members (the time spent caring for the individual waiting for treatment) and their lost productivity due to difficulty or mental anguish are not valued in this estimate. Moreover, non-monetary medical costs, such as increased risk of mortality or ad-verse events that result directly from long delays for treatment, are not included in this estimate.

Tuesday, May 22, 2018

Is Public Schooling a Public Good? An Analysis of Schooling Externalities

By Corey A. DeAngelis of Cato. Excerpts:
"schooling easily fails both parts of the economic definition. If one student occupies a seat in a classroom, another child is prevented from sitting in the same seat. In addition, if students are added to a given classroom, the teacher is less able to tailor the educational approach to each child, which could reduce the average amount of personalized education received by each student. Because of this, schooling fails the nonrivalrous part of the definition. Second and perhaps most important, because it is not difficult to exclude a person from a school—or any other type of institution with walls—schooling fails the non - excludability condition. If someone does not pay me to educate the student, I can simply deny the student services. Fortunately, schools will never suffer from a true free-rider problem because they are not true public goods. That is precisely why private schools and tutoring services operate effectively today without government operating or funding them."

"While education itself seems to have net positive externalities, the case is less clear for the system of traditional public schooling we have in the United States today. After all, if the traditional public schooling system is reducing overall levels of education, or producing education very inefficiently, it would be considered a demerit good—a good that has net negative externalities. In this analysis, I examine all the theoretical externalities around the traditional public schooling system in the United States today."

"A meta-analytic and systematic review of 19 experimental voucher studies around the world finds that, on average, private schools increase math scores by 15 percent of a standard deviation and reading scores by 27 percent of a standard deviation. 20 Out of the 17 voucher experiments in the United States, 11 find statistically significant positive test-score effects for some or all students, four find no statistically significant effects, while two find negative effects. 21 The meta-analysis from 16 of the U.S. experimental studies finds that, on average, private schooling does not have a statistically significant effect on reading scores, but it increases math scores by around 7 percent of a standard deviation."

"The scientific evidence on longer-term edu - cational outcomes such as high school gradua - tion rates is less abundant. Foreman’s summary of three rigorous studies linking private school choice programs to high school graduation finds positive effects. 23 The only U.S. experi - ment on the subject finds that attending a private school through the D.C. Opportunity Scholarship Program increased the likelihood of high school graduation by 21 percentage points. 24 The one quasi-experimental study on the subject finds that attending a private school using the Milwaukee Parental Choice Program increases the likelihood of high school graduation by 3 percentage points. 25 The final study included in the review finds that Milwaukee private schools graduate voucher students at a rate 12 percentage points higher than Milwaukee public schools; however, this study is merely observational."

"this analysis takes a conservative approach by comparing the taxpayer costs associated with traditional public schools to the policy- relevant counterfactual: the taxpayer costs in - curred from a private school choice program.

We can examine the taxpayer effects of private school choice programs by looking at how current school choice laws affect statewide educational funding formulas. As shown in Forster’s review of the evidence, 25 out of 28 studies find that private school choice programs save taxpayer money, while 3 studies find no statistically significant fiscal effects. 27 Spalding finds that 10 voucher programs in the United States generated a cumulative savings of at least $1.7 billion between 1990 and 2011. 28 Since the 2016 Forster review, all other fiscal impact studies of private school choice programs that I know of have found taxpayer savings.

This savings happens for two main reasons: (1) school voucher laws usually mandate that the voucher amount must be a fraction of the total per pupil expenditure in traditional pub - lic schools; and (2) private school tuition fees are often below the state-mandated maximum voucher funding amount. As shown by EdChoice, the average state- funding amount allocated toward voucher students is around 59 percent of the per pupil funding in traditional public schools."

"An improved education could strength - en the character skills necessary to follow the law and tolerate the views of others. Further - more, an educational setting can improve social cohesion through increasing racial diversity and integration."

"As shown in a review of 11 experimental and quasi-experimental studies, DeAngelis finds that private school choice programs in the United States increase these types of civic outcomes. 31 None of the studies reviewed find negative effects. The only study linking private school choice to adult criminal behavior finds that the Milwaukee Parental Choice Program leads to a 7 percentage point reduction in felo - nies and a 6 to 9 percentage point reduction in misdemeanors for male students.

DeAngelis also finds that effects of private school choice are null to positive for toler - ance of others, positive on charitable giving, positive on volunteering, and null to positive on political participation. 33 Wolf ’s review of 21 quantitative studies similarly finds that private school choice increases civic outcomes overall. 34 Forster’s review of the empirical evidence also finds that private school choice in the United States has null to positive ef - fects on civic values and practices. 35 Nine out of the 10 quantitative studies linking private school choice to racial integration find statis - tically significant positive effects, while one study finds no effects. 36 Notably, Egalite, Mills, and Wolf find that, by using the Louisiana Scholarship Program, 82 percent of student transfers increased racial integration for their former public schools and 45 percent of student transfers improved racial integration in their new private school."

"For the societal effects of government schooling’s ability to educate the populace, I examine two outcomes: test scores and high school graduation. Overall, Shakeel, Anderson, and Wolf find that private school choice pro - grams increase reading scores by 4 percent of a standard deviation and math scores by 7 per - cent of a standard deviation. 39 Consequently, I estimate one model based on reading scores and the other based on math scores. However, the effect on reading scores is not statistically significant, so the externality associated with an educated populace is zero in the first model.

For math scores, I follow previous research linking standardized effect sizes with esti - mates found by Eric Hanushek. 40 Hanushek estimates that a one-standard-deviation in - crease in student cognitive ability leads to a 13 percent increase in lifetime earnings. Ad - ditionally, only 70 percent of learning gains are retained from year to year. 41 By multiply - ing those two estimates together, I can find the learning gains relative to the average U.S. worker. 42 I use Bureau of Labor Statistics data to find average earnings for U.S. employees ($49,630) and assume that current students will work between the ages of 25 and 70, or 46 years. 43 When I calculate the net present value of lifetime earnings, I assume a 1 percent year - ly growth in average salaries and a 3 percent annual discount rate. Based on these assump - tions, the net present value of lifetime earn - ings for the average U.S. worker coming from the public school system is $1,234,957. Using Hanushek’s estimates, the average lifetime earnings for U.S. students with access to 13 years of private school choice is $1,341,225.

Thus, the reduction in lifetime earnings for each student experiencing 13 years of government schooling is $106,268 ($1,341,225 – $1,234,957). Multiplying this result by the number of students in government schools reveals an overall negative effect on lifetime earnings of $5.364 trillion ($106,268 × 50.477 million). Of course, one can argue that the lower amount of earnings is accrued to the individual rather than the rest of society. However, the decrease in earnings reflects a $5.364 trillion (in 2017 dollars) reduction in production within society overall. Since the lower level of production results from a less-educated populace and harms the rest of society as a whole, it is a negative externality of government schooling.

Alternatively, I can calculate this particular externality through the effects of private school choice programs on graduation rates. While the experimental study in Washington, D.C., finds that private schooling increases the likelihood of graduation by 21 percentage points, I use the much less substantial 3 percentage point increase in graduation rates found in the Milwaukee voucher analysis in order to provide a conservative estimate. 44 I also use evidence from Levin, finding that each high school graduate produces around $277,000 (in 2017 dollars) in social benefits derived from additional tax revenues and reductions in health, crime and welfare costs. 45 Combining findings from Cowen (et al.) and Levin, I find that government schooling results in about 1,514,310 fewer high school graduates (50.477 million U.S. students multiplied by a 3 percentage point reduction in likelihood of graduation). This reduction leads to negative social effects of around $419.464 billion (1,514,310 fewer graduates multiplied by $277,000 in social costs each)."

"average private school tuition was around $10,740 per student in 2011–2012, or around $11,633 in 2017 dollars. According to the Digest of Education Statistics Table 236.60, av - erage public school per pupil expenditure was $11,991 in 2011–2012, or around $12,988 in 2017 dollars. In other words, it costs around $1,355 more ($12,988 – $11,633) to educate a child in a government school each year, on average. Over 13 years, this costs society an additional $17,615 per child. This costs taxpayers an additional $889.152 billion for 50.477 million children."

"The only quasi-experimental study linking private school choice to crime finds that private schools reduce the likelihood that male students will commit felonies by 4 percentage points in Milwaukee. 48 Assuming these benefits only accrue to about half of the 50.477 million U.S. students (the males), we should expect around 1.01 million fewer elons. McCollister, French, and Fang find that the social cost of a felony is around $23,242 in 2017 dollars. 49 Thus, a 1.01 million increase in the number of felons, produced by govern - ment schools, leads to around a $23.474 billion increase in social costs. In order to provide conservative estimates, this analysis ignores the positive effects of the Milwaukee voucher program on reducing misdemeanors."

Are electric cars worse for the environment? Crunch the numbers, and it looks like all those subsidies might be counterproductive

By Jonathan Lesser
"If you believe the headlines, traditional automobiles are speeding toward a dead end. All those V8s, V6s and turbocharged vehicles we’ve grown to love will soon be replaced by squadrons of clean, whisper-quiet, all-electric vehicles. And if you believe the headlines, the environment will be much better off.

Policymakers at every level have done their part to push electric vehicles by creating a tankful of subsidies. Thanks to laws signed by both George W. Bush and Barack Obama, electric-vehicle buyers can feast on federal tax credits of up to $7,500 that reduce the initial purchase cost of their vehicles. Not to be outdone, many states also dangle their own mix of goodies for electric vehicle buyers, including purchase rebates as large as $5,000, additional rebates for vehicle chargers, and free use of public charging stations—which, of course, are only “free” because they’re subsidized by ratepayers and taxpayers. Some states even give electric vehicles preferential access to carpool lanes.

Then there are the electric vehicle mandates. In January, California Gov. Jerry Brown decreed that 5 million electric vehicles must be on his state’s roads by 2025, along with 250,000 charging stations. Eight other states are following California’s lead. One California lawmaker has even introduced legislation to ban all internal combustion vehicles by 2040.

All of this might make sense if electric vehicles, as their supporters claim, were truly likely to reduce air pollution and tackle climate change. But are they?

To answer that question, I used the U.S. Energy Information Administration’s most recent long-term forecasts for the number of new electric vehicles through 2050, estimated how much electricity they’d use, and then figured out how much pollution that electricity would generate, looking at three key pollutants regulated under the U.S. Clean Air Act—sulfur dioxide (SO2), oxides of nitrogen (NOX), and particulates—as well as CO2 emissions. I compared them to the emissions of new gasoline-powered vehicles, using the EIA’s “real world” miles-per-gallon forecast, rather than the higher CAFE standard values.

What I found is that widespread adoption of electric vehicles nationwide will likely increase air pollution compared with new internal combustion vehicles. You read that right: more electric cars and trucks will mean more pollution.

That might sound counterintuitive: After all, won’t replacing a 30-year old, smoke-belching Oldsmobile with a new electric vehicle reduce air pollution? Yes, of course. But that’s also where many electric vehicle proponents’ arguments run off the road: they fail to consider just how clean and efficient new internal combustion vehicles are. The appropriate comparison for evaluating the benefits of all those electric vehicle subsidies and mandates isn’t the difference between an electric vehicle and an old gas-guzzler; it’s the difference between an electric car and a new gas car. And new internal combustion engines are really clean. Today’s vehicles emit only about 1% of the pollution than they did in the 1960s, and new innovations continue to improve those engines’ efficiency and cleanliness.

And as for that electric car: The energy doesn’t come from nowhere. Cars are charged from the nation’s electrical grid, which means that they’re only as “clean” as America’s mix of power sources. Those are getting cleaner, but we still generate power mainly by burning fossil fuels: natural gas is our biggest source of electricity, and is projected to increase. And coal, while still declining, will remain the second largest source of electricity for some time. (Third is nuclear power, which doesn’t generate emissions but has other byproducts that worry some environmentalists.) Even with large increases in wind and solar generation, the EIA projects that the nation’s electric generating mix will be just 30% renewable by 2030. Based on that forecast, if the EIA’s projected number of electric vehicles were replaced with new internal combustion vehicles, air pollution would actually decrease—and this holds true even if you include the emissions from oil refineries that manufacture gasoline.

As for states like California with stringent mandates to use more renewable energy for their power grid, they also have the highest electric rates in the continental US, 50% higher than the US average. And electric rates in those states just keep increasing. So it’s a cleaner power mix, but makes recharging your car more expensive. The higher the electric rate, the lower the incentive for a new car buyer to purchase an electric vehicle.

As for greenhouse-gas emissions, my analysis shows that electric vehicles will reduce them compared to new internal combustion vehicles. But based on the EIA’s projection of the number of new electric vehicles, the net reduction in CO2 emissions between 2018 and 2050 would be only about one-half of one percent of total forecast U.S. energy-related carbon emissions. Such a small change will have no impact whatsoever on climate, and thus have no economic benefit.

So, if electric-vehicle subsidies don’t help the environment, what—or who—do they help? Most electric-vehicle buyers are far wealthier than average Americans. A nationwide survey in 2017 found that 56% had household incomes of at least $100,000 and 17% had household incomes of at least $200,000. (In 2016, median household income for the US as a whole was less than $58,000.) So it’s fair to say the subsidies disproportionately benefit the wealthy at the expense of the poor, who cannot afford to buy even subsidized electric vehicles or live in their own homes to take advantage of residential chargers or solar panels.

Not only that, the wires and charging stations needed to charge all those electric vehicles will be paid for by all ratepayers, further raising electric rates. And as more wealthy customers install solar panels to charge their electric vehicles, the costs to provide them back-up power will fall on those who cannot afford to do so. 

In effect, the wealthy owners of electric vehicles will enjoy the benefits of their clean, silent cars, while passing on many of the costs of keeping their vehicles on the road to everyone else, especially the poor. 

To be sure, electric cars are impressive. Some are quicker off the line than a Formula 1 race car. But there is no economic or environmental justification for the many billions of dollars in subsidies that America is already paying to speed their adoption.

So what to do? First, Congress should immediately terminate those electric-vehicle tax credits, which just benefit the wealthy. Congress should also eliminate zero-emissions credits, which electric-vehicle manufacturers have used to boost their bottom line – $860 million for Tesla alone in the last three years. And third, states should eliminate their various subsidies for electric vehicles and charging infrastructure, which are also paid for disproportionately by the poor and are contributing to rising electric rates.

Electric vehicle subsidies and mandates share an unfortunate, and all too common trait with other government policies: They’re based on “conventional wisdom” that turns out to be wrong. Wealthy consumers who have purchased Teslas and Chevy Bolts primarily to signal their green bona fides for their friends and neighbors, and who have socialized many of the costs of their purchases to those who are less well-off, might wish to take a closer look at the numbers. Their hands may not be quite so clean as they believe.

Jonathan Lesser is the President of Continental Economics, an economic and regulatory consulting firm. His new report, “Short Circuit: The High Cost of Electric Vehicle Subsidies” was published by the Manhattan Institute on May 15."

Monday, May 21, 2018

Benjamin Zycher Of AEI On The Problems Of CAFE Standards

See The Fuel Economy Standards in Beltway Conventional Wisdom. Excerpt:
"That $1,650 net saving is less than half of that asserted by the Obama administration in 2012 (Table III-8), an evolution in bureaucratic arithmetic that should give pause to Bledsoe and anyone else happy to give credence to government projections. In any event, the $1,650 consumer net saving is the newer (January 2017) calculation from the Obama administration, based on an asserted upfront vehicle cost of $875 (Table ES-1) to achieve the higher mileage standard in 2025, combined with asserted savings in fuel costs.

Is that $875 upfront cost number even remotely plausible? A Heritage Foundation study found that the Obama rules have increased prices for new autos by $6,800 over the pre-2009 baseline trend. The National Auto Dealers Association estimate for that increased cost by 2025 is $3,000. Whatever the correct number for 6-, 8-, and 10-speed transmissions and all the rest, those latter estimates are far more consistent with the observed failure of the market voluntarily to move toward a fleet similar to that mandated by the Obama rules.

In the Obama analysis, virtually all of the benefits of the tighter mileage rules accrue in the form of reduced fuel expenses. (Again, the physical characteristics of larger vehicles are assumed to yield no consumer benefits at all.) The future fuel price path assumes that gasoline prices will increase from $2.14 in 2016 to $3.21 in 2025, in year 2017 dollars. That path rises at a rate faster than the market rate of interest (respectively, 4.60 percent and about 3.67 percent), an assumption inconsistent with standard economic analysis. Since changes in gasoline prices are driven almost entirely by the price of crude oil, except in the very short run in the face of unexpected refinery outages and the like, that assumption about the price path implies less oil production now in favor of more several years down the road, so as to take advantage of that higher rate of return to holding oil. Why did the Obama EPA/NHTSA fail to ask whether that was happening? Where were their economists?

The weirdness of the Obama administration analysis is captured by the following passage (page 7):
. . . we believe one of the most meaningful analyses is to look at the payback for consumers who finance their vehicle, as the vast majority of consumers (nearly 86 percent) purchase new vehicles through financing. The average loan period is over 67 months. Consumers who finance their vehicle with a 5-year loan would see payback within the first year. Consumers who pay cash for their vehicle would see payback in the fifth year of ownership.
That argument is nonsensical: “Payback periods” are independent of whether a buyer finances a purchase through a bank or pays cash, that is, “finances” it him- or herself. In any event, the Obama analysis computes the present value of the (assumed) fuel savings at a discount rate of 3 percent (Table ES-5), despite the requirement in OMB Circular A-4 that a 7 percent discount rate be used for benefit/cost analysis. Even if we accept the (utterly implausible) $875 per-vehicle capital cost of attaining the 2025 standard, use of a higher discount rate obviously would reduce the net benefit sharply and might eliminate it entirely.

“Rollback” of Emissions Standards. Analytic silliness is one thing, while borderline dishonesty is quite another, and it is the latter into which Bledsoe descends in his offhand criticism of a purported “rollback of emissions standards.” Bledsoe knows, or ought to know, that a change in the fuel economy standards would have virtually no effect on the emission of such conventional effluents as carbon monoxide and nitrogen oxides because those emission standards are defined in grams per mile, notgrams per gallon. Bledsoe concedes this implicitly: Like Sherlock Holmes’ dog that failed to bark, Bledsoe does not claim that fewer emissions of conventional pollutants are among the benefits of the tighter standards.

Moreover, relaxation of the mileage standards would reduce the per-vehicle cost of achieving them, and so would induce some substitution away from light-duty trucks, for which the per-mile emission standards are less stringent, toward light-duty autos. That same reduction in the prices of vehicles would increase the turnover rate for the national automobile fleet in the aggregate, and because newer vehicles emit fewer pollutants than is the case for older ones, a net reduction in automobile effluents is an almost certain result of a loosening of the CAFE mileage requirements.

Perhaps Bledsoe meant only greenhouse gas (GHG) emissions, although his assertion that “cars . . . would also be dirtier” suggests the opposite, and in that case he should have said so explicitly. In any event, carbon dioxide is not a “pollutant,” but it is true that an increase in fuel consumption would result in an increase in GHG emissions; consumption of a gallon of 10 percent ethanol-gasoline blend emits about 18.9 pounds of carbon dioxide.

Put aside the issue of whether increasing atmospheric GHG concentrations will yield net effectspositive or adverse; proponents of the Obama fuel-economy standards claim that the rules will reduce GHG emissions by 6 billion metric tons. That figure actually is for vehicle model years 2012–25, but never mind. Annual worldwide GHG emissions are about 50–55 billion metric tons; using the EPA climate model, that cut in GHG emissions would yield a temperature reduction in 2100 of around 0.017 of a degree, that is, effectively zero. (The standard deviation of the surface temperature record is about 0.11 of a degree.) How much would that be worth?

Wealth Redistribution Through Regulation. Why is it that the proponents of the fuel-economy standards assume that market forces somehow are incapable of seeing the higher future fuel prices that the bureaucrats predict? Are consumers and producers stupid? Is it really the case that markets are more myopic than politicians driven by the imperatives of the looming election cycle? Merely peruse the history of US government projections for the price of oil to see whether it is the bureaucracy or market futures prices that are to be trusted. More generally: Why should we believe that bureaucrats and politicians are so smart?

The arguments offered in support of the fuel-economy standards are so weak that it is easy to conclude that a deeper political agenda underlies the anger at the Trump administration’s decision to reinstitute the mid-term review. Notice that the regulatory system allows auto manufacturers failing to meet the fleet average requirements to buy credits from others. In 2016, for example, Fiat Chrysler purchased 21.9 million credits, while Honda sold 20.7 million. This system means that purchasers of SUVs and trucks subsidize buyers of small autos and electric cars; that is, urban consumers receive a transfer from rural and suburban drivers. Is it an accident that this transfer subsidizes blue-state constituencies at the expense of red-state ones? Would the left support the fuel-economy standards if the reverse were true?

That subsidy would grow as the fuel-economy requirements tighten. That is all one needs to know to understand why California politicians are vociferous in their demand that the EPA continue to give that state a waiver to impose GHG/mileage rules stricter than the federal ones, so as to force that stricter standard upon the entire nation. This is despite the fact that the fuel economy standards—formally, limits on GHG emissions in the transportation sector—have nothing to do with the ground ozone problem afflicting California, and despite the preemption under the Environmental Policy and Conservation Act of state regulations “related to” fuel economy.

It is far from irrelevant to note that in the contextof the eternal quest by government to expand its power at the expense of individual freedom, the presumption of market rationality is closely analogous to the presumption of innocence for those accused of crimes, not because we believe it to be true in any given case, but because the opposite presumption leads toward a system of totalitarianism. I have not seen an argument for the CAFE constraint on individual freedom in the automobile market that survives even the most minimal scrutiny, and Mr. Bledsoe has failed, utterly, to provide one. That the op-ed editors at the New York Times deemed his silliness fit to print is a measure of the depths to which modern journalism has sunk."

See also Taxes Show One Way to Save Fuel by Eduardo Porter in The NY Times in 2012. Excerpt:
"According to economists crunching the numbers, this makes mileage standards somewhere between 2.4 and 13 times more expensive than a gasoline tax as a tool to reduce our use of fuel. Indeed, by some calculations, raising fuel-economy standards is more costly than climate change itself.

The government has to predict how much climate change will cost us in the future — through lost agricultural productivity, poorer health, bigger hurricanes and the like — to figure out how much we should spend today. It does so through a measure called the “social cost of carbon,” which captures the added damage that will be caused by adding one more ton of CO2 into the air.

The government’s estimate of the cost to our society covers a wide range of $5 to $68 a ton and increases over time. Several economists have concluded that cutting carbon emissions via fuel-efficiency standards may be even more expensive. Adding in benefits not related to global warming — like less pollution, less reliance on foreign oil, and less time spent filling up — the mileage standards may still cost more than their benefits."