The ‘Green Energy Transition’ That Wasn’t

Governments push heavily subsidized renewables, but fossil-fuel use continues to increase even faster

By Bjorn Lomborg. Excerpts:

"Globally, we spent almost $2 trillion in 2023 to try to force an energy transition."

"when countries add more renewable energy, it does little to replace coal, gas or oil. It simply adds to energy consumption. Recent research shows that for every six units of green energy, less than one unit displaces fossil-fuel energy."

"In the past 50 years, oil and coal energy use has doubled, hydro power has tripled and gas has quadrupled."

"as a 2019 academic study concluded. During past additions of a new energy source, the researchers found, it has been “entirely unprecedented for these additions to cause a sustained decline in the use of established energy sources.”"

"What causes us to change our relative use of energy? One study investigated 14 shifts that happened over the past five centuries"

"Invariably, the new energy source would be better or cheaper."

"Solar and wind fail on both counts. They aren’t better, because unlike fossil fuels, which can produce electricity whenever we need it, they can produce energy only according to the vagaries of daylight and weather. At best they are cheaper only when the sun is shining or the wind is blowing at just the right speed. The rest of time they are expensive and mostly useless."

"When we factor in the cost of four hours of storage, wind and solar energy solutions become uncompetitive with fossil fuels."

"Solar and wind address only a smaller part of a vast challenge. They are almost entirely deployed in the electricity sector, which makes up a mere one-fifth of all global energy use."

"McKinsey & Co. estimates that achieving a real transition would cost more than $5 trillion annually."

Millions of Taxpayers Call the IRS for Help. Two-Thirds Don’t Reach Anyone.

The agency hired nearly 7,000 new customer-service representatives, but its internal watchdog group says it still falls short

By Ashlea Ebeling of The WSJ. Excerpts:

"Taxpayers successfully reached a human about 31% of the time this tax season"

"Despite this, the IRS rated its service a score of 88%"

"The IRS rating covers just 35 of its 102 customer-service numbers and doesn’t count the many callers who hang up in frustration or get sent to recorded messages, said" [Erin Collins, head of the IRS’s Taxpayer Advocate Service]

"For the 2.1 million people who called the agency’s collections phone line, for instance, less than one-fifth reached a representative"

"As of April, the IRS was taking more than 22 months to resolve certain identity-theft cases, and it had approximately 500,000 unresolved cases in its inventory."

"The customer-service system is inefficient in its use of existing staff, Collins said. While some lines have long wait times, representatives on others lines often “are sitting around waiting for the phone to ring,” the report said. Representatives were waiting for calls about 25% of the time they were assigned to answer the phones, the report said."

Nationalizing Every Issue Promotes Political Conflict

Returning to limited, decentralized government would be less divisive but may be impossible. 

Letter to The WSJ. 

"The answer to Barton Swaim’s question, “Can the Constitution Reconcile America?” (Weekend Interview with Yuval Levin, June 15), is yes in principle, no in practice. Given the country’s diverse sects, nationalities and classes stretched across a huge territory, the framers recognized that coalition-building requires a “general” government of limited authority focused on the “general welfare,” while states legislate life’s details.

Since the Great Society, both parties have been nationalizing such details. Instead of allowing conflict over divisive issues to be tempered by remaining localized, politicians, interest groups and media pull such issues into Washington, where they trigger fight-to-the-death battles that polarize the country. Returning to a more limited general government conducive to compromise is probably impossible.

Prof. John Kincaid

Lafayette College

Easton, Pa."

Investors Make Houses More Affordable, Not Less

David Youngberg. David Youngberg is an associate professor of economics at Montgomery College.

"Single-family home prices are up nearly 50 percent since the start of the pandemic, a massive increase in just four years. Even though institutional investors own less than 2 percent of the rented single-family homes, many Americans blame private equity firms for skyrocketing prices, prompting bills designed to ban Wall Street from owning single-family homes. It’s an unfortunate reaction based in an erroneous understanding of this dysfunctional market.

The recent surge in private equity’s interest in housing is a symptom of a market broken by Byzantine zoning, lot size, and parking laws. Housing is expensive because cities force developers to waste land. Housing is expensive because building affordable housing is illegal, and Wall Street investment is the natural result of these higher prices. Private equity firms not only wouldn’t be involved if land-use restrictions weren’t ratcheting up prices, they wouldn’t be needed.

Middlemen Are Valuable

Private equity firms are middlemen — middlepeople if you prefer. They do not buy homes to leave them vacant as part of some mass conspiracy to drive up home prices. They are landlords, expanding the rental market with every home purchase. Blaming high housing prices on private equity because they “bought up all the available homes” is like blaming high food prices on grocery stores because they bought up all the available food.

Landlords, like all middlemen, are sellers as well as buyers. They provide valuable services in the form of lower transaction costs, or costs associated with search, coordination, and risk attached to a transaction.

As grocery stores connect farmers with customers, and banks connect savers with borrowers, landlords connect home sellers with people looking for a place to live. Yes, they are renting instead of buying, but some people prefer to rent because it gives them flexibility — selling a home comes with massive transaction costs. Others cannot marshal the down payment or the loan to purchase an increasingly expensive home, a long-standing problem that has been exacerbated by higher interest rates. Because of landlords, these individuals can live in places that would otherwise be beyond their reach.

Landlords see lower transaction costs with maintenance as well. Ten different homeowners with the same problem have to search ten different times for the right contractor and run the risk of a bad job in ten different instances. (My own home is peppered with small projects I haven’t handled yet — or rather haven’t found someone to handle yet — because the transaction costs are so high.) But one landlord owning ten properties needs to find a good contractor only once, and with the chance of nine more jobs, that contractor’s going to work hard to avoid problems and delays.

Private equity firms, and other institutional investors, are just bigger landlords. Scarier-sounding, but with more potential to assuage the distortive effects of government meddling.

Private Equity Firms Amplify These Efficiency Gains

As home prices have skyrocketed, private equity firms and other institutional investors have stepped in to fill the growing gap. Not only are they investing in an asset that government regulation guarantees will appreciate, their resources enable them to bring transaction costs down even more.

When my wife and I were looking for a house nine years ago, our real estate agent made it clear that we were at a disadvantage. Other buyers had cash, she said (over and over again), and we, lacking a wealthy relative or the sale of a previous home, did not.

Sellers prefer cash buyers because mortgage buyers are risky. Banks must approve the buyer’s loan, and that means appraisals and time. Interest rates could rise, or the buyer might have a change in fortune. The deal might fail for any number of reasons, forcing the buyer to relist the property, likely at a lower price. For an eager seller, the wait can be nerve-racking.

My real estate agent would’ve loved all these private equity firms — cash buyers suffer none of those risks. Avoiding those risks yields a significant discount: cash buyers pay about 10 percent less than mortgage buyers. Far from driving home prices up, private equity’s all-cash transactions drive prices down.

Private equity firms save on transaction costs in another way: they tend to purchase fixer-uppers. While a landlord knows a good plumber, electrician, and handyman, private equity employs teams of appraisers and construction professionals, enabling them to repeatedly buy dilapidated houses that most consumers shun. These workers are more reliable and available as employees. In-house workers have much lower transaction costs.

Buying properties across the country enables private equity firms to diversify risk in a way conventional landlords can only dream of, further lowering transaction costs. Different areas have differing and dynamic housing markets, resulting in varying returns on investment for any one region. Overly strong tenants’ rights laws (which make it hard to evict nonpayers) and squatters’ right laws (which can result in people legally seizing property) further reward the risk-reducing effects of diversification.

Affordability Improves

It’s hard to tell what private equity’s net effect on the list price of housing is, but it is clear that these middlemen improve the market’s efficiency — a critical service in a market with such a constrained supply. When you remember to include transaction costs in the price, the downward effect on affordability is unambiguous. As grocery stores are far more efficient than farmers markets — on hours, on selection, and even on some list prices — private equity firms improve the housing market.

Private equity investment in single-family homes is a symptom of sky-high prices, not a cause. Governments have made the housing market so dysfunctional, that Wall Street can’t lower the cost of living nearly as much as needed. If policymakers were serious about making housing more affordable, they’d focus on getting out of the way, instead of demonizing middlemen responding to the problem."

CEI comments opposing destructive anti-merger rules from troubled FDIC

John Berlau.

"M&As are in fact, in many cases, a healthy part of capitalism’s competitive process that brings innovation and dynamism to industries and the benefits of greater choices and lower prices to consumers… While small start-ups create many innovations, it is the process of smaller players becoming larger — both through organic growth and mergers and acquisitions — that is often necessary to bring meaningful competition to the biggest players

I then noted that unfortunately, “it is precisely this type of meaningful competition that the FDIC’s policy statement would discourage in the banking sector.” I quoted the comments of former FDIC Chair Sheila Bair and former FDIC Vice Chair Thomas Hoenig that the policy statement would “have a chilling impact on positive M&A banking activity, including among regional banks where consolidation could strengthen their ability to compete with the mega banks.” 

In their comments that I quoted, Bair and Hoenig noted that “rather than improve and clarify its review process” for bank mergers, the policy statement “creates confusion and uncertainty to the process.” They concluded that the result of the policy statement would be to “leave the outcome of a proposed merger unclear and primarily at the discretion of the FDIC and in doing so, makes the process increasingly arbitrary and uncertain.”

I ended my comment by noting that the toxic workplace of the FDIC was not the best atmosphere for consideration of a wide-ranging regulation such as this. Citing Supreme Court Justice Abe Fortas’s admonition in NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764 (1969) that “the rule-making provisions of the Administrative Procedure Act “were designed to assure fairness and mature consideration of rules of general application,” I pointed out that “the workplace environment at the FDIC has not been conducive to a mature consideration of proposed rulemaking.” I concluded that the regulation “should be withdrawn and reconsidered when there is a more favorable environment for reasoned analysis of public policy.”"

$1.2 Trillion Bipartisan Infrastructure Bill Off to a Very Slow Start

By Marc Joffe of Cato.

"Enacting legislation and realizing its purported benefits are two very different things: a lesson now being learned by supporters of the 2021 Infrastructure Investment and Jobs Act (IIJA), known colloquially as the bipartisan infrastructure bill. The law, which dedicated $1.2 trillion to a variety of infrastructure initiatives, has yet to yield many of its expected deliverables.

Recent headlines have exposed two glaring implementation shortfalls. Although the IIJA included $42.5 billion for rural broadband, these funds have yet to add any high‐​speed internet service to the nation’s countryside. And $7.5 billion allocated to electrical vehicle charging infrastructure has produced only eight federally funded charging stations to date.

Among the reasons given for the slow progress on these initiatives include complex requirements for grantees, Buy America requirements, and preferences for unionized employees and those who have been involved with the justice system.

These factors, along with general inflation, are also impacting transit and rail projects championed by IIJA supporters. Some of these projects may never materialize, while others will take a decade or more to complete while serving only a limited number of passengers.

Amidst escalating costs, Houston Metro decided to pause construction of a 25‐​mile bus rapid transit line that would have received $939 million of IIJA funds. Metro staff estimated that the University Corridor BRT’s construction cost would have been $2.28 billion versus a previous estimate of $1.57 billion, and that annual operating and state of good repair costs for the line would have totaled $323 million. This is a lot of money to transport an estimated 19,400 daily passengers.

Another IIJA‐​funded transit project facing cancellation is New York’s Second Avenue Subway extension. After Governor Kathy Hochul pulled the plug on the Manhattan congestion pricing initiative, the Metropolitan Transportation Authority no longer has enough money to cover its $4.3 billion local share of the project, which would have attracted $3.4 billion in federal funds. It remains to be seen whether Hochul will reverse course on congestion pricing after the November election.

If she does not, the Federal Transit Administration will have to allocate IIJA funds to even less worthy projects. And, California, home of the never‐​ending $128‐​billion high‐​speed rail boondoggle, has several to offer.

For example, the FTA is considering a 1.3‑mile rail extension in San Francisco that has a total cost of $8.25 billion. The new segment will extend the lightly patronized Caltrain system further into San Francisco’s empty downtown. Next up would be a second rail tunnel under the San Francisco Bay even though utilization of the current tunnel is well below its 2015 peak. That project alone is likely to cost more than $45 billion and could single‐​handedly absorb all remaining IIJA transit capital funds.

With respect to intercity rail, the largest share of IIJA funds are being devoted to Amtrak’s Northeast Corridor, which is a reasonable choice given the preponderance of passengers located between Boston and Washington. But the high cost of executing projects on this corridor limits the opportunities for service improvements. Instead, Amtrak will be largely treading water.

The biggest IIJA‐​funded Amtrak project involves replacing infrastructure connecting New York and northern New Jersey, including a tunnel under the Hudson River and a bridge over the Hackensack River, which both date from 1910. A second project will replace a Civil War era tunnel west of the Baltimore station.

These two projects will last well into the 2030s (if not longer) and will cost $23 billion (before overruns). Once done, they will provide important reliability benefits but only minimal travel time improvements for those using Acela to get from New York to Washington.

And while passengers wait for the new projects, Amtrak service may well deteriorate. In June 2024, New York area passengers got a taste of what may be ahead as Amtrak service was repeatedly disrupted due to power issues.

So despite Congress appropriating tens of billions of dollars, the nation’s rail and bus passengers are likely to see little in the way of new travel options or speed improvements, especially over the next five years. Once all the money has been spent (by around 2040), it is safe to predict that only a small number of new passengers will be lured away from cars and planes."

The Nobel Laureates Strike Out

Prize-winning economists speak up for President Biden’s economic policies—the same policies they predicted would ease inflation and spur growth

By James Piereson of The Manhattan Institute. 

"Sixteen Nobel Prize-winning economists have signed a public letter in advance of Thursday’s presidential debate endorsing President Biden’s economic policies and criticizing Donald Trump’s. They write:

While each of us has different views on the particulars of various economic policies, we all agree that Joe Biden’s economic agenda is vastly superior to Donald Trump’s. In his first four years as President, Joe Biden signed into law major investments in the U.S. economy, including in infrastructure, domestic manufacturing, and climate. Together, these investments are likely to increase productivity and economic growth while lowering long-term inflationary pressures and facilitating the clean energy transition. 

The economists support Biden’s reelection campaign and warn that Trump’s tax-cutting proposals will reignite inflation and destabilize the nation’s economic standing in the world. The message was drafted and circulated by Joseph Stiglitz and signed by other luminaries, including Edmund Phelps (Columbia University), Robert Shiller (Yale), Paul Romer (Boston College), Angus Deaton (Princeton), Oliver Hart (Harvard), and others. All are known as liberal or left-leaning economists with attachments to the Democratic Party.

In 2021, 15 of these same economists, including Stiglitz, Phelps, Shiller, Hart, Romer, and Deaton, signed a similar public letter endorsing Biden’s Build Back Better agenda, which contained spending proposals for climate initiatives, health-care subsidies, schools, housing, and other causes. That bill eventually passed Congress with a $1.9 trillion price tag. Several pieces of a pared-back plan were eventually incorporated into the so-called Inflation Reduction Act of 2022, with an estimated cost of around $800 billion. The prize-winning economists had this to say about Biden’s economic proposals: “Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease longer-term inflationary pressures.”

The economists also claimed that Biden’s agenda includes “a broader conception of infrastructure” that went beyond spending on roads, bridges, and the like to include investments in human capital, research, public education, and health care. This is a familiar Democratic Party talking point: expenditures on various social causes are really “investments.”

How did it all work out? The expert economists were badly mistaken on inflation. They said that Biden’s spending packages would “ease inflationary pressures,” but everyone understands today that those same policies stoked inflation. When they signed their 2021 letter, the consumer price index stood at 273; since then, it has surged by at least 15 percent, to its recent level of 313. This is called “being wrong.”

Interest rates have also surged since then, much to the detriment of prospective homebuyers and those planning large expenditures for autos, home appliances, and school and college tuitions. The interest rate on 30-year mortgages has more than doubled since the 2021 letter, from 2.8 percent to above 7 percent today. The prime lending rate, used by banks for most loans, swelled from 3.2 percent in 2021 to 8.5 percent today. The economists would do well to ponder their performance as forecasters.

We have no evidence to suggest that Biden’s spending packages promoted economic growth. Real GDP surged in 2021 to 5.8 percent, mostly a bounce-back from pandemic era lockdowns, but it has declined and levelled off since then, to 1.9 percent in 2022 and 2.5 percent in 2023. In a recent forecast, the Conference Board projects that growth in 2024 is likely to slow to less than 1 percent (year over year). Contrary to what our Nobel laurates would have us believe, it is more likely that Biden’s policies have caused inflation and rising interest rates that have retarded economic growth.

Then there is the federal debt, made worse by the Build Back Better and Inflation Reduction Acts. When the economists signed their letter in 2021, and before the new surge in spending, total federal debt was $28.5 trillion—an enormous sum, more or less equal to the nation’s annual GDP. Since then, it has surged to $34.5 trillion. As a consequence, interest payments on the federal debt have gone from around $500 billion in total to about $1 trillion today—a $500 billion increase in expenditures per year, expected to grow still larger year by year as more deficits pile up.

One more thing about the misnomer called the Inflation Reduction Act, pieces of which were endorsed by the Nobel laureates. When it was passed in 2022, the Congressional Budget Office estimated that its energy and climate provisions would cost $393 billion in subsidies and tax credits. Biden and other Democrats also claimed (perhaps tongue in cheek) that the provisions would reduce annual budget deficits in the near term. But last year, a Goldman Sachs report estimated that the costs of those provisions has exploded threefold, to $1.3 trillion. According to the report, this occurred because companies rushed in to claim tax credits that were never capped.

In sum, the Nobel laureates praising Biden’s policies today (and criticizing Trump) are the same ones who recommended policies that ignited inflation, drove up interest rates, wrecked the housing market, ballooned the deficit and expenditures on interest, stifled economic growth, and underestimated the true costs of these policies.

Judging by their track record, when it comes to economic policymaking, these prize-winning economists have no idea what they are talking about."

Evaluating Pharmaceutical Policy Options

By Kate Ho & Ariel Pakes.

"Our calculations indicate that currently proposed U.S. policies to reduce pharmaceutical prices, though particularly beneficial for low-income and elderly populations, could dramatically reduce firms’ investment in highly welfare-improving R&D. The U.S. subsidizes the worldwide pharmaceutical market. One reason is U.S. prices are higher than elsewhere. If each drug had a single international price across the highest-income OECD countries, and total pharmaceutical firm profits were held fixed, then U.S. prices would fall by half and every other country’s prices would increase (by 28 to 300%). International prices would maintain firms’ R&D incentives and more equitably share the costs of pharmaceutical research."

U.S. Productivity Growth Relative to That of France and Germany

By Don Boudreaux.

"This graph, which appears in the latest issue of Scott Lincicome’s “Capitolism,” is worth pondering.

DBx: It is almost certainly the case that America’s on-going trade deficits investment surpluses – a.k.a. capital-account surpluses – contribute to this impressive growth in the productivity of the U.S. economy. Just as you in Ohio or Louisiana benefit if your neighbor across the street increases her savings in order to invest more in the U.S. economy, you benefit if your neighbor across the ocean increases his savings in order to invest more in the U.S. economy.

Note that since 2000, Germany has every year run an annual trade surplus."