Spanish blackout should serve as a warning

By Paige Lambermont of CEI.

"If policymakers don’t want Americans to find themselves in the dark, then they should pay attention to the harmful electricity policies in Spain. 

Spain experienced a nearly unprecedented blackout on April 29. The entire Iberian Peninsula was impacted by the blackout, Both Spain and Portugal were without power for more than 12 hours, and more than 55 million people were left in the dark. The investment bank RBC estimated the economic costs of the blackout  to be  between 2.25 and 4.5 billion euros.

Incidents like this one often have unclear causes at the beginning. At this point, it’s clear that the level of renewables being utilized on the Spanish grid was the main issue.  

Spain has a particularly high penetration of wind and solar on its grid. Fifty-six percent of the country’s electricity came from these sources in 2024, with a target of 81 percent by 2030. Just 12 days before the blackout, Spain announced that for the first time renewables were meeting 100 percent of demand (albeit on a weekday and only for a short while). At the time of the blackout, 70 percent of Spain’s total power came from wind and solar.

The problem is that these sources are intermittent and only available when the sun is shining, or the wind is blowing. The rest of the grid is able to absorb this intermittency when there is a significant mass of thermal power plants like nuclear, gas, and coal. These plants can be relied upon to produce electricity consistently because they are dispatchable (can be called upon as needed). They have reliable output and are able to maintain inertia from the spinning motion of their turbines which provides a bit of insulation to sudden outages.

When there’s less of this inertia on the grid it’s harder to absorb plants suddenly dropping off. Wind and solar unpredictably go offline because of the weather. A combination of less thermal units and more wind and solar with little to no stored power to back it up is a recipe for disaster.

Following the blackouts, a Reuters report entreated readers not to blame renewables for the blackout, stating that “reliance on renewables is not to blame. Rather, the issue appears to be the management of renewables in the modern grid.”

This characterization fails to realize that the management of renewables is a problem of renewables themselves. They are fundamentally different than other sources of electricity and require different systems to function optimally. But the very expensive systems already in place would require equally expensive alternatives to prevent this sort of thing from happening in the future.

There is concern in Europe that other countries may face similar incidents, and that expensive upgrades to the power grid will be needed to avert potential blackouts.

The US should also take this blackout as a warning. Some states have far higher renewables penetrations than others. Texas and California both have significant wind and solar penetrations, and other areas like Florida, Iowa, and the Great Plains region aren’t far behind.

State renewable portfolio standards, which require that a certain percentage of power in the state be generated by renewables are also contributing to this problem. Many states including Texas and California have these policies in place.

Federal policy has also contributed to this vulnerability. The Investment and Production Tax Credits which give companies tax credits to build new facilities and for the power that they produce has encouraged more wind and solar to be built than the power market would have otherwise demanded. These credits which were extended under the Inflation Reduction Act (IRA), should be repealed.

Wind and solar power come with tradeoffs just as every form of power generation does. But the problems with these sources have been ignored for too long. Congress should act to remove the IRA subsidies that have encouraged too many of these facilities to be built. State governments should also revisit their own electricity policies to ensure that undue preferential treatment is not given to wind and solar development.

The power grid should serve the needs of its customers, not the political aims of federal and state governments. Consumers want power that’s affordable and reliable. Policies that risk reliability for the sake of other aims should be rejected."

Hot Air and Cold Truths: Collected Essays on the Myths and Realities of Climate Change

By Bjørn Lomborg.

• This series of essays challenges the prevailing alarmist narratives surrounding climate change and argues for a more balanced approach to environmental policy, emphasizing the need for cost-effective solutions that prioritize human well-being, economic growth, and technological innovation over costly, inefficient mandates.
• While climate change requires action, the current rhetoric is detached from empirical evidence. Overstating risks leads to policies that divert attention from more pressing global challenges, such as poverty, disease, and malnutrition.
• Much of the climate debate fixates on rising temperatures, yet cold weather kills far more people than heat. Aggressive emissions cuts raise energy costs and paradoxically increase suffering, making heating and cooling less affordable.
• Heavily subsidized green initiatives such as wind and solar energy, and electric vehicle mandates, deliver minimal emissions reductions at a very high cost.
• Activists often blame climate change for hunger, but the data tells a different story. Famines today are overwhelmingly caused by conflict and poor governance, not climate change.
• The net-zero agenda—which is likely to cost about CAD $38 trillion per year over this century—is politically unsustainable. Poor nations will not adopt climate policies without trillions in aid. Even if countries like Canada bankrupt themselves pursuing net zero, the impact would be negligible (less than 0.02° C by 2100).
• Well-intentioned but poorly designed climate policies disproportionately harm the world’s poorest. If we care about equity, we should prioritize economic growth and energy access.
• By focusing on smart, cost-effective solutions, we can create a more sustainable and equitable future for all.

What J.D. Vance Gets Wrong About Judicial Deference to Executive Power

The federal courts are supposed to be a bulwark against presidential overreach, not a rubber stamp.

By Damon Root of Reason. 

"Let's start with the role of the courts. The idea that the judicial branch owes special deference to the elected branches of government was thoroughly rejected by the framers and ratifiers of the Constitution. "As to the constitutionality of laws," Luther Martin told the Constitutional Convention in Philadelphia on July 21, 1787, "that point will come before the judges in their proper official character. In this character they will have a negative on the laws." Federal judges, Martin explained, "could declare an unconstitutional law void," thereby overruling the actions of the elected branches. None of the delegates disagreed with that.

"This Constitution defines the extent of the powers of the general government," Oliver Ellsworth told the Connecticut Ratification Convention on January 7, 1788. "If the general legislature should at any time overleap their limits, the judicial department is a constitutional check. If the United States go beyond their powers, if they make a law which the Constitution does not authorize, it is void; and the judicial power, the national judges, who, to secure their impartiality, are to be made independent, will declare it to be void."

James Madison, often called the "father of the Constitution," made the same point in his June 8, 1789, speech to Congress introducing the Bill of Rights. The proper role of the courts, Madison said, was to act as "an impenetrable bulwark against every assumption of power in the legislative or executive." Not exactly a ringing endorsement of judicial deference, is it?

Now let's examine the specific legal issue on which Vance thinks that Trump is entitled to "extremely deferential" treatment from the courts.

Vance's statement came in response to a question about Trump's invocation of the Alien Enemies Act, a 1798 law that allows the president to direct the "removal" of certain aliens "whenever there shall be a declared war between the United States and any foreign nation or government, or any invasion or predatory incursion shall be perpetrated, attempted, or threatened against the territory of the United States, by any foreign nation or government."

Trump invoked this wartime law in the hopes of deporting alleged members of Tren de Aragua, a street gang that first sprang up in Venezuela. But the Alien Enemies Act does not say what Trump claims that it says. There is no "declared war" between the United States and Venezuela, and there is no "invasion or predatory incursion" of the U.S. by "any foreign nation or government." Tren de Aragua is not a foreign state, and the gang's alleged crimes do not qualify as acts of war by a foreign state. Trump's position disfigures the text of the Alien Enemies Act to the point that it is no longer recognizable.

That is the "political judgment" that Vance finds so deserving of the judicial rubber stamp. "I think you are seeing an effort by the courts to quite literally overturn the will of the American people," Vance told Douthat. "You cannot have a country where the American people keep on electing immigration enforcement and the courts tell the American people they're not allowed to have what they voted for."

But of course, the courts can and should "tell the American people they're not allowed to have what they voted for" if what they "voted for" happens to be unlawful or unconstitutional. Indeed, that is the whole point of our constitutional system. We do not live in a pure democracy in which the president gets a blank check after every election. We live in a representative republic that is chock full of meaningful checks and balances, including the very important check against presidential overreach that we call judicial review."

What Is the Right Price to Pay for Drugs? Part II

By John C. Goodman.

"In response to Donald Trump’s invitation to a national discussion on how much we should pay for drugs, I proposed in Part I to take the same approach economists take toward most public policies. That is, we begin by asking what would happen in a completely free market. Then, we ask whether government intervention of some sort would improve social welfare.

In Part I, I surveyed the seller side of the market. Let’s now turn to the buyer side.

Buyer behavior

How would people make decisions about whether to purchase drugs and which drugs to purchase in a free market? For low-cost drugs (which includes most generics), they would likely pay directly—probably from a Health Savings Account. Their decisions would be based on a physician’s advice and personal experience.

Individuals have different biological makeups. A drug that works for one person may not work for another. How long a drug is needed is also likely to be personal. So, people would purchase drugs the way they purchase any other product. They would rely on experience and engage in personal cost-benefit analysis, occasionally aided by professional advice.

For expensive drugs, people would almost certainly turn to third-party health insurance. In doing so, they would have to rely on the insurer to make collective decisions about which drugs to cover and how much to pay for them. In doing that, the insurer would be doing cost-benefit analysis for the enrollees as a group.

How is that possible?

From the medical research, the insurers would have estimates of the health value of a drug—how many additional years of life it promises, for example. From the economics literature, they would have estimates of the value people place on additional years of life—based on decisions they make in everyday life.

Some readers may object that life is priceless. It may be, but we don’t act like it is. In driving a car, crossing a street, playing sports and in many other activities, all of us take small risks in return for small rewards. Economists have measured these tradeoffs—mainly by looking at behavior in the job market. For example, jobs that have higher death and injury rates pay higher wages. By measuring how much more people have to be paid to take additional risks, economists are able to estimate what is called the “value of a statistical life year,” or VSLY.

Space does not permit a full discussion of all the issues involved (including adjustments for the “quality” of life), but a common estimate is in the range of $150,000 to $200,000 per year of life saved. If a drug promises to save a year of life and its annual cost is less than $150,000 it is said to be cost- effective, or worth what it costs. If it costs more than $200,000, it is said to be not cost-effective.

Note: this is not the same thing as saying that a person’s life is worth no more than $200,000. Instead, it is saying that when everyone is healthy and we all know that we face low probabilities of many different future risks, how much money are we willing to commit today to avoid (or reduce) those risks? Based on decisions people make with respect to other risks in life, it looks like the cutoff point is around $200,000.

This exercise isn’t theoretical. It is already being done by our federal regulatory agencies, including the Department of Transportation (DOT), the Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA). Each of these agencies must make many decisions involving tradeoffs between money and improvements in the health and safety of the public. They can’t make consistent decisions without a standard.

Right now, no health insurer in the US (public or private) uses the VSLY for decision-making. But the British National Health Service does—for drugs and other interventions. The cut-off point for the British is between $25,000 and $37,500 per quality adjusted life-year—a much lower value than American agencies are making for regulatory decisions. Critics argue that these limits are too low. Yet it is interesting that the British government has a standard and that it is very public about it.

Public policy implications

From this brief overview of the buyer’s side of a free market for prescription drugs, we can note five important things.

First, private insurers should be able to adopt the same cost-benefit standard the federal government uses.

Because of perverse regulations, private insurers can’t be counted on to adopt the socially optimal cost-benefit tests. (I’ll address this in Part III.) But there is no reason why they shouldn’t be able to use the same cut-off criteria the federal government uses. Drug manufacturers would know that if the price they are asking can’t meet this criterion, private insurance probably won’t cover their drug.

Second, if private insurers were allowed to use the federal cost-benefit criteria, many state and federal health insurance mandates would have to be repealed.

It is not just drugs that might fail the cost-benefit standard. State governments for years have mandated heath insurance benefits that are not cost-effective. The Affordable Care Act (Obamacare) did the same thing under federal law. An annual cervical cancer screening in low-risk populations, for example, costs more than $1 million per year of life saved. Yet Obamacare requires that it be covered. It is doubtful that Obamacare’s mandated annual wellness exam has saved any lives.

Third, individuals should be able to make private provision for items not covered by their health plan.

Women at low risk should be able to pay out-of-pocket for an annual cervical screening—even if their health plan doesn’t pay for it. But people may also want to buy a separate insurance policy for expensive uncovered services.

This, for example, would be a possible solution for the problems faced by British cancer patients. According to one study, as many as 25,000 British cancer patients die every year because (1) they don’t have access to drugs that are available in other countries and (2) they don’t have access to other complementary care.

Of course, in many cases we may be talking about only a few months of additional life. But different people have different preferences. So why not let them buy “top up” insurance, which would pay for the drugs and also for private care, should the occasion arise? Because the likelihood that it would be used is very small, this type of insurance would probably be very inexpensive.

Fourth, if the private insurance plan is large enough, insurers would be able to negotiate prices.

In a free insurance market, a garden-variety health plan would be a price taker in the market for prescription drugs. That is, manufacturers would quote a price, and the plan would take it or leave it. However, if the plan were large enough, it might be able to achieve bargaining power. For example, if a drug company faced the possibility of losing every one of the people insured by UnitedHealthcare, it almost certainly would be willing to discuss a lower price at the bargaining table.

Fifth, if we allow monopoly on the seller side, we should be open to allowing monopoly on the buyer side.

If a group of businesses got together and as a group tried to force sellers to lower their selling price this would ordinarily be a violation of the antitrust law. However, in the market for drugs, we have explicitly created monopoly. It seems reasonable, therefore, to let buyers be free to combine and form a countervailing force.

In Part III, I will explain why private negotiations will almost always be better than government price negotiations."

Looking at DOGE’s IRS employee cuts through the lens of lost revenue alone will exaggerate the downsides

See DOGE’s IRS Cuts in Perspective by Sophia Bagley of Cato.

"One criticism we’ve seen of Elon Musk’s Department of Government Efficiency (DOGE) is that it could actually worsen the federal government’s budget deficit. Because DOGE is involved in laying off IRS workers, even some free-market conservatives complain that it will result in less legitimate tax revenue being collected.

Certainly, the marginal IRS worker will bring in some additional revenue—likely more than what the government pays for their salary. But is that the right metric for hiring more IRS agents? Of course not. This is an area where the government’s fiscal position and a broader conception of efficiency could be in tension.

IRS workers seek to eradicate false negatives—people not paying taxes even though they have taxes due. But the way IRS agents obtain that revenue is usually through conducting audits of taxpayers, many of whom will be investigated despite paying the correct taxes (false positives). That means a ton of time and energy is wasted on fruitless audits, including administrative stress for the individuals investigated.

As my Cato colleague Chris Edwards has pointed out, ramping up audits without reform risks inflicting serious inefficiencies. Ideally, we should reduce taxpayer errors and gaming by simplifying the tax code and modernizing IRS systems. Despite claims that the rich and corporations are cheating at vast levels, the IRS’s own “tax gap” estimate has remained stable for decades relative to gross domestic product.

So, yes, the IRS needs to audit to ensure compliance. But examining the effects of more agents on revenue alone paints a partial picture. More aggressive enforcement imposes growing costs on compliant businesses and individuals through legal fees, uncertainty, and in some cases, business closures. One study found that audited firms are more likely to shut down after being audited.

The Congressional Budget Office has shown that enforcement has diminishing returns. A 2020 report notes that adding $20 billion to IRS enforcement could bring in $61 billion, but a second $20 billion would yield only $42 billion more. A more recent report concurs that the return on investment from IRS enforcement activities “drops by 10 percent for every 10 percent increase in spending for enforcement and related activities over a base amount of about $10 billion.” These returns should be weighed against the private-sector costs and broader economic disruptions from heavy-handed enforcement.

Weighing these trade-offs is ultimately a technocratic question, over which we libertarians have little expertise. The point is: Looking at DOGE’s IRS employee cuts through the lens of lost revenue alone will exaggerate the downsides. Shrinking the workforce compels the agency to prioritize audits more carefully. Historically, audit precision improves when resources are limited, with no-change rates falling as a result. And many people who don’t need to be audited will avoid them."

Affordable Housing Is Almost Pointless

By Alex Tabarrok.

"What is the most important feature of affordable housing? Simple! It’s right there in the name, right? Affordable. But no. When the Illinois Housing Development Authority (IHDA) evaluates housing projects for tax credits it gives out points for desirable projects. Quoting Richard Day:

For the general scoring track, 10% of points are awarded for extra accessibility features, 13% are awarded for additional energy efficiency criteria, 15% are awarded based on the makeup of the development team, and an extra 4% are headed out to non-profit developers. Only 3% of scorecard points are awarded based on project cost.

Thus, when you look at what the affordable housing authority actually does it awards more than four times as many points to energy efficiency than cost which ultimately determines affordability and availability. “Development team” includes some mandatory requirements for experience, which makes sense, but also:

(a) incentivizing Black, Indigenous, or People of Color (“BIPOC”) and minority participation on the development team,

Indeed, a for-profit “certified” BIPOC-led business can earn up to 11 points (and a BIPOC-led non-profit up to 7 points) and you can get a few more points if you go the intersectionality route and have a certified female headed BIPOC team. Cost Containment in Project Design & Construction tops out at only 3 points (plus there are 8 more potential points for targeting to extremely poor residents which presumably also gets you some cost control).

Thus, rather than affordable housing what is actually being incentivized is some combination of:

• Racial equity goals
• Environmental sustainability
• Community development
• Supporting vulnerable populations
• Universal design for accessibility (7 points for going beyond code)

This is what Ezra Klein calls Everything Bagel Liberalism and what I called in one of my favorite posts the Happy Meal Fallacy.

The icing on the cake, by the way, is that Day argues that the IHDA is a better system than the even more convoluted and expensive system for affordable housing promoted by Chicago’s Department of Housing."

Scott Sumner explains why individuals and firms move from state to state

See Joe Weisenthal on Jobs and Migration.

"I saw an interesting tweet by Joe Weisenthal, discussing the question of what determines interstate migration:

This is the classic chicken and the egg problem—which comes first?

I view this question as an example of the fallacy of composition—what is true for the individual is not always true for the group.  I suspect that Weisenthal is correct that when specific people move, they are motivated by the availability of jobs.  However, that’s not the entire story.  Jobs are also moving to specific states, mostly in the Sun Belt.  And that migration is at least partly driven by the ready availability of labor fleeing areas with high housing costs, such as California.

And housing is not the only factor.  Illinois is also losing residents, despite housing costs in that state being quite reasonable.  Taxes and regulations are also more business-friendly in states like Texas.

When a firm considers where to locate a business, the availability of skilled labor is one important consideration.  Suppose that a firm is able to pay lower wages in Texas due to its lower taxes and housing costs.  In that case, a firm may decide to locate a new headquarters in the Lone Star State, even before a single new employee has been hired.  From the perspective of the individual worker, they see their move as motivated by job availability.  But the jobs are available precisely because employers know that there is a large inflow of workers into states like Texas, motivated by low housing costs and taxes.  

At the aggregate level, it probably makes more sense to think in terms of employers following the workers—moving to where there is a large pool of workers willing to take jobs at a reasonable salary.  But at the individual level it is often the case that the worker is following the employer, moving to where the jobs are.  

As is often the case in economics, it is an equilibrium phenomenon.  For instance, shoppers often like to visit an area that has a half dozen car dealers in close proximity so that they can compare several different models.  Car dealers like to locate their dealership next to other dealers because they know these areas have plenty of shoppers for new cars. 

Are the dealers drawing the shoppers?  Or are the shoppers drawing the dealers?  In equilibrium, the answer is “both”."