The New Transportation Bill Puts Special Interests Above Safety

Some safety recommendations are treated as essential—while others become negotiable once influential people object

By Veronique de Rugy. 

"Congress loves to wrap legislation in the language of the public interest. This year's surface transportation reauthorization bill is no exception. Supporters describe the House Transportation Committee–passed package as a major safety bill designed to make America's transportation system more secure and efficient.

Beneath their rhetoric lies the familiar Washington story of a bill shaped less by evidence than by the demands of organized interests.

Perhaps the clearest example comes from the rail provisions. If the bill is being driven by a coherent safety philosophy, why would legislators soften rules requiring the faster replacement of old hazardous-materials tank cars, despite repeated recommendations from the independent National Transportation Safety Board? Some safety recommendations are treated as essential, while others become negotiable once influential people object.

The reason, of course, is politics, which come with clientelism.

Much of the debate over freight car inspections didn't center on the frequency, timing, or type of inspections required—things the conversation would focus on if safety was the overriding goal. Instead, most of the argument centered on who would perform inspections.

Labor organizations pushed provisions that would narrow who counts as qualified to inspect freight cars, thereby reserving those jobs for organized carmen. They opposed railroads' de facto practice of routing inspection volume to non-carmen staff (conductors) as a cost saver that didn't affect safety. Legislators ultimately crafted a compromise that reflects the competing interests of these two powerful stakeholders more than measurable safety outcomes. This is regulatory capture in action.

The role of organized labor is especially revealing. At a recent Senate hearing, Teamsters union officials openly acknowledged that autonomous trucking is going to happen and that workers have historically adapted to technological changes. Rather than trying to prevent deployment of the technology altogether, they argued that policymakers should proactively focus on worker transition issues. This is sensible enough. Yet many of the same labor groups strongly oppose automation and technology deployment in freight rail, including with systems believed to improve safety and detect defects far earlier than traditional inspection methods.

Why is automation acceptable in trucking but unacceptable in rail? The distinction, once again, is less about safety than politics. Where technological change threatens existing, strongly pro-labor work rules, opposition is intense. Where resisting new tech is less practical, the conversation shifts to something else. That may be understandable from a labor relations perspective, but legislators should not treat it as a sound basis for national transportation policy.

The broader bill suffers from a litany of problems. Together, they point toward the same influence issues.

Fiscal conservatives, assuming there are still enough of them to be heard in Congress, should be particularly concerned about a package that authorizes roughly $580 billion in spending while doing little to address the long-term insolvency of the Highway Trust Fund. Legislators are instead choosing to promise more spending while avoiding the structural reforms necessary to put transportation funding on sustainable footing.

Meanwhile, they inserted a controversial new federal registration fee structure for electric and hybrid vehicles. Progressives oppose it because they believe it discourages E.V. adoption. Many conservatives oppose it because it expands federal fee collection and further entangles state governments in administering federal policy.

The growing coalition of critics extends well beyond those issues. Transit advocates argue the bill underfunds transit and passenger rail. Environmental groups oppose permitting and climate-related provisions. Labor unions object to autonomous-vehicle language. Federalism-minded Republicans question federal preemption provisions.

When a bill generates opposition from nearly every direction, it is worth asking whether legislators are solving problems or trying to accommodate too many competing interests.

That's the deeper lesson here. Congress increasingly treats transportation policy as an exercise in stakeholder management. Instead of establishing clear goals and allowing innovation and competition to deliver results, legislators pile on mandates, carve-outs, protections, and special-interest provisions designed to satisfy whichever constituency has secured a seat at the table.

The result is predictable: Every organized interest receives something of value. Taxpayers inherit the costs.

The Senate will have an opportunity to reject this approach. Senators should evaluate every one of the House's mandates and favors using a simple test: Does it produce a measurable public benefit that likely exceeds its cost? If the answer is no, it should be removed.

Transportation policy should be guided by safety outcomes, economic efficiency, and fiscal discipline—not by whichever stakeholders have the strongest lobbying operations. Unfortunately, Washington still struggles to distinguish between the public interest and the interests of those who are in the room."

Understanding Demonic Policies (concentrated benefits and dispersed costs lead to an expensive welfare state)

By Alex Tabarrok. 

"Matt Yglesias has a good post on the UK’s Triple Lock, which requires that UK pensions rise in line with whichever is highest: wages, inflation, or 2.5 percent. Luis Garicano calls this “the single stupidest policy in the entire Western world” — and I’d be inclined to agree, if only the competition weren’t so fierce.

The triple lock guarantees that pensioner incomes grow at the expense of everything else, and the mechanism bites hardest when the economy is weakest. During the 2009 financial crisis wages fell and inflation declined, for example, yet pensioner incomes rose by 2.5 percent! (Technically this was under a double-lock period; the triple lock came slightly later — as if the lesson from the crisis was that the guarantee hadn’t been generous enough.)

Now, as Yglesias notes, if voters were actually happy with pensioner income growing at the expense of worker income, that would be one thing. But no one seems happy with the result. The same pattern is clear in the United States:

As I wrote in January, there is a pattern in American politics where per capita benefits for elderly people have gotten consistently more generous in the 21st century even as the ratio of retired people to working-age people has risen.

This keeps happening because it’s evidently what the voters want. Making public policy more generous to senior citizens enjoys both broad support among the mass public and it’s something that elites in the two parties find acceptable even if neither side is particularly enthusiastic about it. But what makes it a dark pattern in my view is that voters seem incredibly grumpy about the results.

Nobody’s saying things have been going great in America over the past quarter century.

Instead, the right is obsessed with the idea that mysterious forces of fraud have run off with all the money, while the left has convinced itself that billionaires aren’t paying any taxes.

But it’s not some huge secret why it seems like the government keeps spending and spending without us getting any amazing new public services — it’s transfers to the elderly.

The contradictions of “Elderism” are an example of rational irrationality. Individual voters bears essentially no cost for holding inconsistent political beliefs — wanting generous pensions and robust public services and low taxes is essentially free, since no single vote determines the outcome. The irrationality is individually rational and collectively ruinous. Voters are not necessarily confused about what they want; they simply face no price for wanting incompatible things. Arrow’s impossibility theorem adds another layer: even if each voter held perfectly coherent preferences, there is no reliable procedure for aggregating them into a coherent social choice. The grumpiness Yglesias documents may not reflect hypocrisy so much as the incoherence of demanding that collective choice makes sense — collective choice cannot be rationalized by coherent preferences and thus it’s perfectly possible that democracy can simultaneously “choose” generous pensions and “demand” better services for workers, with no mechanism to register the contradiction until the bill arrives."

Congressional leadership is corrupt

From Tyler Cowen.

"Using transaction-level data on US congressional stock trades, we find that lawmakers who later ascend to leadership positions perform similarly to matched peers beforehand but outperform them by 47 percentage points annually after ascension. Leaders’ superior performance arises through two mechanisms. The political influence channel is reflected in higher returns when their party controls the chamber, sales of stocks preceding regulatory actions, and purchase of stocks whose firms receiving more government contracts and favorable party support on bills. The corporate access channel is reflected in stock trades that predict subsequent corporate news and greater returns on donor-owned or home-state firms.

That is from a new NBER working paper by Shang-Jin Wei and Yifan Zhou.  Of course Alex T. has been on this issue for a long time now."

Protection for Whom? The Origins of Protective Labor Laws for Women

States were more likely to pass labor laws purportedly meant to protect women when more voters stood to benefit economically from restricting women’s employment.

By Matthias Doepke, Hanno Foerster, Anne Hannusch, & Michèle Tertilt. Excerpts:

"These protective labor laws, enacted by almost all states, imposed work restrictions on women that did not apply to men. They included maximum working hours, bans on night work, seating requirements, weight-lifting limits, and minimum wage provisions. These were presented as measures to protect women’s health and well-being, but in practice, they often curtailed women’s access to employment and economic independence. Most remained in place until the civil rights era, when anti-discrimination legislation rendered gender-specific laws unconstitutional."

"the answer primarily lies not in social norms or gendered values but in economic incentives and shifting labor market dynamics. Particularly, these laws found support among specific segments of the population that benefited from reduced competition in the workforce."

"Protective labor legislation limited women’s employment, thereby increasing the income of households that depended primarily on male earnings."

"a crucial force behind the rise and fall of protective labor legislation was these changing concerns about labor market competition from women."

"we developed a model in which women and men (single or married) can participate in the labor market and vote on protective labor legislation. In this model, two household types are key: single lower-skilled men and married couples consisting of a lower-skilled husband and a stay-at-home wife. For these groups, household income depends entirely on the male earner, who benefits from the exclusion of women from competing jobs."

"households where women contribute to family income—single working women or dual-earner couples—and households with higher-skilled men are more likely to oppose protective labor laws. Higher-skilled men benefit when women enter the workforce because women often perform roles that support and enhance the productivity of higher-skilled jobs."

"the two household types favoring restrictions did constitute the majority of the voting population when protective labor laws were introduced. In contrast, when these laws were dismantled, the share of the population opposing them had regained the majority. Further analysis shows that states were more likely to pass restrictive labor laws when a larger share of their voting population consisted of households that would economically benefit from limiting women’s employment."

"states were more likely to support equal rights amendments when the proportion of households that stood to benefit from eliminating gender-based labor restrictions was larger."

"Our research does not find support for the claim that states where women gained the right to vote earlier were more likely to introduce protective legislation. This finding confirms that the primary reason protective labor laws were passed was not because women pushed for their own protection. Similarly, we found little support for the idea that organized labor played a decisive role in promoting these laws."

Matthias Doepke

London School of Economics, Northwestern University, and IZA—Institute of Labor Economics

Hanno Foerster

Boston College and IZA—Institute of Labor Economics

Anne Hannusch

University of Bonn and IZA—Institute of Labor Economics

Michèle Tertilt

University of Mannheim and IZA—Institute of Labor Economics

It takes so much money and time to obtain the necessary permission to do anything (like build housing) that only the big things (like stadiums) are worth attempting

See Sports Stadiums Are Monuments to the Poverty of Our Ambitions by Binyamin Appelbaum of The New York Times. 

It might also be due to the Public Choice idea of "concentrated benefits and dispersed costs." You can get concentrated benefits if you are a team owner so you have an incentive to lobby for public funding. But the costs are dispersed across all the citizens who each only pay a slight amount so it is not worth it to any individual to fight it.

Excerpts:

"Cities build stadiums in part because it’s so hard to build almost anything else. Municipal leaders fixate on big-ticket projects because it takes so much money and time to obtain the necessary permission to do anything that only the big things are worth attempting."

"Washington has 164 different kinds of zoning districts, and even so, many building projects are treated as exceptions. Anyone who wishes to build must run the gantlet."

"Team owners make enough money from stadiums to justify the effort. It’s the smaller projects with slimmer margins that die on the drawing board. In Northwest D.C., there’s a parking lot developers have tried and failed to build on for 25 years."

"Because the system makes it hard to build anything other than luxury projects, cities are increasingly for rich people."

"People spend money at stadiums, but those people overwhelmingly are local residents who otherwise would spend that money in the same community."

"Academic studies have repeatedly concluded that public spending on stadiums is a bad investment. Indeed, one of the leading authorities on the subject has memorably described that conclusion as one of the rare subjects on which economists have approached unanimity."

Sugar Subsidies Are Foolish Even By Government Standards

By Dan Mitchell. 

"The theory of  “public choice” teaches us how politicians do dumb things because of perverse incentives.

To illustrate, let’s look at something really dumb: sugar subsidies.

I wrote about these inane subsidies back in 2018.

In that column, I shared some research showing big economic gains if the handouts were eliminated.

The bad news is that the cost of these subsidies is now even higher.

And the cost of the program doesn’t just hit consumers. It’s also destroys jobs.

Here are some excerpts from a column by George Will in the Washington Post.

Limiting sugar imports transfers wealth from 335 million Americans who consume sugar and products containing it to, primarily, about 4,000 producers of beet and cane sugar. …import quotas make the U.S. price of sugar two to three times the world market price, a boon to U.S. confectioners’ foreign competitors. …The Agriculture Department can also prop up U.S. sugar prices by buying domestically produced sugar, thereby keeping it off the market. The department “then sells this sugar to U.S. ethanol (of course) producers, often at a big loss (of course).” …A 2006 Commerce Department study concluded that for every job in sugar production that was saved by protectionism, nearly three jobs were lost in the confectionary industry. And the cost to the economy of each sugar production job saved was $826,000 in 2002 dollars ($1.4 million today).

But there’s more damage.

In addition to hurting consumers and workers, Professor Mark Thornton explains that sugar subsidies are bad for the environment.

Here are some excerpts from his column for the Foundation for Economic Education.

The red (or maroonish) tide is truly a nasty problem that I have experienced first-hand in the form of a ruined vacation. …The algae are a natural phenomenon that has been known of for almost two centuries. However, the harmful “blooms” have occurred much more often and in more places in recent decades. …Though other factors play a role in the algae bloom crises, one of the most significant involves the sugar industry. A combination of federal sugar subsidies, federal regulations on pollution, and federal control of Lake Okeechobee (a giant lake in southern Florida) runoff guidelines have created a recipe for disaster. …The federal sugar subsidy has created a massive increase in fertilizer use in agriculture in southern Florida and in other states, such as Louisiana. The EPA protects farmers and others who dump chemicals into the water by setting protection “limits,” and then federal officials dump excessive pollutants into our waterways and we have no recourse against them. I think the solutions are simple and straightforward. End the sugar subsidies.

In addition to ending sugar subsidies, it would be nice to end all agriculture subsidies.

And to make me really happy, also shut down the Department of Agriculture.

P.S. George Will mentions that sugar subsidies overlap with ethanol subsidies. If there’s also an overlap with the Export-Import Bank, that would create a connection for three of the most corrupt programs in a town that has made corruption an art form."

The link between economic concentration and political power?

From Tyler Cowen.

"Our findings do not support the political antitrust movement’s central hypothesis that there is an association between economic concentration and the concentration of lobbying power. We do not find a strong relationship between economic concentration and the concentration of lobbying expenditure at the industry level. Nor do we find a significant difference between top firms’ and other firms’ allocation of additional revenues to lobbying. And we find no evidence that increasing economic concentration has appreciably restricted the ability of smaller players to seek political influence through lobbying. Ultimately, our findings show that the political antitrust movement’s claims do not rest on a solid empirical foundation in the lobbying context. Our findings do not allay all concerns about transformation of economic power into political power, but they show that such transformation is not straightforward, and they counsel caution about reshaping antitrust law in the name of protecting democracy.

Here is the recent paper by Sepehr Shahshahani and Nolan McCarthy.  Via the excellent Kevin Lewis.  And yes, yes I know there is much more here than just lobbying expenditures, but that it doesn’t show up in that area…isn’t supportive."

Lobbying Turns Green

By David Boaz.

"I don’t mean to keep writing the same article about lobbying and special interests over and over. But the federal government keeps creating more and more opportunities for special interests to hire lobbyists. This week The Economist writes,

with up to $800bn in clean‐​energy handouts now up for grabs over the coming decade, …

The energy industry as a whole spent nearly $300m last year on lobbying, the most since 2013 (see chart 1). Big oil and electric utilities, which had been reducing their spending on influence‐​seeking before 2020, have ramped it up again; spending is growing in line with that of the biggest lobbyists, big pharma. Renewables firms went from spending an annual average of around $24m between 2013 and 2020, to $38m in 2021 and $47m in 2022. “We’ve now got an interesting new ecosystem of swamp creatures here,” says the government‐​relations man at a giant renewable‐​energy company.

And what caused this new ecosystem?

The reason is the passage last year of the Inflation Reduction Act (IRA). The law funnels at least $369bn in direct subsidies and tax credits to decarbonisation‐​related sectors (see chart 2). It came on the heels of the Bipartisan Infrastructure Law, which also shovels billions in subsidies towards clean infrastructure. Some of the provisions offer generous tax credits, with no caps on the amount of spending eligible for the incentives. A mad investment rush, should it materialise, could lead to public expenditure of $800bn over the next decade. An official at a big utility says her firm has projects in the works across America that, if successful, will secure a staggering $2bn in funding from the two laws. “We stopped counting…we just have a big smile on our faces all the time these days,” confesses the renewables firm’s government‐​relations man. “There is a lot there for a lot of people,” sums up a business‐​chamber grandee. And, he adds, “A lot of lobbyists are interested in the spending.”

And as my colleague Scott Lincicome told Politico about another multi‐​billion‐​dollar pot of gold, the CHIPS and Science Act, “It would almost be corporate malpractice to not go after that cash.”

This is of course the standard story whenever Congress appropriates, or considers appropriating, a new pot of taxpayers’ money. The civics books explain that the people bring a problem to Congress, committees hold hearings and hear from expert witnesses, the issue is debated, Congress then maybe appropriates the money, and selfless experts in the bureaucracy spend it in the national interest. The reality is more like a feeding frenzy to get a piece of every new funding opportunity. It’s no surprise that that lobbying expenditures are reaching new highs in the spendthrift Biden administration.

Lobbying is protected by the First Amendment: “Congress shall make no law … prohibiting … the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” But those who worry that corporate interests and the wealthy have too much influence in Washington should recognize the “supply‐​side economics” of the problem: When government supplies billions — tens of billions — hundreds of billions of dollars to be handed out by appointed officials and the bureaucracy, you can bet that interested parties will leave no stone unturned in their effort to get a piece of that cash.

As Craig Holman of the Ralph Nader‐​founded Public Citizen told Marketplace Radio during the 2009 financial crisis, “the amount spent on lobbying … is related entirely to how much the federal government intervenes in the private economy.”

Marketplace’s Ronni Radbill elaborated: “In other words, the more active the government, the more the private sector will spend to have its say…. With the White House injecting billions of dollars into the economy [in early 2009], lobbyists say interest groups are paying a lot more attention to Washington than they have in a very long time.”

Big government means big lobbying. When you lay out a picnic, you get ants. And today’s federal budget is the biggest picnic in history.

The Nobel laureate F. A. Hayek explained the process 80 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

That’s the worst aspect of the growth of lobbying: it indicates that decisions in the marketplace are being crowded out by decisions made by lobbyists and politicians, which means a more powerful government, less freedom, and less economic growth."

Inframarginal externalities: COVID-19, vaccines, and universal mandates

By Brian C. Albrecht & Shruti Rajagopala. Albrecht is at the International Center for Law and Economics, Portland, USA. Rajagopalan is with the Mercatus Center at George Mason University, Arlington, USA. Excerpts:

"Abstract

COVID-19 vaccine mandates are in place or being debated across the world. Standard neoclassical economics argues that the marginal social benefit from vaccination exceeds the marginal private benefit; everyone vaccinated against a given infectious disease protects others by not transmitting the disease. Consequently, private levels of vaccination will be lower than the socially optimal levels due to free-riding, which requires mandates to overcome the problem. We argue that universal mandates based on free-riding are less compelling for COVID-19. We argue that because the virus can be transmitted even after receiving the vaccine, most of the benefits of the COVID-19 vaccine are internalized: vaccinated individuals are protected from the worst effects of the disease. Therefore, any positive externality may be inframarginal or policy irrelevant. Even when all the benefits are not internalized by the individual, the externalities mainly are local, mostly affecting family and closely associated individuals, requiring local institutional (private and civil society) arrangements to boost vaccine rates, even in a global pandemic. Economists and politicians must justify such universal vaccine mandates on some basis other than free-riding."

"Conclusion

This paper started from the widely accepted premise by economists writing on vaccines, that vaccines generate a positive externality. The private and social marginal benefits of vaccines do not perfectly align creating room for policy interventions to improve outcomes for everyone involved. However, we argue that vaccine mandates, which are a common policy approach to the externality are weaker than commonly acknowledged in the case of COVID-19 vaccine.

We find that the presence of a positive externality does not automatically imply free-riding. In fact, most of the benefits for the vaccines developed to battle COVID-19 are internalized. This is because vaccinated individuals are protected from the most severe consequences of the infection, but they can transmit the infection, especially in the case of newer variants of the novel corona virus. In this sense, the externality is also partially excludable since asymptomatic vaccinated individuals may transmit to the unvaccinated. Given the strong private incentives to vaccinate, the externality may be inframarginal, as defined by Buchanan and Stubblebine (1962); that is, the externalities exist, but they are irrelevant to the policy.

Second, even when the effects are not completely internalized, the external benefits are more local than global. Family members infect each other. Coworkers infect each other. The policy response should reflect the level of the externality. Therefore, the case for universal vaccine mandates is weaker than often acknowledged within the economics literature. Local public goods allow for more sorting and local “production,” which, in this case, means local incentives to take the vaccine.

Finally, if the non-universal adoption of a COVID-19 vaccine is due to preferences and beliefs about the nature/existence of the virus, vaccine, the healthcare system, and government, then the argument is not based on free-riding. Policymakers must their argument in favor of mandates rooted in explanations other than free-riding.

The case for universal COVID-19 vaccine mandates is not strongly situated in explanations for underconsumption due to a free-rider problem. Nothing in our argument implies there is no role for governmental policy in vaccination. Instead, we maintain that the policy response should not singularly focus on universal vaccine mandates to solve a free-rider problem if none exists. There may be other reasons, not related to externalities and free-rider problems, but instead in politicization, misinformation, or paternalism, to justify vaccine mandates."

Schumer-Manchin’s Winners and Losers

The 725-page bill is marbled with political and union favoritism

WSJ editorial.

"West Virginia Sen. Joe Manchin last fall sharply and rightly criticized a bonus tax credit for union-made electric vehicles in the Build Back Better bill. “We shouldn’t use everyone’s tax dollars to pick winners and losers,” he said. Yet that’s exactly what his tax and climate deal with Senate Majority Leader Chuck Schumer does.

The 725-page bill is riddled with green goodies that favor unions and projects located in specific regions. Most tax credits for renewable energy projects are five times more generous if contractors pay “prevailing wages”—that is, union-scale wages—and employ workers participating in apprenticeship programs. These are usually run by unions.

The new base tax credit for solar and wind production would be $5.2 per megawatt hour (MWh), which is less than the existing $26 MWh subsidy. However, investors in projects that meet the bill’s labor specification would be able to claim $26 MWh and $28.6 MWh if 100% of their steel is made in the U.S. Didn’t President Biden antagonize steel-exporting Canada enough by canceling the Keystone XL pipeline?

Another example of union favoritism is the tax credit for carbon sequestration from manufacturing or fossil-fuel combustion. This credit is currently $35 per ton of CO2 captured and stored, which is about half the break-even cost for most projects. The Manchin-Schumer deal cuts the base credit to $17 per ton but increases it to $85 per ton for projects that meet its labor standards.

Manufacturers and fossil-fuel companies that hope to take advantage of the subsidy would effectively have to use union labor. Same for nuclear plants. The base $3 per MWh nuclear tax credit isn’t enough to keep plants afloat amid an onslaught of heavily subsidized renewable energy sources. But those that meet labor benchmarks can claim $15 per MWh and may stand a fighting chance.

One effect of all these bonus credits will be to raise project costs, which will be borne by utility ratepayers and taxpayers. They could also push up wages in local labor markets and raise costs for manufacturers and contractors that don’t benefit from government handouts, so public works, housing and goods could become more expensive. How does this reduce inflation?

The bill also increases renewable tax credits by an additional 10% to 20% for projects located in “environmental justice” communities—i.e., Democratic cities—and 10% for those in areas that have or had significant fossil-fuel employment. This is intended to compensate for the economic harm from the government’s force-fed green-energy transition.

But it will also distort capital allocation. Boone County, West Virginia, probably isn’t an ideal place to locate a solar farm, but investors may decide to locate one there in order to pocket more government handouts. Mr. Manchin no doubt expects his state to benefit from the corporate welfare and political direction of capital, but he shouldn’t be so sure it won’t end up as one of the losers.

***

Above all, the bill punishes companies and contractors whose workers aren’t unionized. It will also reduce the economic advantage of states like Arizona that have less unionized workforces and lower labor costs. They have worked hard to create a business-friendly climate that attracts private investment, including in green technologies.

The bill could also lead to short-term jobs in renewable construction replacing steady ones in fossil fuels. Has Mr. Manchin considered all of the bill’s potential economic consequences? He was right last fall when he said government shouldn’t pick winners and losers."

Politics, Not Economics, Motivates Semiconductor Subsidies

By Scott Lincicome and Alfredo Carrillo Obregon of Cato.

"Amidst mounting pressure from the Biden administration and led by Senate Majority Leader Chuck Schumer, the Senate last night began a final push to fast‐​track $76 billion in new taxpayer subsidies for domestic semiconductor manufacturers. (The initial subsidy proposal was a mere $16 billion, but—unlike in the real world—inflation has always been a problem in Washington.) House Democratic leadership has also signaled their desire to quickly approve the subsidies, should the Senate send them a final package.

Politically, Democrats’ intense motivation to deliver these funds now makes perfect sense. According to various reports, the subsidies would not only provide a financial windfall for semiconductor companies in Schumer’s home state of New York (something he openly admits), but also reportedly constitute one of the few “political wins” that the Democrats can deliver to President Biden and candidates in key battleground states like Arizona and Ohio ahead of the midterm elections in November—“huge leverage” that chipmakers and other subsidy supporters are perfectly willing to exploit today. Meanwhile, several of the congressional Republicans who support the subsidies—smaller in number than Democratic supporters but essential to the subsidies’ legislative success—also host semiconductor companies or large semiconductor consumers in their states or districts.

As a policy matter, however, the already‐​weak economic case for the subsidies that we detailed last December has become even weaker. For starters, there has been even more chipmaking investment dedicated to the U.S. market, even as federal subsidies have languished. Construction is now underway at four major U.S. facilities and will continue with or without subsidies—something even Intel reluctantly acknowledged when it delayed the groundbreaking ceremony on its much‐​ballyhooed Ohio facility to protest congressional inaction. This is because, as numerous experts have explained over the last year, there are real economic and geopolitical reasons to invest in additional U.S. semiconductor production—no federal subsidies needed.

Meanwhile, multiple reports suggest that—just as we cautioned last year—the global semiconductor shortage is coming to an end and might even be replaced by a semiconductor glut, even before any new federal subsidies might further goose global chipmaking capacity. In particular, Taiwan’s TSMC, South Korea’s SK Hynix, and the United States’ Micron Technology have each reported that they are reconsidering capital expenditure plans for next year because of unexpectedly‐​softening demand and apparent hoarding by major semiconductor consumers (who are expected to work through their stockpiles before placing new orders).

In other words, just as Congress is gearing up to throw $70‐​plus billion at cash‐​rich semiconductor manufacturers, there are increasing signs of excess supply and lagging demand in the notoriously cyclical (boom‐​and‐​bust) global semiconductor market—a situation that those subsidies could exacerbate. (As discussed last year, a subsidy‐​induced semiconductor glut would not only cause financial pain for chipmakers and their investors, but also increase the potential for costly trade conflicts similar to those that erupted in the 1980s and 1990s following a similarly‐​misguided U.S. embrace of industrial subsidies and “strategic” planning.)

These two developments put subsidy advocates in quite the pickle: taxpayer dollars either will pay giant corporations to do what they already planned on (and are) doing or will finance additional and undisciplined domestic capacity expansions that could cause a painful global glut. Either way, American taxpayers lose.

Regardless, the current situation is already a classic example of one of U.S. industrial policies’ chief problems: because politics, not market fundamentals, drive industrial policy proposals, they are often implemented or continued long after their economic justifications have disappeared. (A problem dubbed the “Technology Pork Barrel” back in the 1990s.) In this case, Congress appears intent on subsidizing an industry making record profits, already building facilities here, and even facing a potential glut—not because doing so makes good economic sense but because the Democratic leadership and the White House need a “political win” and are under serious pressure from powerful domestic interest groups to deliver the cash. Indeed, even as the subsidies’ economic justifications dwindled, the subsidy amounts increased.

Only in Washington.

As previously explained, there are more productive, market‐​oriented ways for Congress to encourage semiconductor manufacturers to invest and expand production in the United States, while avoiding subsidies’ inevitable costs, distortions, and conflicts. But those policies don’t deliver the same political benefits—there are no ribbon‐​cutting ceremonies when Congress changes how capital expenditures are expensed, expands high‐​skilled immigration, or eliminates trade barriers—and in fact raise potential political costs. So we get billions in subsidies instead, papering over our real policy problems and likely causing new ones along the way.

Like we said: classic."

Texas' shameful Chapter 313 program is the sort of corporate welfare we don't need

By Michael Taylor of The San Antonio Express-News. Excerpts:

"Here’s how it works: A private company plans to build a thing in Texas it says will provide jobs. It applies to the local school district where the thing will be built, asking for a limit on the taxable value of the property for 10 years. With a reduced value, the private company can save hundreds of thousands, or even millions, of dollars over the coming decade, depending on the size of the project and the property tax cap.

The local school board nominally has oversight and decision-making authority, but for reasons we’ll see in a moment it almost always agrees to this limit. The company then applies to the Texas Comptroller’s office, which has to review the school district’s decision. The comptroller’s office is supposed to make sure a tax break is necessary to incentivize the new construction, which otherwise might be built somewhere outside of Texas. That’s the key justification for the Chapter 313 tax break — to retain and attract business activity and jobs in the state.

School district tax breaks last 10 years. Over the 10 years, however, school districts do not actually lose any tax revenue because under this program the state promises to reimburse them for lost taxes. The state — that’s all of us taxpayers — ends up paying the school district for forgone taxes.

In a sign the tax breaks are too generous, in most cases the beneficiary companies agree to make a “payment in lieu of taxes” back to school districts. Strangely, the payment occurs outside of the normal school district funding process to an “educational foundation.” That feature itself creates weird incentives for districts to green-light Chapter 313 projects. They lose no revenue but gain flexible funding they wouldn’t get from a normal state educational funding mechanism.

Hearst’s four-part investigation found the following key points:

Many companies announced construction before applying for the tax break. In most cases, it was nearly inevitable they would have built without the tax break, undermining the stated purpose of the incentive.

  The Comptroller’s office always says yes. Fewer than 2.5 percent of Chapter 313 applicants have been turned down, and even some of those initially rejected reapplied and subsequently received the subsidies.

  Thirty companies violated their agreements about promised job creation, but faced no consequences.

  The cost of the program will increase to $1 billion per year by 2023 and is projected to keep growing.

None of that is popular with observers on either side of the political spectrum. The conservative think tank Texas Public Policy Foundation and the progressive think tank Every Texas are united in calling for the Chapter 313 program to be ended." [it might be "Every Texan"]

"Nathan Jensen, a University of Texas at Austin professor of government who studies economic development, wrote a 2017 paper in which he found only 15 percent of firms were swayed to stay in Texas by their Chapter 313 subsidy. By implication, the other 85 percent would have made the same decision to build without the subsidy. But they sure appreciated the free money."

"Supporters of the program inevitably cite “job creation” as the program’s justification. The Hearst investigation cites estimates ranging from $211,000 to $1.1 million per job created. That’s an absurdly high cost, even at the low end. Jensen’s paper found the often-bandied estimates of $350,000 per job created to be too low. “The majority of tax dollars generate zero new jobs and no economic benefit for the state,” he wrote.

As Jensen told me recently, “It’s a complex program and I do feel like some government officials are starting to get the problems with it. But there are tons of supporters lobbying for it and not many lobbying against it.”"

Current transportation infrastructure spending policies lead to inefficient decisions and are often driven by political forces

See Political Incentives and Transportation Funding by Robert Krol of Mercatus.

"HIGHLIGHTS

Benefit-Cost Estimates Are Inaccurate

Economic research shows that the costs of transportation projects are consistently underestimated and traffic flows overestimated.

• Projects that appear to be economically viable when proposed often turn out poorly. In some cases, governments deliberately overestimate benefits and ignore or underestimate costs.
• These errors are large and are not random, suggesting that they are part of deliberate attempts to achieve a desired outcome rather than to provide an accurate forecast of the costs and benefits of the project.

This political use of the benefit-cost analysis often leads to an inefficient use of funds and goes largely unchecked by any institution of government or by citizens.

Legislative Voting Practices and Institutions Encourage Waste

Legislators embrace inefficient transportation projects because the benefits of a project accrue to their constituents while the costs are spread out nationwide, and local taxpayers do not pay the full cost of a local infrastructure project. Projects often move forward even when the total cost of the project exceeds total benefits.

• Federal funding of state and local highways results in an inefficient use of transportation dollars. For example, at the federal level, project benefits are concentrated in a state or district, whereas tax costs are spread out nationwide.
• As long as projects deliver benefits to a particular congressional district while dispersing the cost throughout the country, members of Congress are likely to vote in their favor.

POTENTIAL REFORMS

Two reforms could help reduce the political incentives to spend taxpayer money on inefficient transportation infrastructure projects.

Compare Proposed Project Estimates to Previous Project Estimates and Outcomes

Transportation project benefit and cost estimates need to be compared to actual estimates and outcomes from similar completed projects and subject to outside peer review by specialists unaffiliated with the project. The comparison to previous projects must also be transparent and open to public review, so that citizens can decide whether the range of projections for possible project outcomes is reasonable.

Shift Highway Funding from Federal to State and Local Governments

Highway financing should be shifted from the federal government to state and local governments. This reform would result in a greater concentration of both the benefits and costs at the local level, which would increase the focus on the costs of infrastructure projects. Additionally, states should be given greater control over highway pricing. Congestion pricing is one approach that could potentially lead to the more efficient use of highways, reducing the need for additional construction.

CONCLUSION

Government officials like to portray themselves as careful stewards of the taxes paid by citizens, but transportation project spending proves that they often fail to live up to this image. Transportation project justifications are severely biased in favor of questionable projects, and legislative voting behavior helps certain interest groups at the expense of the average voter. Instead of spending more money on more inefficient projects, the government should reform how transportation spending is determined and allocated."

Sugar — Congress’ Favorite Sweetener

Great post by Fran Smith of the Competitive Enterprise Institute Blog.

"The sugar lobby’s sweet contributions and their day-in-day-out lobbying means broad bipartisan support for continuing the U.S. sugar program in the 2013 farm bill, as The Washington Post noted in a wide-ranging article December 7. Sugar policy, consisting of price supports, restraints on domestic supply, and import controls, benefits mainly a small number of rich sugar producers at the expense of consumers and taxpayers, according to the article.

Historically, the program has resulted in domestic sugar prices substantially higher than the world price. Besides those sweet deals, the government also buys back sugar producers’ surplus so they don’t have to pay back federal loans. Then the U.S. Department of Agriculture sells that sugar to ethanol producers at a loss.

Numerous attempts have been made to rein in this egregious program, but the sugar industry’s intense and consistent lobbying and the huge contributions they make on both sides of the aisle almost guarantee them the program’s continuation.

The cost to consumers hits them in the pocketbook, as sugar is an ingredient in not just sweet treats, but in staples such as bread and processed food. The sugar program means about $3.5 billion in additional costs to consumers per year.

It’s estimated that the higher domestic prices for sugar has cost the confectionery, beverage, and food industries nearly 127,000 jobs between 1997 and 2011, according to the U.S. Department of Commerce, and has led to many candy companies moving their operations to other countries, such as Mexico and Canada. For every job saved in the sugar producing industry through the sugar program, about three jobs are lost in the confectionery and food industries, says Commerce.

As CEI noted in a coalition letter to the House and the Senate:

The U.S. sugar program is a classic public choice case of concentrated benefits and dispersed costs: of how special interests can trump the public interest. A small number of sugar producers receive enormous benefits, while the costs are spread across the U.S. economy, hitting consumers and the sweetener-using industries."

Vote Buying--It Works!

Great post at Division of Labor.

"From the abstract of a paper in the AEJ: Applied:

This paper estimates the impact of a large anti-poverty cash transfer program, the Uruguayan PANES, on political support for the government that implemented it. Using the discontinuity in program assignment based on a pretreatment eligibility score, we find that beneficiary households are 11 to 13 percentage points more likely to favor the current government relative to the previous government. Political support effects persist after the program ends."