Coyote Blog

From the WSJ

A little-noticed provision in a bill passed by the House this month calls for relying more on U.S.-flagged ships to deliver food aid to foreign countries—a change backed by labor groups and criticized by the White House.

The measure, tucked into a Coast Guard and maritime bill, would increase the proportion of food aid transported abroad on private ships flying the U.S. flag, which are required to employ primarily American mariners.

The Obama administration opposes boosting the requirement to 75% of food aid, in tons, from the current 50%, saying it would raise shipping costs by about $75 million a year—siphoning off funds that otherwise could be used to send food aid overseas.

Jeez, when President Obama of all people has to lecture you that protectionism and kowtowing to labor groups is costly, you have gone off the rails.   The Jones Act is one of the stupidest pieces of interventionist legislation on the books and the House should be working on its repeal to sort out the oil transport mess.  Instead, here are the Republicans in the House doubling down on it.  With so-called friends of capitalism doing this garbage, who needs enemies?  At least Progressives trash the economy without pretending that they are pro free market.

By the way, here is a bit from the Cato article on the Jones Act and oil and gas prices

First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products.  According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.”  As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity.  And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive.  According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.

It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers.  According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”

Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports.  As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada.  Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart.  One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices.  As a result, several recent analyses – including ones byCitigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.

Bruce McQuain tells some stories of bureaucratic frustration in the Gulf, as local governors trying to protect their state from the spill fights against a myriad of mindless bureaucracies.

The governor said the problem is there's still no single person giving a "yes" or "no." While the Gulf Coast governors have developed plans with the Coast Guard's command center in the Gulf, things begin to shift when other agencies start weighing in, like the Environmental Protection Agency and the U.S. Fish and Wildlife Service. "It's like this huge committee down there," Riley said, "and every decision that we try to implement, any one person on that committee has absolute veto power."

I would state the problem differently.  In the Federal bureaucracy, seemingly everyone has the power to say "no," and absolutely no one is willing to risk their career or even a minor bureaucratic sanction to over-rule when someone else in the room says "no."  I have seen it a hundred times in my business -- we will be close to doing something for the public, building a new shower building in a campground for example, and some government employee in the room will say that their sister's gynecologist's barber's housekeeper once overheard a conversation in a bar that some guy who may have visited a university once said he had heard a rumor that there might have been a Native American settlement somewhere within 100 miles of that spot 10,000 years ago -- and suddenly the work on the shower has to stop for 6 months while we all run around calling in archeologists and taking this concern seriously.

The problem  in a government discussion, particularly a multi-agency discussion, is that EVERYONE can say "no," and worse, since their incentives are loaded towards risk avoidance (they get punished for violating procedure, but never punished for missing an opportunity), they have a tendency to say "no" a lot, in fact to say "no" by default.  In the Gulf you have a thousand federal employees from 20 agencies whose entire incentive system, whose entire career, whose every lesson from every bureaucratic battle in a sort of long-term aversion therapy, prompts them to say "no" by reflex.

What is missing is someone who can say "yes," and make it stick against all the no's.  That does not have to be Obama -- but it probably does have to be someone very senior who knows (and who everyone else knows) is backed to the hilt by the President and has an incentive system where the only measure of success is more or less oil damage, and thus for whom aggrieved bureaucrats (even senior ones) and petty procedure are irrelevant.  It does not appear such a person has been appointed.

Postscript: By the way, I don't want folks to fall into the trap of thinking that these government folks are necessarily bad people.  I think that is a mistake both conservatives and liberals make -- conservatives vilify government employees, while liberals want to believe that government would work right if we just had the right people in it.   I work with a lot of very bright, very good people in government.  The problem is that their incentives and information are awful.  How would you behave if for 20 years your main feedback was to be criticized for violating minor procedures or trying new things?  How would you have any understanding of business if you grew up in the bizarro world of government budgeting and accounting?   This is the problem with government - not that it is full of bad stupid people, but it takes good smart people and incentivizes them do counter-productive things.

Update: Here is a great example, from Kevin Drum, who is a smart guy but can't do anything but dither in a decision among multiple risks:

It's pretty hard to take the other side of this argument [ie defending the Coast Guard's decision to hold up the GUlf cleanup barges for minor rules violations]. But I wonder. We are, after all, talking about barges that are sucking up oil, and the last time I checked oil was pretty damn flammable. Everyone wants the cleanup operation to proceed with breakneck speed, but that's exactly when people get tired and sloppy. And I wonder what everyone would think of the Coast Guard's ridiculous rules if they waived them and then some boat went up in a huge fireball because a spark caught somewhere and no one had a fire extinguisher handy?

I will say again - I have been in many rooms of bureaucrats, both federal and private, and they all think this way.  These rooms are full of Kevin Drum's wondering out loud, "I don't know, what happens if..."  This is such a common phrase in these meetings I wish I had a dollar for every time I heard it.  Then everyone in the room defers to this hypothetical risk.   Bureaucrats are always more worried about sins of commission  (e.g. knowingly allowing a barge to go out without enough fire extinguishers in violation of guidelines) than the sin of omission (e.g. delay will allow the spill to get worse).  Even when the omission is 100% certainty and the danger from the act of commission is vaguely hypothetical.  It takes a leader to say "send the damn barges out now."

Kevin Drum opines:

What happens when you combine "fast track" procurement, minimal
oversight, pork-based contracting, and a comprehensive lack of
responsibility for results? Well, you get the Bush administration, of
course. More specifically, you get the Coast Guard's disastrous
Deepwater program. Nadezhda runs through the grim details.

This is perhaps the single greatest fallacy that props up big government.  Specifically, the notion that corruption, inefficiency, and stupidity are failures in government related to certain individuals.  The implication is that if only "our party" was in control, big government would be great.  Except that both parties have had their chances in alternating fashion for 70 years (what I would call the era of really big government) and government has been a mess regardless of who has been in control. 

People like Hayek and Friedman have written who books about it, so I want try to elucidate the whole theory, except to summarize that the nature of incentives in government, particularly the big sacrifice-one-group-for-another government we have today, will ALWAYS lead to massive failures.  Period.

I wrote over a year ago that statism always comes back to bite its creators, because no matter how beautiful the machinery of government control, you can never control for the human beings who get behind the levers.  At that time I pointed to three fallacies, of which the third is particularly relevant to this post:

• You don't have the right to make decisions for other people.
  Period.  No matter how high-minded and idealistic you want to portray
  it, at the end of the day you are proposing to use force to coerce
  another man into doing your will.  You may stop them from using force
  or fraud against others, but an adult may make decisions for
  themselves, even if they are bad.  I am reminded of a great line from
  the HBO show Deadwood, "Can you let me go to hell the way I want to?"

• You can't make better decisions for other people, even if you
  are smarter, because every person has different wants, needs, values,
  etc., and thus make trade-offs differently.  Tedy Bruschi of the
  Patriots is willing to take post-stroke risks by playing pro football again I would never take, but that doesn't mean its a incorrect decision for him.

• Technocratic idealists ALWAYS lose control of the game.  It may
  feel good at first when the trains start running on time, but the
  technocrats are soon swept away by the thugs, and the patina of
  idealism is swept away, and only fascism is left.  Interestingly, the
  technocrats always cry "our only mistake was letting those other guys
  take control".  No, the mistake was accepting the right to use force on
  another man.  Everything after that was inevitable.

As I mentioned in an earlier post, we recently won the concession for Elk Creek Marina on Blue Mesa Lake, Colorado.  For the last week, I have been scrambling to take the steps necessary to take over this business without disrupting service to customers. There are a lot of things to do from a customer service standpoint to get the business up and running, but there is a staggering list of permissions and licenses we need from the state of Colorado and other government bodies to be able to conduct this business, particularly since this is our first entry into Colorado.  Here is what we know we need so far, though I caution that this list continues to grow at the rate of 2-3 more items a day as we learn more:

• Our corporation must register with the Colorado Secretary of State as a "foreign" corporation, foreign in this case meaning that we are registered in another state.
• To register as a foreign corporation, we need to hire a person to be a "registered agent" to be a contact with the state.  The only real purpose of this person I have ever found is to provide an avenue for mail to get lost
• We have to register to pay Colorado unemployment insurance tax
• We have to register to withhold Colorado income taxes from our employees
• We have to register to pay state corporate income taxes and franchise taxes
• We have to register to collect sales taxes
• I think we have to get a special license for collecting electricity taxes, since we sell power to boats at some of the docks
• We need to go through an extensive application process to transfer three current liquor licenses into our name.  I wrote about liquor license hassles here.
• The person on the phone today told me a corporation in Colorado cannot own more than two liquor licenses.  If this is true, we will have to form a second company in Colorado, repeating all the tasks above plus the initial work just to form the company
• I need to fly to Colorado to get fingerprinted for my FBI background check that is needed for the license.  This despite the fact that I have been fingerprinted and background-checked for liquor licenses in several other states.
• Since the company will hire out fishing guides from the marina, the company has to have a Colorado outfitter license, which includes a 13 page application and very detailed regulations and required contract terms I must use to provide the life-and-death service of helping people find fish.
• The outfitter license requires that I post a bond, which in turn requires I submit detailed financial and background information to get the bond approved
• Our managers need to attend food handlers training in Colorado.  Of course, they have attended the exact same course in California, but Colorado wants them to sit through it again within their state's borders
• We need to fill out a pretty elaborate application to sell Colorado fishing licenses, and may need to post another bond to do so. (Update: Confirmed, we need a $4000 bond).
• We will likely need an occupancy license from the county
• We will need a health department inspection and license for the two retail stores, since they sell packaged foods, and a more detailed inspection for the restaurant
• We will need a fire inspection of the restaurant
• We will need Coast Guard inspection and certificate for the docks
• We will need to change the registration of all 45 boats that are kept at the marina for boat rentals  (imagine standing at the DMV to register 45 cars).
• We will need Coast Guard inspection of all the boats

75 days until we open.  Eeek.

Following up on posts here, here, here, here, and here is yet another in a series on government preference for control over results, this time via Overlawyered.com:

In the midst of administering chest compressions to a dying woman
several days after Hurricane Katrina struck, Dr. Mark N. Perlmutter was ordered
to stop by a federal official because he wasn't registered with the Federal
Emergency Management Agency. "I begged him to let me continue," said Perlmutter,
who left his home and practice as an orthopedic surgeon in Pennsylvania to come
to Louisiana and volunteer to care for hurricane victims. "People were dying,
and I was the only doctor on the tarmac (at the Louis Armstrong New Orleans
International Airport) where scores of nonresponsive patients lay on stretchers.
Two patients died in front of me.

"I showed him (the U.S. Coast Guard official in charge) my medical
credentials. I had tried to get through to FEMA for 12 hours the day before and
finally gave up. I asked him to let me stay until I was replaced by another
doctor, but he refused. He said he was afraid of being sued. I informed him
about the Good Samaritan laws and asked him if he was willing to let people die
so the government wouldn't be sued, but he would not back down. I had to
leave."

In a formal response to Perlmutter's story, FEMA said it does not accept the
services of volunteer physicians:

"We have a cadre of physicians of our own," FEMA spokesman Kim Pease
said Thursday. "They are the National Disaster Medical Team. ... The voluntary
doctor was not a credentialed FEMA physician and, thus, was subject to law
enforcement rules in a disaster area."

So for those of you who draw the conclusion from Katrina that we need more big government rather than less, that would help.... how?

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