Coyote Blog

1.  Eliminate all deductions in the individual income tax code

2.  Eliminate the corporate income tax.

3.  Tax capital gains and dividends as regular income.

4.  Eliminate the death tax as well as the write-up of asset values at death

I don't have any idea if this revenue positive or negative (I suspect it would be short-term positive, and long-term very positive), but I don't care.  This would:

1. Substantially reduce the government's ability to play preference games and give crony special help in the tax code.
2. Completely eliminate the huge unproductive drag of corporate tax law expenses and substantially reduce the cost of individual tax preparation.
3. Eliminate the enormous unproductive drag of estate tax planning
4. Eliminate forced sales of family farms and businesses at death in order to pay the taxes (taxes are paid instead on capital gains when sold).
5. Substantially reduce government-induced distortions on flows of capital  (e.g. current promotion of home ownership over renting, of corporate debt over equity financing, of capital gains over income, etc).
6. Eliminate most double taxations in the code, since there is now only the individual income tax.

I would be happy to make this revenue neutral (even if it required an individual income tax rate hike) and sell this to the Tea Party and Occupy Wall Street alike as a plan to reduce waste, corporatism, and crony meddling.  The OWS might be upset about 2 & 4, but corporate profits eventually show up as either capital gains or dividends, so they will eventually get taxed on the individual income tax return.  Ditto death taxes - currently they are largely offset by the ability to write-up asset basis at death and aggressive tax planning.  And anyway, the death tax is a trivial sources of government revenues.

Postscript:  I know there is all sorts of literature that supposedly promotes a lower capital gains tax as an economic positive.  Frankly, I don't trust it any more than any other literature genned up to promote special tax breaks to any group because that group is supposedly economically more important.  In my mind, a lower capital gains tax rate (which means a higher regular income tax rate) is just another way of government expressing an artificial preference for one economic activity over another.  Specifically, a lower capital gains rate creates a preference for real estate and stock investors over business owners.   Currently, I invest in a second home and flip it for a profit and I get a tax break on the capital gains.  But if I invest in a business instead that pays off with regular income, I get no tax break.  Why?  Why is one type of investing better than another?  The answer is that it is not, but the people who buy and sell equities and real estate in large quantities have more political clout than small business owners.

Postscript #2:  And Medicare taxes have to go up, at least until the program is restructured. 

Postscript #3:  This is a great example of what I want to make go away.  I consider it far more destructive in the long run than a percentage point rate change.  In case it is behind a paywall, here is a bit of it (these giveaways to the rich were in the very same bill that was supposed to be to soak the rich):

Thus Michigan Democrat Debbie Stabenow was able to retain an accelerated tax write-off for owners of Nascar tracks (cost: $78 million) to benefit the paupers who control the Michigan International Speedway. New Mexico's Jeff Bingaman saved a tax credit for companies operating in American Samoa ($62 million), including a StarKist factory.

Distillers are able to drink to a $222 million rum tax rebate. Perhaps this will help to finance more of those fabulous Bacardi TV ads with all those beautiful rich people. Businesses located on Indian reservations will receive $222 million in accelerated depreciation. And there are breaks for railroads, "New York Liberty Zone" bonds and so much more.

But a special award goes to Chris Dodd, the former Senator who now roams Gucci Gulch lobbying for Hollywood's movie studios. The Senate summary of his tax victory is worth quoting in full: "The bill extends for two years, through 2013, the provision that allows film and television producers to expense the first $15 million of production costs incurred in the United States ($20 million if the costs are incurred in economically depressed areas in the United States)."

You gotta love that "depressed areas" bit. The impoverished impresarios of Brentwood get an extra writeoff if they take their film crews into, say, deepest Flatbush. Is that because they have to pay extra to the caterers from Dean & DeLuca to make the trip? It sure can't be because they hire the jobless locals for the production crew. Those are union jobs, mate, and don't you forget it.

The Joint Tax Committee says this Hollywood special will cost the Treasury a mere $248 million over 10 years, but over fiscal years 2013 and 2014 the cost is really $430 million because it is supposed to expire at the end of this year. In reality Mr. Dodd will wrangle another extension next year, and the year after that, and . . . . Investing a couple million in Mr. Dodd in return for $430 million in tax breaks sure beats trying to make better movies.

Then there are the green-energy giveaways that are also quickly becoming entitlements. The wind production tax credit got another one-year reprieve, thanks to Mr. Obama and GOP Senators John Thune (South Dakota) and Chuck Grassley (Iowa). This freebie for the likes of the neediest at General Electric GE -0.82% andSiemens SIE.XE +0.20% â€”which benefit indirectly by making wind turbine gear—is now 20 years old. Cost to taxpayers: $12 billion.

Cellulosic biofuels—the great white whale of renewable energy—also had their tax credit continued, and the definition of what qualifies was expanded to include producers of "algae-based fuel" ($59 million.) Speaking of sludge, biodiesel and "renewable diesel" will continue receiving their $1 per gallon tax credit ($2.2 billion). The U.S. is experiencing a natural gas and oil drilling boom, but Congress still thinks algae and wind will power the future.

Meanwhile, consumers will get tax credits for buying plug-in motorcycles ($7 million), while the manufacturers of energy-efficient appliances ($650 million) and builders of energy-efficient homes ($154 million) also retain tax credits. Manufacturers like Whirlpool love these subsidies, and they are one reason that company paid no net taxes in recent years.

I wasn't planning on watching the debates, but my wife made me watch the first 20 minutes.  Is this really what passes for political discourse in this country?  I was particularly struck by the appeals to unnamed authorities -- both candidates said something like "I saw a study the other day [unnamed] that said my plan was great" or "your plan was bad."  Seriously pathetic.

And, after the corporatism and cronyism of the last 8+ years, the fact that Romney could not explain why it made sense to cut tax rates but eliminate deductions just convinced me he deserves to lose.  He was losing to class warfare rhetoric on tax cuts, when he should have been taking the high ground, even with the occupy wall street folks, saying that it was time to stop tilting the tax code towards special interests and populist fads at least one of which -- the tilting of the tax code to home ownership -- helped drive the recent economic downturn.

I blog and don't tend to debate in real time, because I always think of great quips hours later, but even I had the perfect rejoinder for Obama in real time when he said, "I think we should return to Clinton era tax rates, when the economy was great and growing."  Romney should have said, "If I am President, I will happily work with Democrats to do just that, as long as they agree to return to Clinton era spending levels.   After all, if government policy during that era was really so perfect for the economy, then spending levels must have been appropriate as well."

I don't plan to watch any more of this garbage until and unless they include someone other than the Coke and Pepsi candidates.   I'd like to see Gary Johnson but heck, even adding a Marxist would probably help.

This is terrific, if true.  My fear, of course, is they are getting subsidized through a back door somewhere, but if they really think they can make subsidy-free solar work financially, that's awesome:

Two German solar energy developers are planning to build photovoltaic plants in southern Spain that will earn a return without government subsidies.

Wuerth Solar GmbH & Co. intends to build a 287-megawatt plant in the Murcia area for 277 million euros ($363 million), according to the regional authority. Gehrlicher Solar AG said it plans to develop a 250-megawatt solar park in the Extremadura region for about 250 million euros.

The projects, about three times larger than any European solar plant, may be the first that don’t rely on feed-in tariffs and compete with wholesale power prices. All plants in the region so far depend on fixed premium rates for solar power, which can be several times higher than wholesale prices.

Spain suspended the tariffs on Jan. 27 as part of government austerity measures, threatening the survival of the industry. Tariffs for large-scale solar were set at 121 euros per megawatt-hour. Developers now look to build plants without this support, helped by falling equipment prices.

I have argued for a long time that the shift of city transit departments from buses to a love affair with light rail has been a disaster.  Rail is so much more expensive per passenger mile, and so inflexible, that it generally forces a shrinkage in the total number of riders at the same time that budgets explode (example article here).

There are a lot of explanations for this phenomenon.  Part of it is incentives - heads of agencies with rail get paid more than bus-only agencies, and unions love the higher-paying rail jobs that never go away (part of the flexibility issues with rail).  Part of the explanation is cultural - rail is now hip and edgy and allegedly green and modern.  Buses are so last century.

And part of it is social/racial.  White upper middle class yuppies wouldn't be caught dead on buses.   They like trains better, particularly when they are successful in running rail routes through middle class commuting routes.  If the cost of this forces cut backs on buses that run where the poor need to go, oh well.

So, I ask you, what city in America is most famous as a model for urban planning and light rail?  Portland.  So it is interesting to see what effect this planning and transit strategy has had on the population.  I have already written here before that Portland bus service has been gutted in favor of rail, such that total ridership in the city has dropped despite spending a lot more transit dollars.  These maps from the Portland Oregonian show another effect -- shifting transit dollars to modes favored by rich white people has... caused Portland to be increasingly white.  What a surprise.  Via the anti-Planner

Donna Laframboise discusses 18th century transportation issues, and particularly the horse manure problem:

The Superfreakonomics authors draw heavily on the work of Eric Morris, whose urban planning Masters thesis explored the reality of horse-based transportation in 19th-century cities. A user-friendly encapsulation of his research appears in an 8-page article here. (It was published in Access, a U of California transportation publication. The entire issue is available here.)

Morris points out that, by the late 1800s, large urban centers were “drowning in horse manure.” Not only were there no solutions in sight, people were making dire predictions:

In 1894, the Times of London estimated that by 1950 every street in the city would be buried nine feet deep in horse manure. One New York prognosticator of the 1890s concluded that by 1930 the horse droppings would rise to Manhattan’s third-story windows.

The automobile helped solve this growing ecological problem.  Back in 2006, I had considered the same thing with a hypothetical blog post from 1870 which is pretty close to the Times of London article quoted above (which I had never seen):

As the US Population reaches toward the astronomical total of 40 million persons, we are reaching the limits of the number of people this earth can support.    If one were to extrapolate current population growth rates, this country in a hundred years could have over 250 million people in it!  Now of course, that figure is impossible – the farmland of this country couldn’t possibly support even half this number.  But it is interesting to consider the environmental consequences.

Take the issue of transportation.  Currently there are over 11 million horses in this country, the feeding and care of which constitute a significant part of our economy.  A population of 250 million would imply the need for nearly 70 million horses in this country, and this is even before one considers the fact that "horse intensity", or the average number of horses per family, has been increasing steadily over the last several decades.  It is not unreasonable, therefore, to assume that so many people might need 100 million horses to fulfill all their transportation needs.  There is just no way this admittedly bountiful nation could support 100 million horses.  The disposal of their manure alone would create an environmental problem of unprecedented magnitude.

Or, take the case of illuminant.  As the population grows, the demand for illuminant should grow at least as quickly.  However, whale catches and therefore whale oil supply has leveled off of late, such that many are talking about the "peak whale" phenomena, which refers to the theory that whale oil production may have already passed its peak.  250 million people would use up the entire supply of the world’s whales four or five times over, leaving none for poorer nations of the world

To the last point, my article on how John D. Rockefeller and Standard Oil saved the whales is here.

Many of you may know that my business is engaged in private management of public recreation.  We get a lot of pushback from certain sectors who believe access to government lands or services should be free -- ie already paid for by their income taxes.

I often argue that this notion of discretionary services (like parks and campgrounds) being run with high cost government labor and funded by general revenue taxes is a dead one - in fact it has been dead for at least 10 years.  Just look around at public parks organizations.  Odds are that your state is facing parks closures and is very likely not fully funding park maintenance. I wrote about this failed model here.

In the future, anything discretionary government program that can charge use fees or be privatized or both will do so.  Or else it will be provided at terrible quality with long queues and frequent closures.  Don't believe me?  Lets look at the US government budget data from last year. This chart has been making the rounds -- I have not checked the data source but I presume it is correct (as usual click for larger version)

I have some interest in the science of chartmanship.  McKinsey & Company did a great job teaching me how to make a presentation, a skill I have honed somewhat in way too many planning and strategy jobs that seemed to revolve around Powerpoint  (one of the criteria for my current job is that it did not involve Powerpoint).

This chart is a case where the author used the wrong chart type.  The pie chart is not appropriate to show a changing total (as the author does with the size of the pie).  The eye has trouble assessing volumes.  I have taken the same data and put it in a slightly different form.  I did not take time to make it pretty, but I think it works better in this format:

Now do you see my point about discretionary spending?  Last year government taxes just about covered entitlements and interest on the debt.  Had we not borrowed, there was no money left over for any discretionary spending, including all of the Defense budget!  Now, even without action, the picture will improve in 2011 as taxes go up with a rising economy and some of the unemployment spending goes down.  But this might just get us to still having a defense department.  Either large swaths of discretionary spending is going to have to be zeroed out, or some sort of entitlement restructuring is necessary.

Of course, tax increases will likely be part of the mix as well, but look at the individual income tax bar.  Even doubling it would not close the budget gap!

In my Forbes columns over the past few weeks, I have been writing about information and incentive problems with any sort of Obamacare type system.  One of the points I made last week was this:

One of the key selling points of Obamacare was that it would reduce cost, in large part through smart public-spirited people making optimized decisions from the top in Washington.  Ignoring the fact that no other agency that has promised such angels of public service has ever delivered them, we discussed in the last few weeks how this task is impossible.  But we should have known that already through our past experience with the political process.  Political decisions are made politically, not by optimizing some public good equation.    Does anyone believe that come election time, Congress won’t vote to add mandates to procedures to placate powerful groups in their base, irrespective of the future costs this would incur?

Need an example?

In 2007 breast cancer was the third leading source of cancer mortality in the US, but it was by far the largest recipient of government cancer research dollars, nearly double that spent on any other type of cancer.    In 2009, out of hundreds of medical procedures, only two procedureswere on the mandated must-carry list of all fifty states – mammography and breast reconstruction.  It is no accident that both of these are related to breast cancer.  With its links to women’s groups and potent advocacy organizations, breast cancer is a disease that has a particularly powerful political lobby.    Similarly, we should expect that, at the end of the day, pricing and coverage decisions under Obamacare will be made politically.  Not because anyone in this Administration is particularly bad or good, but because that is what always happens.

This post from Q&O is a tad old but gets at just this point with a real-life Obamacare example

The opening line in a New York Times piece caught my attention.  It is typical of how government, once it gets control of something, then begins to expand it (and make it more costly for everyone) as it sees fit.  Note the key falsehood in the sentence:

The Obama administration is examining whether the new health care law can be used to require insurance plans to offer contraceptives and other family planning services to women free of charge.

Yup, you caught it – nothing involved in such a change would be “free of charge”.   Instead others would be taxed or charged in order for women to not have to pay at the point of service.  That’s it.  Those who don’t have any need of contraception will subsidize those who do.  And the argument, of course, will be the “common good”.   The other argument will be that many women can’t afford “family planning services” or “contraception”.

But the assumption is the rest of you can afford to part with a little more of your hard earned cash in order to subsidize this effort (it is similar to other mandated care coverage you pay for but don’t need).  Oh, and while reading that sentence, make sure you understand that the administration claims it has not taken over health care in this country.

The next sentence is just as offensive:

Such a requirement could remove cost as a barrier to birth control, a longtime goal of advocates for women’s rights and experts on women’s health.

So now “women’s rights” include access to subsidies from others who have no necessity or desire to pay for those services?  What right does anyone have to the earnings of another simply because government declares that necessary?

It is another example of a profound misunderstanding of what constitutes a “right” and how it has been perverted over the years to become a claim on “free” stuff paid for by others.

Administration officials said they expected the list to include contraception and family planning because a large body of scientific evidence showed the effectiveness of those services. But the officials said they preferred to have the panel of independent experts make the initial recommendations so the public would see them as based on science, not politics.

Really?  This is all about politics.  The fact that the services may be “effective” is irrelevant to the political questions and objections raised above.  This is science being used to justify taking from some to give to others – nothing more.

I have to agree with Glen Reynolds that this is an awesome quote, from  a member of the teacher's union in Denver:

That’s your problem. You’re an entrepreneur, so you don’t work. You don’t know what work is until you get into an educational area.

Yep, some day I will have to stop loafing around and take on a brutal assistant principal job somewhere.  All I have to worry about is that every dollar I own (and more) is invested in my business and could disappear at any time if I make a mistake.  Thank God I don't have to sit around all day worrying whether the doctor that hands out no-questions-asked disability rulings will still be practicing when I am 45 and ready to retire.

I call this the "Dallas / Dynasty" perception of business, that businessmen just grab a phone call or two, go to a power lunch, and then head home to the mansion.

Update: Apparently this is a common misconception about entrepeneurs

The average number of working hours per week of a successful starting entrepreneur is seventy. This catches the typical American dreamer by surprise.

The teacher day:

Nor do teachers spend all of their time at school in the classroom. In fact, teachers spend fewer hours actually instructing students than many recognize. Stanford's Terry Moe worked with data straight from the nation's largest teacher union's own data - and found that the average teacher in a department setting (that is, where students have different teachers for different subjects) was in the classroom for fewer than 3.9 hours out of the 7.3 hours at school each day.

With several hours set aside at school for course-planning and grading, it strains plausibility that on average teachers must spend more hours working at home than do other professionals.

Not to mention, of course, summer vacation, Christmas break, spring break, fall break.... Oh, and the fact that they have lifetime job security because in public schools they can't be fired for even the most egregious incompetance

This chart in the NY Times is pretty interesting, though I could quibble about the color coding.  You have to stare at it a minute to get it - each cell represents a combination of stock purchase and sales dates, with the color representing the average market inflation-adjusted return for that buy and hold period (click to enlarge, or click through to the source link where it is explained in more depth).

Whenever one uses red and green for coloring a chart, the reader is going to assume red is bad and green is good.  In this case, the light red represents returns from 0 to 3% above inflation.  Is that bad?  Maybe.  I would say inflation plus 3% is probably lower than people's expectation of stock market returns, but I think a lot of folks would equate red with capital erosion, which is not the case if returns are out-pacing inflation.

This is sort of a good-news-bad-news story.  The good news is that there is no 25-year period where returns fall below inflation.  The bad news is that the median return of inflation plus 4% is probably less than most folks are planning for -- including a lot of state pension funds that are still counting on returns like 8% for their entire portfolio (something like inflation + 5-6%), which is a blend of stocks and bonds, implying they are hoping for an equity return north of that.

HT:  Flowing Data

Coyote, November 10

But what is really happening here is that the dollar is being devalued.  This is one of the semantic quirks that make me laugh "” when Argentina or Zimbabwe do this, its called devaluation.  When a western nation does it, it is called quantitative easing.

Don Boudreaux today:

Fed Chairman Ben Bernanke, fresh from injecting hundreds of billions of new U.S. currency units into the economy "“ and from planning the injection of yet an additional 600 billion such units "“ criticizes the Chinese government for injecting hundreds of billions of new Chinese currency units into the economy ("Bernanke Takes Aim at China," Nov. 18).  Apparently, when Beijing increases the supply of Chinese currency it does so as part of what Prof. Bernanke ominously labels a "strategy of currency undervaluation," but when Uncle Sam does the same thing with U.S. currency units it's called "quantitative easing" and "a move in the right direction."

From the WSJ:

The wide-ranging pay-to-play probe concerns whether investment firms like Mr. Rattner's former firm, Quadrangle Group LLC, were held up for fees and favors to secure access to lucrative business from New York's $125 billion public-pension fund.

So government officials, who have all the power, demand bribes from businesses in order for those businesses to participate in a certain market, and when discovered it is the private businesses that are being investigated?

This is just so typical of government, where pay-to-play rules are in fact legislated for businesses from bars to taxicabs.  I can't do anything new in Ventura County without bringing a whole series of checks to the County planning offices -- nearly every single department must be paid off before I can do something as simple as remodel a bathroom or revamp a store.  None of this is under the table, mind you, it is entirely up front and nominally legal.

My column for Forbes is up this week, and yet again I address issues related to the stimulus.  This time, rather than questioning the Keynesian multiplier, I observe that Congress has passed several pieces of legislation which act as "anti-stimulus" whose magnitudes dwarf that of any fiscal stimulus programs, even at multipliers greater than one.

Larger corporations are going to face different economics, but they too seem to be anticipating higher future costs from this legislation. For example, while they may not face the penalty for having no health care plan, they will face higher Medicare taxes, taxes on overly rich plans, and increases in health care premiums. If the average business is anticipating a 5% increase in payroll-related expenses, and given that total private payrolls in the U.S. are around $6 trillion, this implies that businesses may be planning for $3 trillion of health care anti-stimulus over the next 10 years.

Similar scale numbers can be found for the overall effects of cap-and-trade. Perhaps the best estimate we have is the CBO scoring of the Kerry-Lieberman bill, which estimated that payments for carbon allowances over the first ten years would total $751 billion. Assuming that the costs of most of these allowances are passed on to consumers, then this bill represents another three quarters of a trillion in anti-stimulus. In addition, expiration of the Bush tax cuts, card check, and a number of new regulatory initiatives all will drive this anti-stimulus expectation higher. Is it any wonder, then, that the private sector yawns when the Congress rushes back from vacation to pass a $26 billion jobs bill?

Another on trying to balance water supply and demand in the state with only a one-sentence mention of water rates.

Over the years, some communities have tried to reduce demand. Years ago, Tucson devised a set of water rates that escalated steeply with use. As a result, many people simply stopped planting grass or other thirsty landscaping.

Amazingly, it is the only thing in the whole article that has been demonstrated to work, but still the author leans towards land-use planning and goofy dictats like rainwater harvesting rather than raising rates as a way of managing water supply and demand.

I wrote a lot more here, including an analysis that showed Phoenix has some of the cheapest water rates in the country.

Phoenix police pump six rounds into the back of an innocent Phoenix homeowner who was still on the phone with 911 calling for their help with an intruder.

The scary part is how absolutely natural and well-polished the police's actions are in initiating a cover-up.  They may be screw-ups in the use of force, but they seem well-practiced in protecting their own from accountability.  Only the lucky break of having the 911 call still in progress and being recorded in the room the police were planning the cover-up prevented it from working.  Without this evidence, one wonders if the victim (who lived, incredibly) would have found himself accused of some heinous crime to take scrutiny away from the police.  "Oh, what's this here -- looks like a bag of white powder..."

One priceless detail is that the officer said he fired without seeing any gun in part because he thought he saw a Hispanic guy.  Wow -- if he loses his job with the Phoenix police (doubtful) I am sure Sheriff Joe would be thrilled to hire him.

We see this all the time nowadays - police roll without a thought into cover-up mode, and only the accident of video or audio recording prevents the cover up from working.  One wonders how many times they get away with this game when there is no electronic scrutiny.  Which is, I suppose, why police have invented a non-existent law that it is illegal to record their actions in public.  I am all for lojacking all of them with permanent electronic recorders.  (via Radley Balko, who has a roundup of a lot of similarly scary stories).

Postscript: The innocent homeowner (Tony) survived despite this treatment by police of his bullet-riddled body:

Officers ... painfully dragged Tony by his injured leg, through the home and out to his backyard patio, where they left him bloodied and shot right in front of [his family]."

The Arambulas say the officers later dragged Anthony onto gravel, then put him on top of the hot hood of a squad car, and "drove the squad car down the street with Tony lying on top, writhing in pain."

Until a few years ago, I did business up and down the Pacific Coast.  If I had to rank the business climates of these states, from worst to best, I would informally come up with something like:

1. (worst) Certain California counties (e.g. Ventura, San Francisco, Santa Barbara)
2. Oregon
3. Western Washington
4. Rest of California
5. Eastern Washington

So I was interested to see that Oregon may finally be getting the bad press it deserves as a difficult place to do business, though, interestingly enough, this particular article blames it on the Californians:

Some might call this California disease. This refers to a chronic inability to make hard decisions as well as a general disregard for business and economic activity....

With all the influx of Californians, it's not surprising that Oregon shows some signs of California disease. It recently increased its tax rates so that Oregon's highest-income taxpayers face marginal tax rates that match Hawaii's for the highest in the nation. Oregon's land-use planning had been extremely centralized for some time. Indeed, Oregon's land-use planning may be the most centralized in the United States. This makes it harder for communities to control their own destinies, whether they want to grow or not.

Interestingly, I actually wrote about similar effect in the context of immigration into the US.  While I am a supporter of open immigration, my greatest fear is that in the name of individual liberty, we would let in millions of new people who would someday vote against individual liberties.  It seems that may be a more substantial problem with Californian than Mexican immigration.

The good news for the rest of us is that Oregon may preferentially be attracting the slackers

Our analysis of California migrants has shown a gradual reduction in their earnings over what they were earning in the Golden State. There also are less quantifiable impacts. Portland, a city attractive to many unemployed and underemployed younger Californians, could well be becoming the "slacker" capital of the world.

Fortunately, Arizona is so politically un-correct with slacker/socialist/statist/greenie types that we don't get a lot coming here.

Continuing with a long-running theme here at Coyote Blog, here is another example of government regulation being anti-competitive and having the net result of protecting the margins of powerful, established incumbents against new entrants:

During a recent meeting, the Antiplanner was extolling the virtues of Houston's land-use policies, and a home builder at the meeting said, "Of course, no one here wants our city to be like Houston," meaning no one wanted Houston's land-use regime.

Why not? I asked. "There is too much competition down there. My company can't make a profit," he said. "You have to have some barriers to entry to be able to make money."

Those who accuse free marketeers of being supporters of big business don't realize that big businesses (and often smaller businesses) don't want a free market. In this home builder's case, he wanted enough restrictions on the market to keep out some of his competitors (most likely smaller companies that can't afford to hire lawyers and planners for every project) but not enough regulation to keep his company out

Several years ago my company had to obtain a liquor license in Shasta Country, CA. At one point, the issuance of the license had to be voted on by some group (County commissioners, the planning board, something like that). I was told the reason was that if they issued too many licenses, I would not be able to make money -- really, they were looking after me.

Well, not really.  First, the government seldom has any idea even how a business works.  Perhaps the liquor was a loss leader for my business, and I didn't care to make money on it at all.  Perhaps I had a better marketing concept.

And herein we get to the real flaw -- the implication is that somehow the dangers is to the new entrant in a crowded marketplace, but in fact the reality is often the opposite.   The actual competitive danger is often to incumbents, fat and happy with the status quo and unable to react quickly (due to all kinds of reasons from sunk investment to long held biases) to shifts in customer preferences.  No matter what their stated reason, the true effect of such regulation is to protect current competitors from new entrants, new products, and new business concepts.

I can see the effects of this right here where I am sitting, out near the end of Cape Cod.  Zoning and business regulation here is enormously aggressive - its is virtually impossible to start a new retail establishment here, particularly on virgin land.  As a result, every store and restaurant here feels like it is right out of the 1950s.  You'd hardly know there has been a revolution in retail or service delivery over the past few decades, because businesses here are sheltered from new entrants.  They don't need to adopt better practices or provide better products or services, because they know they are not vulnerable (courtesy of the government) to competitive attacks from new entrants using more modern strategies.

From Randal O'Toole (of course). I usually try not to over-excerpt other folks work but I just can't resist in this case.  I like Mr. O'Toole's work on transit because he does not just focus on the cost-benefit issues, but the personal liberty aspects as well:

My testimony focused on two points. First, despite increasing transit subsidies by 1250 percent (adjusted for inflation) since 1970, transit travel has declined from 49 to 45 trips per urban resident and transit's share of urban travel has declined from 4.0% to 1.6%. Second, even if we could get more people to ride transit, transit uses as much energy, and emits nearly as much greenhouse gases, as cars; and the trends suggest that cars will be more environmentally friendly than any transit system in the country by 2025.

There were two interesting responses to my testimony. First, another witness said (and I'm quoting from memory), "All he did was divide total greenhouse gas emissions by passenger miles." A reporter told me later that it sounded like he was questioning my methods, but his real argument was that more money spent on transit in combination with smart-growth land-use planning would lead to reduced auto driving.

I don't believe that is true (and said so), but even if it were true: can you imaging AT&T (back when all phones were land lines) telling Congress, "We want you to restrict property rights, drive up housing prices, and prevent people from living in their preferred lifestyles so that we don't have to extend our lines so far?" Or FedEx or UPS saying the same thing today? Why is transit so special that everyone else in the country has to completely rearrange their lives just for it?

You can say the answer is "climate change," but transit agencies and smart-growth planners wanted to do all these things before climate was an issue. The truth is that transit is a declining but politically powerful industry, and part of its power comes from the fact that it is publicly owned and so elected officials have a vested interest in keeping it going.

In a very real sense, transit is just like the British coal, rail, and other nationalized industries in the 1960s: its main purpose is no longer transportation but to meet other political goals such as keeping transit workers employed and construction contracts going to transit builders. If transit were private, no one would argue that we have to make the world less convenient and more expensive for the 95 percent of people who travel by car so that it will be more convenient for the 1 or 2 percent who travel by transit.

I am just looking over a report on "Smart Growth" as the be-all end-all to carbon emissions reductions  (and everything good up to and including world peace).  I haven't read it in depth, but just skimmed it and had a few thoughts.

First and most interestingly, the entire study is about the effects of "smart growth" but I can find no definition of the term.  I have a general idea of what it means -- zoning and land use policies that prevent the physical expansion of cities and strive for increased urban population densities combined with transportion policies that defund roads and highways in favor of mass transit, biking, and walking.    But it is odd that a real scientific study of the effects of X can be conducted without making sure everyone is talking about the same X.

Second, as with most such studies, the issue of individual liberties is carefully avoided.  Smart Growth is about living in the way planners prefer, not the way you individually might prefer.  Discussing the benefits of Smart Growth without once considering the impacts of individual liberty is a bit like blithely proving that killing everyone at the age of 70 will reduce health care costs without once discussing nagging ethical issues with such a plan.

I may do a more in depth debunking of this report (and I can bet Randal O'Tool will do one) but I want to show you one example of the difference between a scientific study and advocacy marketing materials like this one.  Here is a chart from page 10 of the report.  It is trying to show that higher urban densities will help all of our personal budgets.

First, we can probably assume the numbers here are complete BS.  Does anyone really believe that the average family outside the central city making $50,000 or less is spending more on transportation than they are on housing?

But that is almost tangential.  The real purpose of this chart is to deal with the number 1 criticism of smart growth -- that by limiting land use and restricting growth and forcing everyone to live in the city center, then housing prices skyrocket (and, by the way, help contribute to bubbles - it is no accident that many of the counties hit hardest by the recent housing bubble collapse are in growth managed counties).

This chart is meant to refute this by saying - see, housing in the center city is not more expensive -- the average person spends just as much on housing in the city as in the suburbs.  But hopefully you see the flaw -- what do they get for that money?  It may well be that for people $35,000 a year and under, the amount they can spend on housing is capped by other expenses they have, such that 1/3 of the total is about what they have to spend.  But this does not mean that people in the center city are just as well off as people outside of it.  It is very likely the suburban folks are getting far more for their money.  After all, people are rational, and if they really are spending so much more money for transportation to live in the suburbs, there probably is a good reason.

Postscript: It would also be interesting to know what the rest of the spending pie does from urban to suburban.  My guess is that folks living in city centers making less than $35,000 are not saving a ton - so where is all that "found" money going they are supposedly not spending on transit.  Could something else be more expensive in the city than in the suburbs?  Does anyone really believe it is cheaper to live in the city center than out in the suburbs for equivilent quality of life.  Sure, there are reasons to live in the city, and for some people's preferences it represents a better quality of life.  But not a cheaper one.

Postscript #2: In fact, the best single critique of all the smart growth analysis that purports to show that people will be better off when the planners intervene is "If so, then why are they not pursuing their own rational self-interest today?"  Smart Growth folks will say it is due to lack of choice, but that is silly -- if people want it, someone is going to make money giving it to them.  The only exception might be publicly supplied goods, particularly transportation.  I am sure there is a huge demand for having an expensive rail line run from one's house to one's business with low fares subsidized by other people, but I am not sure this is a realistic good to promise.

I already in a previous post deconstructed Kevin Drum and Joe Romm's critique of the carbon tax.  One reason they don't like the carbon tax is:

Well, for one, it doesn't have mandatory targets and timetables.  Thus it doesn't guarantee specific emissions results and thus doesn't guarantee specific climate benefits.  Perhaps more important, it doesn't allow us to join the other nations of the world in setting science-based targets and timetables.  Also, a tax lacks all of the key complementary measures "” many of which are in Waxman-Markey "” that are essential to any rational climate policy, but which inherently complicate any comprehensive energy and climate bill.

What they are basically arguing is that a carbon tax works by hundreds of millions of individuals making decisions in reaction to higher prices, and chosing their own way to reduce carbon production.  They don't trust this kind of bottom up chaos, despite the fact this is how our entire economy and society works, except for a few corners where beltway guys live and breath in their own reality.  They want a few "scientific" guys at the top picking winners and subsidizing technologies and particular approaches.

I described why I disagreed with this  (or you could spend some time with Hayek to really understand why it is wrong) but I found it staggering that the very next post from Kevin Drum in my feed reader was this one:

Via the LA Times, this is the best news I've heard all day:

The Obama administration on Tuesday proposed renewable fuel standards that could reduce the $3 billion a year in federal tax breaks given to producers of corn-based ethanol. The move sets the stage for a major battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.

....While biofuels as a whole "” including grasses and even algae "” are considered promising alternatives to petroleum, some researchers have begun challenging the use of corn for this purpose.

In particular, they point to the "indirect land-use" effects of pulling corn out of the world food supply, which could force farmers in developing nations to clear rain forests "” and release massive amounts of carbon dioxide in the process "” in order to plant corn.

Please dump the corn ethanol subsidies.  Please, please, please.  Dollar for dollar, it might well be the stupidest use of taxpayer cash in the entire federal budget.

Since ethanol is the largest example of Congress's past attempts to set "rational climate policy," what in the hell gives Drum confidence things are going to be any different in the future?  It is yet another example of technocratic planners arguing that the failure is not top-down planning, just the particular individuals doing the planning.  If only my guys did the planning, things would be different.  Right.

Besides, it was a Democratic Congress that passed the last round of ethanol subsidy increases and a Democratic Congress that is upping them again.  So it is Drum's guys doing the planning, and they are making a hash out of it, as all planners do.

For the record, I don't want my guys in DC doing the planning.  I want 300 million people making their own damn choices.  When did this ever stop being a liberal value?

Folks like Barack Obama have decided that wind power is the answer.  They haven't studied the numbers or really done much to investigate the technology, and god forbid that they have put any of their own money into it or run a company trying to make thoughtful investment decisions.  But he's just sure that such alternative energy technologies work and make sense because, uh, he wants them to.

But when government picks winners, disaster almost always follows.  Oh, sure, the programs themselves get a lot of positive attention in the press, and people are happy to line up to accept subsidies and tax rebates.  But the result is often this:  (ht: Tom Nelson)

According to the Massachusetts Technology Collaborative, the agency
that oversees the state's major alternative energy rebate programs, the
small wind initiative was canceled because the turbines it has funded
are producing far less energy than originally estimated.

An MTC-sponsored study released earlier this summer found that the
average energy production of 19 small turbines reviewed was only 27
percent of what the installers had projected. The actual production for
the 19 turbines, which received nearly $600,000 in public funding,
ranged between 2 and 59 percent of the estimates.

A $75,663 turbine at Falmouth Academy that received $47,500 in state
money, for example, has produced only 17 percent of the projected
energy in the year since its installation. Another, smaller device in
Bourne is producing only 15 percent of the originally estimated energy.

So the state government funds 2/3 of the project and the project still doesn't make sense

Mr. Storrs criticized the state for dropping the rebate program, which
over two years has covered upward of half the cost of several turbines
on Cape Cod and dozens of others throughout the state, saying, "It is
not what you would hope a progressive [state] like Massachusetts would
cancel. You would hope that they are supporting alternative sources of
energy."

Actually, he is correct.  Sinking hundreds of thousands of dollars into faulty technology for terrible returns based solely on the fact that a certain technology is somehow politically correct is exactly what I too would expect of a progressive state like Massachusetts.

The state board complains that the technology choices and siting decisions were wrong.  Well, who would have imagined that investors in certain projects would be lax in their engineering and due diligence when the government was paying 2/3 of the freight, and when the main reason for the projects was likely PR rather than real returns?

If the bit about PR and political correctness seems exaggerated to you, check this out:

During the hearing on the proposal two months ago Mr. Storrs told the
planning board that the project was meant in part to help educate the
public about wind energy. Town Planner F. Thomas Fudala said it would
be informative to see whether the roof-mounted ones actually work.
"Even if this fails, it will be useful information," he said.

Mr. Storrs responded, "I know that sounds weird, Tom, but you are absolutely right."

Wow, I bet this kind of investment decision-making really give the local taxpayers a big warm fuzzy feeling.  By the way, this article also includes an example of why Al Gore and others proposing 10-year crash programs to change out the entire US power infrastructure are impossibly unrealistic, even forgetting about the cost:

Mr. Storrs said he first ordered
the Swift brand turbines last year as part of a bulk order along with
the Christy's gas station in West Yarmouth.

But the planning board had already adopted its new turbine regulation,
which, in part on the advice on Ms. Amsler, had prohibited the
roof-mounted machines.

"The town was just trying to be responsible in terms of looking out for
its residents, trying to make sure these things are not going to pop up
everywhere if they aren't going to work," said Thomas Mayo, the town's
alternative energy specialist.

At Mr. Storrs request, however, the planning board then went back and
reconsidered its regulation. After a public hearing featuring testimony
from Ms. Amsler as well as from a representative of Community Wind
Power who argued that the Swift turbines work well and as advertised,
the planning board decided to change the bylaw and allow Mashpee
Commons to move forward with its project.

The Mashpee bylaw requires a return on investment plan, a maintenance
plan, as well as proof that the proposal meets several safety and
aesthetic prerequisites.

Town Meeting adopted the new bylaw in May, Mashpee Commons quickly
filed its application, and received a special permit in early June.
During the comment period for the special permit, the state program was
suspended.

After receiving the special permit, Mr. Storrs said he applied for
Federal Aviation Administration approval, which is required for any
structure over three stories in town. More than two months later, he
said he is still awaiting that approval.

Mr. Mayo said the town's application for FAA approval of a site under
consideration for a large municipal turbine took six months to approve.

Tim Harford Via TJIC:

Superficially, it seems that many people seek sunny climes,
especially now that air conditioning is available. For example,
long-run population growth in the "Sunbelt" "” the US South - is often
attributed to a demand for, well, sun.

Harvard economists Ed Glaeser and Kristina Tobio think
otherwise. They argue that before 1980, the boom in the South was
thanks to the region's growing productivity. After 1980, population
continued to grow, but house prices lagged behind those elsewhere in
the US, suggesting that the driving force was not high demand but
permissive planning rules. Certainly balmy California, with its tighter
restrictions on building, did not enjoy the same population growth.

All of this tends to suggest that people don't value sunshine quite as much as is supposed.

I have pretty convincing anecdotal evidence that the first part, at least, is true.  I worked for a large manufacturing corporation called Emerson Electric (no relation to the electronics company).  They are one of the few Fortune 50 companies not at all coy to admit that they move factories around the world chasing lower wages.  They had an epiphany decades ago, when in their planning, they assumed the move overseas was always a trade-off of wages for productivity... until they visited at motor plant in Brazil that had first world automation and productivity combined with third world wages.  That got their attention.  To their credit, they have pushed this further and further, such that not only are their factory workers in Mexico, but their plant superintendents and skilled workers and even their engineers are now Mexican too.

Anyway, if you listen to the company tell this story, phase 1 of the story was not a move to Mexico or Asia but to the south.  They must have moved probably 50 manufacturing plants over a decade from the northeast to the south during the sixties and seventies. 

This constant movement seems to be a natural life-cycle of locations as they grow wealthy.  Poorer regions eagerly welcome newcomers who may bring jobs and prosperity.  But, once the prosperity is there, the prosperous in town begin using government and other institutions to try to lock in their gains.  Corporations use government to fight new competitors.  Wealthy homeowners pass zoning to keep home prices high and rising.  Unions tend to increase and lock in gains for current workers at the expense of new workers.  A kind of culture of hostility emerges to any new job that makes less than $54,000 a year, any house that costs less than $400,000, and any immigrant who doesn't have a pale face.

The Anti-Planner links an article by a Federal Reserve Bank economist on the housing market in Houston and how it is affected by zoning:

"Given that Houstonians had access to the same new types of
mortgages as the rest of the country and that Houston has had greater
population growth than other large metros, we might expect price
appreciation to be stronger in Houston than elsewhere," says the
article. "However, the opposite has been true."

The reason? Houston's lack of zoning and its large supply of land
available for development allowed builders to respond to easy credit by
increasing the pace of construction. Slow and unpredictable permitting
processes prevented builders in many other regions, including Florida
and the Pacific Coast states, from similarly stepping up production.

While some cities and regions have further delayed construction by imposing adequate public facilities or concurrency ordinances, Houston allows developers to create their own municipal utility districts.
Through these districts, the developers install the sewer, water, and
other facilities needed by their developments and charge the property
owners over time.

The result is that housing prices did not bubble, and they are not
significantly declining today. As of the fourth quarter of 2007, in
fact, they were still increasing. Anecdotal evidence from local
realtors and developers indicates that the tightening credit market has
soften the demand for homes under $200,000, but homes above that price
are still selling well.

Whatever correction Houston faces, says the article, "takes place in
the context of prices that are squarely in line with local construction
costs and without the painful supply-induced downturn under way in many
other markets." This leaves Houston relatively immune to the ups and
downs of housing prices experienced in regions with planning-induced
housing shortages.

I need to think a bit about how that relates to this.

I was watching the History Channel last night and watching a show on the nuclear arms race.  Interestingly, they described the abortive Bay of Pigs invasion of Cuba as happening before JFK took office, and then discussed the Cuban Missile Crisis as JFK's first interaction with Russia.  I find this to be really odd revisionism, and if it were not for Coyote's Law, I would ascribe this to the ongoing Kennedy family effort to polish JFK's historical legacy.  But, having written Coyote's Law, I will just assume the show's producers were ignorant.

Update: I take the point that the Bay of Pigs invasion was a CIA plan in the Eisenhower presidency.  However, JFK was deeply involved in the planning and decision to go ahead, and in fact he and his advisers actually modified the plan, including the invasion site, in ways that hurt the probability of success (if there ever was any).

I had a really bad day today. 

I have a 18,000 page proposal (actually 18 copies of a 1000 page proposal) due next week.  I had a new color printer ordered from IKON Office Solutions scheduled to arrive last week.  When I got in town this morning, I found no copier, even a week after it was promised.  No call, no warning -- just no printer.  I called and my sales guy had no idea what was going on, despite the fact that I had been adamant that I needed to hit this date.  Apparently, he never even bothered to check the schedule.

Anyway, he promised an immediate call back but never called.  I called him again on his cell at noon and he acted like he had forgotten to check and promised to talk to his boss.  An hour later it was confirmed -- I was not getting my equipment in time for this bid.  I told them they could therefore keep it, and I would call Xerox.  I absolutely cannot stand companies that require me to do constant checking and expediting in order for them to deliver on their promises.  I can't tell you how many times I have been promised an immediate call-back from IKON "within the hour" for service only to have to call again and again over the following days to get any response.  I would not have contracted for this new machine in the first place if I wasn't already locked in an IKON lease they won't let me out of -- this would at least have gotten me a better machine for the money.

In the mean time, I prepared to do the proposal mostly in black and white with bits of color from the laser printer.  I was going to use my high speed B&W copier I had under lease from IKON, and which we were planning to replace with the new machine that never showed up.  I had a technician from IKON out just last week to check it so I knew it was in good shape.  WRONG.

Within minutes of use, the machine began spitting out horrible copies.  Looking inside, it was clear something in the heat-finisher was unraveling and very broken.  I called service and was given an emergency designation and assured of a call in one hour.  Nothing.  So I called again, and was again assured that I would definitely hear from a technician in one hour.  Nothing.  Now, everyone has gone home, and the messages all say they will get back to me on Monday, when it will be too late.  I called my sales person on his cell phone tonight (the one that was begging me a few hours earlier, asking me what he could do to save my business) and was told there was nothing he could do and he had no way of getting in touch with a dispatcher or any real human service person until Monday.  Right, they are willing to do anything for me except what they are supposed to do.

So here I am, with a thousand dollar a month copier that doesn't copy, a color copier that is not here, and the prospect of spending all weekend and a couple grand at Kinko's to get my proposal out.

IKON has been informed that they are now in breach of their service contract and may come by any time and pick up their boat anchor.

In my previous post on urban planning, I mentioned the increasingly popular idea of sustainability through poverty.  Don Boudreaux responds to the currently hip idea that somehow we need to revert to a more local economy with local food production.  This is absolutely absurd, for any number of reasons.  I'll just list three:

• It doesn't work.  The total energy used for transport, say of food products, is a small percentage of the total energy used in the total production process.  The energy transportation budget is generally smaller than efficiency gains from scale or from optimizing location.  For example, a wheat farm in Arizona on 50 acres is going to use a lot more energy (and water, and fertilizer, and manpower) than a wheat farm on a thousand acres in North Dakota.
• It leads to poverty.  Our modern society, our lifestyles, our lifespans all are a result of the fantastic increases in efficiency we have reaped from the division of labor.  A push to localize all production reverses the division of labor.  Many products, such as semiconductors, become outright impossible on a local scale.
• It leads to starvation.  It is hard for us to imagine famine in the wealthy nations of the world.  Crop failures in one part of the world are replaced with crops from other parts of the world.  But as recently as the 19th century, France, then the wealthiest nation on earth but reliant on local agriculture, experienced frequent crop failures and outright starvation.

More on the food-miles stupidity here.  And an interesting study that shows that processed foods greatly reduces waste and trash to landfills was here.

Update: More on food miles here at Reason