Coyote Blog

For years I have tried to find the right words to express my frustration with the notion that the problems encountered with government planning and technocratic meddling was merely the fault of having the wrong humans in charge, rather than of the system itself.  For example. I wrote:

Today, via Instapundit, comes this story about the GAO audit of the decision by the FDA to not allow the plan B morning after pill to be sold over the counter.
And, knock me over with a feather, it appears that the decision was
political, based on a conservative administration's opposition to
abortion.  And again the technocrats on the left are freaked.  Well,
what did you expect?  You applauded the Clinton FDA's politically
motivated ban on breast implants as a sop to NOW and the trial
lawyers.  In
establishing the FDA, it was you on the left that established the
principal, contradictory to the left's own stand on abortion, that the
government does indeed trump the individual on decision making for
their own body  (other thoughts here).
Again we hear the lament that the game was great until these
conservative yahoos took over.  No, it wasn't.  It was unjust to scheme
to control other people's lives, and just plain stupid to expect that
the machinery of control you created would never fall into your
political enemy's hands.

Well, it turns out that Milton Friedman said it better decades ago.  Megan Mcardle reminded me of this passage from Free to Choose:

The error of believing that the behavior of the social organism can be
shaped at will is widespread. It is the fundamental error of most
so-called reformers. It explains why they so often feel that the fault
lies in the man, not the "system"; that the way to solve problems is to
"turn the rascals out" and put well-meaning people in charge. It
explains why their reforms, when ostensibly achieved, so often go
astray.

Of late, Democratic lawmakers have argued that gasoline prices are set at the caprice of oil companies, and mainly serve to provide them with undeserved profits.  However, we here at Coyote Blog try to bring you breaking news at the frontiers of scientific inquiry, and, via the USA Today, we get this fascinating revelation:

The average American motorist is driving
substantially fewer miles for the first time in 26 years because of
high gas prices and demographic shifts, according to a USA TODAY
analysis of federal highway data.

The growth in miles driven has leveled off
dramatically in the past 18 months after 25 years of steady climbs
despite the addition of more than 1 million drivers to the nation's
streets and highways since 2005. Miles driven in February declined 1.9%
from February 2006 before rebounding slightly for a 0.3% year-over-year
gain in March, data from the Federal Highway Administration show.
That's in sharp contrast to the average annual growth rate of 2.7%
recorded from 1980 through 2005....

The nation has not seen such stagnant growth in
driving since 1981, when the USA staggered through an oil shortage and
a recession. Gas prices reached an all-time high of $3.223 in March
1981 when adjusted for inflation in today's dollars.

Wow!  This seems to imply that prices have a here-to-for unsuspected utility.  They might actually be useful for matching supply and demand of scarce resources.  Fascinating.  Maybe Congress can commission a study of this phenomenon.

Postscript: Leaving the snark aside, it is hilarious in this article to see an urban planning group trying to bend over backwards to say that really, price was only a minor factor -- this really had to do with demographics and the success of our urban planning and public transportation.  Of course, it's just a coincidence that this step change occurred at the same time as a gas price spike, and that the last time it happened was the last time that gas price spiked.  Note that none of the data in the article actually supports the point of view that this was anything but a direct response to price signals.

TJIC has a nice post on the arrogant paternalism inherent in urban planning.

The Party is making decisions about how we should live, and then, eventually, telling us about them.

The aim is to have 80 percent of new housing and new jobs in cities
and larger municipal centers such as Framingham, Peabody, Norwood, and
Marlborough. That would enable more people to walk or use mass transit
and thereby reduce traffic and pollution, according to the plan.

So, of the million possible variables, the ones they've chosen to
optimize are the minimization of the average distance one has to drive
to get to work.

Things they have implicitly then de-prioritized:

• open space per family
• privacy per family
• floor space per family
• minimal overall commute time per individual
• noise abatement
• etc.

I liked this bit:

The problem is, the statists don't really care about green space per
se. They care about government owned (or at least government
controlled) green space. Which is better? 20 acres of land lumped into
a government owned wetland sanctuary that no one ever visits, or 20
houses, each on 1 acre lots, covered with gardens, yards, trees, and
tree-houses? The government employee doesn't get to meddle in the
individual lots, so he's always going to say that the government owned
patch is better.

I am still getting the hard sell from cold-callers touting securities.  I am told this is because we small business owners are just behind dentists and doctors in terms of our capacity to make bonehead investments.

Before I proceed with this story, there are two things you need to know about me:

• I answer my own phone at the office
• I have never, ever listened to a sales pitch for an investment or security.  If I am in a good mood, I interrupt and say, "sorry, not iterested" before they can even name the stock.  If I am in a bad mood, I just hang up.

So the other day, I accidentally let one of them go further than I usually allow.  He said he was from Olympia Asset Management.  (There is an Olympia Asset Management web page, but I don't know if it is the same company and the web page has not been updated for several years.)  I let him run for a bit because a friend of mine runs a very well-respected financial planning firm with a different name but also with Olympia in the title, and for a moment I thought it might have been one of his folks.

Anyway, he proceeds to try to convince me that we have talked before and discussed a certain security.  "Remember me, we talked six months ago about ____".  Of course, I had never heard of the guy.  At this point I usually hang up, because I have heard this crap before -- it is a common pitch.  The best I can figure is that they are trying to give themselves more credibility by either:

1. Trying to imply that we have some kind of relationship we actually don't have.  Or worse...
2. Trying to convince me that he touted stock A six months ago, so now he can tell me stock A has gone up in price.  Many reputable brokers built their reputation by cold calling people and saying:  Watch these 3 stocks and see how they do and I will call you back in 6 months.  That way, you can evaluate their stock picking without risk.  The modern sleazy approach is to pick a stock that has gone up a lot in the last 6 months, and then call some harried business person and pretend you called them with that pick 6 months ago, hoping that they will give you the benefit of the doubt.

For some reason, maybe because I was bored, I decided to chat with him, and I had to admit that he was trained pretty well never to give up.  I interrupted him after the "do you remember" opening and said that we could not possible have spoken about a stock, because I always hang up on people within 5 seconds of knowing it is a stock pitch.  He said he had sent me a packet of information.  I said that he had not.  He insisted that we had talked, and that I had promised to write down the name of the stock on my calendar.  I told him I don't have a calendar  (which is actually true - I manage myself through a dysfunctional combination of memory and post-it notes).  Sensing weakness, I turned on him and said "gee, I was out of town a lot 6 months ago and am surprised you got hold of me.  What date did you call."  Then he starts getting all vague on me.  Anyway, I finally tired of the game and hung up but he never relented in his assertion that he and I had had a nice chat about some security.

Please, please.  Avoid these guys on the phone like the plague.  Several years ago I had a guy call me with some oil drilling "opportunity."  In that case, I also made an exception to my rule and listened to see just how bad this thing was going to be.  Finally I broke in and said "that's ridiculous, no one in their right mind would send you money for that."  He too was relentless, until I finally said "Look, I know Tony Soprano is standing behind you in the boiler room there and putting pressure on you, but I am not interested."  Then, without a pause, he starts telling me how he once threw a Molotov cocktail into the car of someone he didn't like.  I don't know if he was just having fun with me, but he was either wildly unprofessional or very creepy.  Beware, Beware, Beware.

I have had experience on several occasions attempting to bring private solutions (at no cost to the city government) to certain municipal problems.  The general approach to such offers, which seems to be similar in every city I have lived in, is to get together a meeting of every single government authority that could possibly have some tangential jurisdiction over the particular problem (e.g, city, county, state, highways, parks, water, environment, etc. etc.).  In this meeting, the discussion goes around the table, with every single participant adding another reason why the proposal is a problem and/or another roadblock or required approval.  This is not an exaggeration - I can't remember one person in such a meeting try to fix a problem or make something happen.  Everyone in government has an incentive system, it seems, that revolves around avoiding risk and preventing change. 

That is why I know that this story is typical of government, not an aberration:

LSU hospital officials began planning for a temporary network of
neighborhood clinics in early November 2005, barely two months after
Hurricane Katrina knocked Charity Hospital out of commission and threw
health-care services for many of the city's uninsured into disarray.

Eight months later, in late June and early July, FEMA delivered the
trailers to New Orleans, with the $761,000 bill picked up by the
federal government.

It wasn't until last week that the New Orleans City Council agreed
to temporarily waive the city's zoning code to allow the trailers to be
located at six schools around the city -- three on the east bank and
three in Algiers -- for two years.

In between fell more than 100 meetings and dozens of e-mails about
the issue involving LSU executives and officials at the city, state and
federal levels. And the journey is not over. The zoning waivers still
need approval from Mayor Ray Nagin, which cannot occur until next week
at the earliest, as well as permits from the city that could take up to
six months to acquire.

Apparently, the French government is planning to sink a couple of Billion euros into a risky new technology called an "internet search engine." (via hit and run)

Germany and France had initially discussed plans to commit €1 billion
to €2 billion, or $1.3 billion to $2.6 billion, over five years to
Quaero. The project was to have been paid for by the French and German
governments, with contributions from technology companies like Thomson
and France Télécom on the west side of the Rhine, and Siemens and
Deutsche Telekom to the east.

In related news, the French government also announced a massive technology development effort to invent some kind of round thing for cars to roll around on.

I usually try to wait a while to let sources like this get vetted.  With the proviso that it may turn out that this guy didn't have the access he says he had, this certainly is pretty damning, though I don't think many Bush critics will be surprised.  This is a quote in a local paper from an interview of Brigadier General Mark Scheid, who claims to be one of the top planners for the Iraq war (Hat tip:  Orin Kerr at Volokh, emphasis added)

A day or two [after 9/11], Rumsfeld was "telling us we were going to
war in Afghanistan and to start building the war plan. We were going to
go fast.

Then, just as we were barely into Afghanistan ... Rumsfeld came and told us to get ready for Iraq." . . .

Planning was kept very hush-hush in those early days.

"There was only a handful of people, maybe five or six, that were
involved with that plan because it had to be kept very, very quiet."

There was already an offensive plan in place for Iraq, Scheid said. And
in the beginning, the planners were just expanding on it.

"Whether we were going to execute it, we had no idea," Scheid said.

Eventually other military agencies - like the transportation and Army materiel commands - had to get involved.

They couldn't just "keep planning this in the dark," Scheid said.

Planning continued to be a challenge.

"The secretary of defense continued to push on us ... that
everything we write in our plan has to be the idea that we are going to
go in, we're going to take out the regime, and then we're going to
leave," Scheid said. "We won't stay."

Scheid said the planners continued to try "to write what was called
Phase 4," or the piece of the plan that included post-invasion
operations like occupation.

Even if the troops didn't stay, "at least we have to plan for it," Scheid said.

"I remember the secretary of defense saying that he would fire the next
person that said that," Scheid said. "We would not do planning for
Phase 4 operations, which would require all those additional troops
that people talk about today.

"He said we will not do that because the American public will not back us if they think we are going over there for a long war."

If true, this is hard to defend.  I guess the administration could argue that they didn't want to clutter up their core planning effort with contingencies.  Beyond this being pretty bad planning practice, it also makes no sense because at the time this planning started, according to the administration time line, the Iraq War itself was just a contingency.

I hate the term "pro-business."  In my mind, it helps to define what is wrong with the political choices we are presented with in this country.  All of us in civics class were taught the statist "heads I win, tails you lose" political spectrum from left to right.  On this spectrum, everyone is in favor of government intervention and the sacrifice of one group of people to another.  The only thing that varies across the scale is who is the beneficiary of the plunder and the targeted areas of intervention.  For years, most of the politicians who have called themselves "pro-business" were not free market capitalists -- they spent much of their time in office sending their businessman-buddies slices of pork, zoning variations, special permission to trash other people's property (e.g. via pollution) etc.

Beyond the fact that we small government libertarians and anarcho-capitalists are given no spot on the civics class political spectrum, I have always been frustrated at being lumped together with "pro-business" politicians, and have been asked to defend (which I won't and can't) various subsidies and corporate welfare.  An example of my attacks on this type of corporate welfare crap are here and here.

So, without further comment, I present this great except from an article by Gary North of the Mises Institute:

The idea that businessmen are strong defenders of the free
enterprise system is one which is believed only by those who have never
studied the history of private enterprise in the Western, industrial
nations. What businessmen are paid to worry about is profit. The
problem for the survival of a market economy arises when the voters
permit or encourage the expansion of government power to such an extent
that private businesses can gain short-term profits through the
intervention into the competitive market by state officials. Offer the
typical businessman the opportunity to escape the constant pressures of
market competition, and few of them are able to withstand the
temptation. In fact, they are rewarded for taking the step of calling
in the civil government.

The government's officials approve, but more to the point, from the
point of view of the businessman's understanding of his role,
shareholders and new investors also approve, since the favored
enterprise is initially blessed with increased earnings per share. The
business leader has his decision confirmed by the crucial standards of
reference in the market, namely, rising profits and rising share prices
on the stock market. No one pays the entrepreneur to be ideologically
pure. Almost everyone pays him to turn a profit.

This being the case, those within the government possess an
extremely potent device for expanding political power. By a
comprehensive program of direct political intervention into the market,
government officials can steadily reduce the opposition of businessmen
to the transformation of the market into a bureaucratic, regulated, and
even centrally-directed organization. Bureaucracy replaces
entrepreneurship as the principal form of economic planning.
Bureaucrats can use the time-honored pair of motivational approaches:
the carrot and the stick. The carrot is by far the most effective
device when dealing with profit-seeking businessmen.

Those individual enterprises that are expected to benefit from some
new government program have every short-run financial incentive to
promote the intervention, while those whose interests are likely to be
affected adversely "” rival firms, foreign enterprises, and especially
consumers "” find it expensive to organize their opposition, since the
adverse effects are either not recognized as stemming from the
particular government program, or else the potential opponents are
scattered over too wide an area to be organized inexpensively. The
efforts of the potential short-run beneficiaries are concentrated and
immediately profitable; the efforts of the potential losers are
dispersed and usually ineffective.

It is not surprising that that a debate like the one over estate taxes that attracts so many class warfare fanatics should miss the point on a lot of issues.  However, the estate tax debate has been handled in the media perhaps worse than even other tax debates, which is a pretty low bar to try to crawl under.  The reason I say this is that the most serious "end the estate tax" type proposals out there have two parts, only one of which I have ever seen mentioned in the press:

1. End the federal tax on estates (this, of course, is the part that gets the press)
2. End the stepping-up of the cost basis of financial assets at death (this part never gets mentioned)

This 2nd piece of the proposal may seem arcane to some -- let me explain.  Most large estates (ie, the ones that estate tax supporters are concerned about) are dominated by financial assets (e.g. stocks, bonds).  These financial assets, typically held for years, tend to have a cost basis far below their current market value.  An example might be shares of Microsoft held for 10 years that were purchased for only a small fraction of the current price.  The cost basis of a financial asset is generally its purchase price plus commissions and other transaction charges.

Lets take a gentleman who dies and whose estate is made up entirely of $10 million worth of Coca-Cola stock bought years ago for just $5 million.  The estate all goes to his one daughter.  Under estate law, two things would happen.  The estate pays a large tax on the $10 million, and the remainder flows through to his daughter.  Lets say taxes take half, and his daughter now has $5 million of stock with an original price of $2.5 million.  The other thing that happens is the basis of assets is stepped up to current market value.  That means that as far as the IRS is concerned, his daughter owns stock worth $5 million with a basis of $5 million.  If she immediately sold the stock, she would have no capital gains tax.

There are a couple of good arguments against the estate tax.  From an efficiency standpoint, it diverts large pools of capital from private investments into the hands of the Federal Government, where only the most ardent statist would argue that it is better spent.  Also, billions and billions of dollars are spent every year with lawyers, accountants and financial planners to find ways to dampen the impact of the estate tax.  This is all wasted, unproductive effort that would immediately be redirected to more productive uses if the estate tax were eliminated.

From a fairness standpoint, the estate tax acts as a second tax on income that has already been taxed before.  In our example, though the $5 million capital gain is getting taxed for the first time in the estate, the $5 million original costs, which must have come from taxed income at one time, is getting taxed for at least a second time.  The other fairness problem becomes visible if we change the name of the stock from Coca-Cola to "Dad's private company."  For family businesses, ownership is not as easily divisible - you can't sell half or two-thirds that easily in part because there is not much market for minority shares of small family businesses.  What therefore happens in practice is that the daughter must sell the family business to pay the taxes.

The estate tax reform plan outlined above eliminates both these latter problems.  Under these rules, the daughter would inherit the full $10 million of stock, but, unlike today, her basis would remain the same as her dad's -- in this case, $5 million.  She would not pay any tax until she sold any of the assets.  And then she would pay capital gains taxes using the lower basis of her father's.

This results in two beneficial outcomes:  a)  taxes are only charged on the part of estates that have not already faced income taxes and b)  taxes are only paid when the individuals who inherit choose to make an asset sale and convert assets to cash.  The timing of assets sales drive taxes, whereas today, in all too many cases, taxes drive the timing of asset sales.  (By the way, supporters of the estate tax also argue that it is good because the estate tax incentivizes charitable giving.  The argument is that the tax is so confiscatory, and that the government so well-known as a black hole for money, that rich people decide it is better to give it away than to let the government take it all.  This is an odd argument for statists to make, but they do.  Note that in this estate tax proposal, the daughter would inherit a lot of low-basis stocks.  The same charitable giving incentives exist for low-basis stocks, since the IRS will give you credit for the market value as a deductible gift but you don't have to pay the capital gains).

Asymmetrical Information has been on this case for a while:

There is no case for saying, as the New York Times inexplicably does, that "Repeal would shield
the estates of the very wealthiest Americans from the tax." It does not. It
does, however, defer taxation. Because basis will no longer be 'stepped-up'
after death (except for a $1.3 million exemption) they will simply be taxed like
all other capital gains - at the time those gains are realized.

Stepped-up basis is one of the four legs of the estate-planning stool along
with the life insurance tax exemption, minority discount valuations and the division of income and
principal interests (such as the "estate
freeze"). It is not entirely clear that beneficiaries of large estates are
better off after repeal when the full toolkit of estate planning techniques is
taken into account - unless capital gains tax is done away with altogether and
the states stop taxing estates. Neither is likely to happen.

Given the large estates I've seen avoid taxes, I am skeptical of analyses
that suggest an enormous impact to revenues from this repeal. I don't believe
they factor in the new potential revenues from carryover basis outside the
traditional estate tax shelter vehicles. Certainly, the capital gains rate is
lower than the estate rate, but when estate tax shelter vehicles dwindle away,
more assets will ultimately be subject to capital gains taxation. Based on what
estate planning professionals tell me, it will be a wash in many cases and more
expensive in some significant estates. In other words, with respect to the
Estate Tax, we may still be in the fat part of the Laffer curve, where a lower statutory rate may yield higher
revenues over time (due to avoidance behavior, not a lack of work
incentives).

This post also cites a study that says that increased capital gains taxes on inherited assets could offset estate tax losses to the government.  That seems aggressive, assuming a lot of assets are getting passed in vehicles (trusts?) that avoid or limit estate taxes, but the offset is there never-the-less and is something you will never ever see in a newspaper article about the estate tax.

I haven't paid attention to the current Congressional proposals out there, but the post goes on to argue that Congress, as is its wont, has chosen the worst of both worlds while maximizing rent-seeking opportunities.

postscript: By the way, shame on all of those accountants, lawyers, and others in the estate planning profession.  They all tell their clients that the estate tax is confiscatory, and can go on for hours with a client about various things that are unfair in the system.  But at the same time they run to Congress begging them to keep the whole tottering complex system in place to protect the rent they extract from inefficiencies in the system

I have written before about the silliness of the liquor licensing process.  A regulatory procedure perhaps necessary when the government was trying to drive organized crime out of liquor in the 1930's, its insanely useless today.

For example, last winter we replaced a store building at the same address with a brand new building.  It did not even occur to me that I might have to make any changes to my liquor license.  Surprise!  Here is the paperwork required to activate my existing, already paid-for license at the exact same address, only in a newer building:

Its hard to tell from the picture, but we are talking lots and lots of detail, much of it repeated several times through the application.  And most every page has to be notarized.  How much of this is new and not already on file with my current license?  Just one-half of one page, down in the lower right where I draw the floor plan of the new building.  Everything else is a total repeat of the information on file.

My favorite question I had to answer to move my liquor license to a new building?  They require I give them the date and location of my wedding.

Update: Oh, and it has to be approved by the County planning department, who for several days now have not returned my calls.  And it may have to go in front of the county commisioners.  And I am pretty sure it will have to be publicly posted on the new building for a 30-day comment period, and I will have to pay for an announcement for three weeks running in the local paper.  And then it will probably be approved, just about when it will be time to close for the season.  For those who have not been there, though, McArthur-Burney Falls State Park is gorgeous, and, if I can brag, I think our new building is a big improvement as well.

I am on the Big Island of Hawaii today doing some business (yes, I know, lets hear all those violins).  I encountered a program here called Hawaiian Home Lands.  Apparently the state makes long-term leases of land for homes available at $1 a year to native Hawaiians.  Recipients of this largess may either get a lot with an existing home, or just an undeveloped lot they can build on (using special subsidized loans and with a number of special exemptions from building and development codes).  People may pass on the lease and the improvements they have built to their kids as long as their kids qualify for the program as well.

On its face, this appears to be one of those well-meaning government programs designed to deal with a problem that many resort destinations face, that locals who work in the resort communities often get priced out of the market for homes in the area where they work (Vail is the classic example of this problem).  Unfortunately, as with many government programs, this program has some perverse results.

Qualifying for the program requires that the recipient pass a strict racial test, which the HHL web site says is "50% or greater native Hawaiian blood".  Setting eligibility for a government program based on racial tests is pretty outlandish in and of itself, but it gets worse.  People taking advantage of the program need to think carefully about the race of their mate before they decide how much to invest in their home.  A 75% Hawaiian who marries a full-blooded Hawaiian will be able to pass the improvements on to their children (since the children will be more than 50% Hawaiian), and thus can justify a large home investment.  The same person who marries a full-blooded Japanese or African or Anglo-Saxon will not be able to pass their home on to their kids, since their kids will fail the race test.  So, not only is there a race-test for a government program, but the government is providing strong financial incentives not to "dilute" a certain race.  Hawaii über alles.

By the way, those who don't think that passing assets to one's kids is an important part of long-term investment thinking should compare the houses built by program participants who know their kids cannot inherit to those built by those who will be able to pass the investment to their kids -- there is no comparison.  This would make a very fertile ground for an economics graduate student trying to quantify the value people assign to the of passing assets to one's kids in long-range investment planning.

Racially segregated classes at ASU may or may not still exist, and the University may or may not have ended them.  How's that for a follow-up.  FIRE does some more research here, and find:

In fact, there's no reason to believe that the racial restriction on that class
hasn't existed for at least eight years. And unless ASU is a university at which
students sign up for a class directly with the professor (which would be truly
unusual), ASU's administration had to be part of the effort to enforce the
racial restriction.

So why didn't ASU tell the truth in its letter to FIRE, especially if it
was planning to abandon the racial restriction anyway (once it got caught, of
course)? Probably because its administration didn't believe that anyone would
really do the research and find out that legal segregation has flourished on its
campus for at least the last eight years. This brazenness is shocking,
especially considering that a 2002
letter from FIRE got ASU to drop
racial restrictions on a Navajo history class. Are there other classes with
similar restrictions just waiting to be discovered?

Government censors often try to rewrite the past, but Reason's Hit and Run passes on this funny story of British attempts to rewrite the future:

Britain's Meteorological Office has instructed forecasters to describe the
country's damp, dismal, seasonal-affect-disorder-inducing, godawful weather in
Bob Rossian terms:

Prolonged sunshine is expected under new "positive" forecast
guidelines issued by the Meteorological Office...

There is no need to dwell on a "small chance of showers" when "mainly dry"
tells a better story. If there are "localised storms" then it must be "dry for
most". Clouds over Manchester mean generally clear visibility for motorway
drivers

I don't know what the Brits are complaining about in a forecast such as "small chance of showers".  In the States, the same forecast would be communicated as "huge, civilization ending storm approaching - details at 11".  When I lived in St. Louis, I remember that the local news successfully predicted 11 of the last 3 snowstorms.

Update:  I appears that the media has also been reporting 11 of the last 3 murders:

Five weeks after Hurricane Katrina laid waste to New Orleans, some local, state
and federal officials have come to believe that exaggerations of mayhem by
officials and rumors repeated uncritically in the news media helped slow the
response to the disaster and tarnish the image of many of its
victims.

Claims of widespread looting, gunfire directed at helicopters and
rescuers, homicides, and rapes, including those of "babies" at the Louisiana
Superdome, frequently turned out to be overblown, if not completely untrue,
officials now say.

The sensational accounts delayed rescue and evacuation efforts already hampered
by poor planning and a lack of coordination among local, state and federal
agencies. People rushing to the Gulf Coast to fly rescue helicopters or to
distribute food, water and other aid steeled themselves for battle. In
communities near and far, the seeds were planted that the victims of Katrina
should be kept away, or at least handled with extreme caution.

I had my own commentary about media malpractice here.

Cafe Hayek points out that Rep. Earl Blumenauer wants to make sure that New Orleans is rebuilt with a strong urban planning vision.  Since Mr. Blumenauer represents Portland, Oregon, the city beloved of planners that has been planned into having some of the highest priced housing and worst traffic of any city of its size in America, I presume he wants something similar for New Orleans (Portland was also the city that thought it had solved global warming).

Here is my urban plan for New Orleans:  Every person who owns property can build whatever the hell they want on it.  If other people want something else built on that property, and value this outcome enough, they can buy the property from its owner.  This novel concept is called "private property rights" and falls under the broader category of what are called "constitutionally protected individual rights" or even more broadly, "freedom".  It is a concept that used to be taken for granted in this country and but now is seldom even taught in schools. 

For the property owned by the government, well, they are going to build whatever dumbshit thing they want to on it anyway, so I'll just root for their choice to be fairly inexpensive.  We here in Phoenix built a half-billion dollar stadium for the for-god-sakes Arizona Cardinals that is used for its core purpose 3 hours a day for 8 days a year.  It couldn't be worse, could it?

Technorati Tags:  Katrina, Economics

After the Supreme Court's Kelo decision that effectively increases the power of local authorities to take whatever poperty they want and hand it over the private developers, a number of outraged politicians began reform efforts to limit takings in their state to true common-carrier public projects.  So what has happened to these efforts?  Virginia Postrel links to this update on California, but I will give you a hint:  They have had about the same level of success that every other effort to limit government power has had of late.

Predictably, local government and redevelopment officials reacted with alarm
that eminent domain could be severely restricted. The California Redevelopment
Association and other advocates geared up to kill the measures and in the
closing days of the legislative session, Democratic leaders ginned up a strategy
to cool off the anti-eminent domain fervor. They unveiled legislation that would
place a two-year moratorium on the seizure of private homes (but not commercial
property), and authorize a study of the practice, thus giving their members a
chance, or so it seemed, to side with the anti-eminent domain sentiment without
doing any real damage to redevelopment agencies.

Quietly, however, the moratorium bills were themselves put on the shelf as
the session ended - with Democrats blaming Republicans. "With every vote, they
tried to derail this prudent response," said Sen. Christine Kehoe, D-San Diego,
who carried one of the moratorium bills.

Kehoe's finger-pointing, however, was more than a little disingenuous since
the stalled bills required only simple majority votes and thus needed no
Republicans to go along. Clearly, this was a Democratic action, not a Republican
one, perhaps just a feint to pretend to do something about eminent domain
without actually doing anything to upset the apple cart.

She also points to this story in San Diego:

First came a report on the San Diego Model School Development Agency's push to
seize and demolish 188 homes in the thriving City Heights neighborhood to build
up to 509 town houses, condos and apartments more to its liking. The 30-acre
site is far from the decaying neighborhood normally targeted in redevelopment,
but blithe agency bureaucrats from the Soviet school of central
planning--knowing they could call the area "blighted" if they chose--didn't
care.

Then came yesterday's jaw-dropping story about National City's plan to use
its powers of eminent domain to force the Daily family to sell a parcel the
family leases to the Mossy family for one of its thriving car dealerships. After
the two sides couldn't agree on a sales price, Mossy representatives made plain
they would move their Nissan dealership--and the $1 million in annual sales and
property taxes it generates for National City--unless the city helped close the
deal. The City Council promptly caved in to Mossy's unsavory hardball tactics
and, in its role as the city redevelopment board, began looking into seizing the
land--after a mysterious epiphany in which members suddenly realized the site
suffered from a heretofore undetected case of "visual blight."

Yep, there's nothing like another large car dealership to fight visual blight.  Maybe San Diego should tear down the Del Coronado hotel and put a car dealership there too.

Government bureaucrats tend to resist bottom-up solutions to problems -- after all,their jobs depend on the primacy of central planning and solving problems top-down.  It is interesting to read this email posted at Vodka Pundit in this light:

Fed is dropping the ball on basic necessities such as water, portolets, you
name it. Woefully unprepared and nobody seems to be in charge or have the
gumption to get it done.

Louisiana politicians should be absolutely raising hell right now. Lots of
people including yours truly have volunteered to bring (including food,
generators, food, etc., to be self sufficient for a week or so) the most
important thing which is a boat but have been told NO under no uncertain terms.
"My" town is under water, people are in critical condition, and I have skill
sets and assets - including a boat which will come out of the hole in 14 incles
of water - and we are being denied the opportunity to help. And quite frankly,
that REALLY PISSES ME OFF.

Military is stepping up and bringing considerable skills and assets to the
table. Had they been listened to earlier, lots of logistical issues would have
been resolved. IOW's, the bureaucrats are getting moved to the sidelines but
"turf issues" are not going quietly into the night.

You can see the bureaucratic mindset at work hear:  An emphasis on being in control vs. solving the damn problem.  Don't want a lot of citizens running around on their own bringing in supplies of helping people, do we?

If we are going to insist on a 100% top-down approach, then its good the military is coming in to take over.   Only the military has the large-scale logistical experience and resources to take-on something of this scope top-down  (and even they have struggled with what may be a smaller rebuilding task in Iraq).  The US military did more good than any single organization during the Asian Tsunami, so I hope for the same here.  I would hope there are a few aircraft carriers heading to the area.

Postscript:  I know everyone is having fun blaming the feds, but what about the locals here?  If my town was below sea level with only a single dike between me and being 30 feet under a lake, I might insist that my local politicians have a contingency plan for breaches.  I have wondered why a few ships couldn't have been scuttled in the breach early in the crisis.

Update:  Much more on top-down vs. bottom-up response to Katrina here.

Technorati Tags:  Katrina

A couple of years ago, California suffered through a summer of electricity blackouts while the state and  state-protected power monopolies nearly bankrupted themselves.  While California politicians have tried to cover their behinds by blaming Enron for the problems, the real mistake that led to the debacle was allowing the wholesale price of electricity to float higher, while the retail price remained low and fixed.  As a result, as wholesale prices skyrocketed, the State and the power monopolies had to buy high and sell low, causing massive financial losses.  At the same time, consumers saw no change in prices, so they had no incentive to change their behavior and cut back on usage, which they would have done if retail electricity prices had been allowed to rise with the market.

Via Instapundit and Gateway Pundit, comes this article about gas shortages in China and the ensuing lines at retail gas stations, that look worse than anything we suffered through in this country.  The article makes fairly clear what is going on:

The Chinese government and its state-owned oil companies are locked
in battle over artificially low gasoline prices at the pump that has
caused a massive shortage in the southern manufacturing province of
Guangdong.

For weeks skyrocketing global oil prices and rising
demand has led to a fuel-supply crunch as domestic refineries have been
caught short in Guangdong.

Some fear it is only a matter of time before gas-guzzling cities such as Shanghai are hit too.

The
government has blamed recent stormy weather for the shortfall, which is
feasible but not enough to result in the kilometre long queues at
filling stations that drivers in Guangdong have endured for nearly a
month.

As oil prices climbed, a standoff erupted between China's
National Development Reform Commission (NDRC) -- a key economic policy
planning body -- and the country's two largest state oil groups
PetroChina and Sinopec, analysts said Wednesday.

The crisis
highlights the persistent problems Beijing faces as the economy is
transformed to a more market-based system but that is often retarded by
authorities who fear loosing political control in the face of
full-fledged capitalist rules.

I blame Enron.  Anyway, I wrote about gas line and what caused them in the US here.  Some genius also attempted the same policy as China is pursuing in post-war Iraq, with similar results.

While I sometimes get grouped into economics blogs, I actually don't have a degree in the subject.  I have an MBA, some practical experience, some hobbyist reading, a few undergraduate courses, and, as my wife can attest, a willingness to pretend I know what I am talking about.  Unfortunately, that is not enough in this case.

Over the last 6 months, I have observed an interesting phenomena in the Phoenix area, one which I am sure I am not the first to discover, but I don't have enough background to put a name on it.  Here is what is going on:

Over the last year or two, the Phoenix real estate market has been red hot.  This has caused a lot of individual investors to make local real estate investments (I discussed more about this here).  The preferred type of investment seems to be to buy an old house on valuable land, tear it down, and sell the new house for a profit.

All fine and normal so far.  The interesting part comes when the investor chooses the style and appearance of the new home.  Remember that these are typically highly leveraged investments.  Investors take out a large mortgage, and that mortgage has to be paid every month that the investor cannot sell the home.  It is critical, then, that the investor build a home that is designed in a way to be most likely to sell.

Let's imagine that the pool of possible house buyers have the following preferences (I am making these numbers up):

1. Tuscan / Mediterranean style, 40%
2. Santa Fe style, 25%
3. Santa Barbara style, 20%
4. New England style, 10%
5. Ultra modern style, 5%

With only limited information on what is going on in the market around them (ie what others are planning to build) all of these investor-builders pick the most popular style on the list, thereby apparently maximizing their ability to sell the home.  As a result, every tear down / rebuild / remodel I see in our area is a new Tuscan home.  So, while 40% of buyers (or whatever the number is) want Tuscan, 100% of the supply is Tuscan.  By the way, the same thing apparently happened in the last big Phoenix real estate boom back in the 1980's, since nearly every house in our neighborhood that was built in the early eighties was built in what we call the "santa barbara" style.

This is obviously some type of market failure, but I don't know what it is called.  I might call it the "variety failure".  To a large extent, this dynamic is made possible by the fact that many of the investors in the real estate market are only entering the housing market for a single transaction, and are not well informed of the actions of other sellers in the market.  In most other industries, investors need to make money over multiple transactions over many years, which mutes this effect.  For example, there are always farmers who try to plant this year what was earning good money last year, but these players in the market are usually weeded out over time as last year's shortage leads to this year's glut and financial losses.  Also muting this failure nowadays are changes in manufacturing techniques, which allows low cost production of greater variety, as well as expansion of specialty retail space (e.g. category killers like Petsmart or Borders), which allows display of more product variations.

My support for the Nature Conservancy and other land trusts who buy land for preservation rather than just expropriate the current holder through changed use regulations in this post garnered more comments than any of my other recent posts.  Presuming this is an indicator of interest in the topic, I point your attention to this article in the NY Times about environmentalists and grazing in southern Utah.  I no longer have much trust in the NY Times to portray such stories correctly, but from what they write, it looks like another great example of environmental activism using markets and consensual agreements rather than public coercion:

Mr. LeFevre wants the ranchers to win this range war against the lawyers and
politicians trying to restrict grazing on the plateau north of the Grand Canyon.
He fought unsuccessfully to stop the Clinton administration from declaring it
the Grand Staircase-Escalante National Monument because he knew the designation
would mean more regulations, more hikers and fewer cows....

But he is not bitter when he talks about the deal he made with an
environmentalist named Bill Hedden, the executive director of the Grand Canyon
Trust. Mr. Hedden's group doesn't use lobbyists or lawsuits (or guns) to drive
out ranchers. These environmentalists get land the old-fashioned way. They buy
it.

To reclaim the Escalante River canyon, Mr. Hedden bought the permits that
entitle Mr. LeFevre's cows to graze on the federal land near the river. He
figures it was a good deal for the environment because native shrubs and grasses
are reappearing, now that cows aren't eating and trampling the vegetation.

I love to see this.  The alternative Mr. LeFevre faced was steady expropriation of his grazing permits via creeping regulation and legal action:

Mr. LeFevre likes the deal because it enabled him to buy grazing permits for
higher ground that's easier for him and his cows to reach than the canyon. (He
was once almost killed there when his horse fell). He's also relieved to be on
land where hikers aren't pressuring the Bureau of Land Management to restrict
grazing, as they did for the canyon.

"I was afraid the B.L.M. would add so many restrictions that I wouldn't be
able to use the land anyway, and I'd be out the $100,000 I spent for the
permits," he said. "The B.L.M. just shuts you down. Bill said, 'Let's try to
resolve this peacefully and make you whole.' I respect that."

Ironically, this win-win environmentalism is being opposed by the Bush administration. 

The Interior Department has decided that environmentalists can no longer
simply buy grazing permits and retire them. Under its reading of the law - not
wholly shared by predecessors in the Clinton administration - land currently
being used by ranchers has already been determined to be "chiefly valuable for
grazing" and can be opened to herds at any time if the B.L.M.'s "land use
planning process" deems it necessary.

But why should a federal bureaucrat decide what's "chiefly valuable" about a
piece of land? Mr. Hedden and Mr. LeFevre have discovered a "land use planning
process" of their own: see who will pay the most for it. If an environmentalist
offers enough to induce a rancher to sell, that's the best indication the land
is more valuable for hiking than for grazing.

I have no idea why a grazing permit can't be retired - certainly that's legal and proper with emissions permits.  I never, ever thought I would find the NY Times writing something like "why should a federal bureaucrat decide what's "chiefly valuable" about a
piece of land", but I love it. And raspberries to the Bush Administration, who yet again are demonstrating that their lack of dedication to markets and private action.  Its time to admit that the republicans have returned to the bad old days of their 1970's support for big government crony capitalism.

The new policy may make short-term political sense for the Bush
administration by pleasing its Republican allies in Utah and lobbyists for the
ranching industry. But it's not good for individual ranchers, and it ensures
more bitter range wars in the future. If environmentalists can't spend their
money on land, they'll just spend it on lawyers.

Here is Mr. Hedden's site at the Grand Canyon Trust, which unfortunately seems to support lobbying for government coercion at least as much as market-based solutions.

Hat tip to Nature Noted, a great blog on land trusts.

Today, the Supreme Court ruled 5-4 in the Kelo Decision that local officials can seize nearly anyone's private property and hand it over to their favorite developer:

The Supreme Court on Thursday ruled that
local governments may seize people's homes and businesses -- even
against their will -- for private economic dvelopment.

It
was a decision fraught with huge implications for a country with many
areas, particularly the rapidly growing urban and suburban areas,
facing countervailing pressures of development and property ownership
rights.

The 5-4 ruling represented a defeat for some Connecticut
residents whose homes are slated for destruction to make room for an
office complex. They argued that cities have no right to take their
land except for projects with a clear public use, such as roads or
schools, or to revitalize blighted areas.

As a result, cities
have wide power to bulldoze residences for projects such as shopping
malls and hotel complexes to generate tax revenue.

This is a really, really bad decision.  Most of my thoughts on this subject are here.  The Economist, quoted in that post, framed the issue well:

Put simply, cities cannot take someone's house just because they think
they can make better use of it. Otherwise, argues Scott Bullock, Mrs
Kelo's lawyer, you end up destroying private property rights
altogether. For if the sole yardstick is economic benefit, any house
can be replaced at any time by a business or shop (because they usually
produce more tax revenues). Moreover, if city governments can seize
private property by claiming a public benefit which they themselves
determine, where do they stop? If they decide it is in the public
interest to encourage locally-owned shops, what would prevent them
compulsorily closing megastores, or vice versa? This is central
planning.

Sandra O'Connor echoed these thoughts in her dissent, and made the obvious point: This is not about condemning land for the public good.  This, in effect, will be about condemning land for the benefit of those with the most political pull:

Justice Sandra Day O'Connor, who has been a key swing vote on many
cases before the court, issued a stinging dissent. She argued that
cities should not have unlimited authority to uproot families, even if
they are provided compensation, simply to accommodate wealthy
developers....

"Any
property may now be taken for the benefit of another private party, but
the fallout from this decision will not be random," O'Connor wrote.
"The beneficiaries are likely to be those citizens with
disproportionate influence and power in the political process,
including large corporations and development firms."

While Bush, sometimes rightly, gets bashed by the Left for trying to create a corporate state, it is in fact the left side of the Supreme Court that has struck the strongest blow now in that direction.  This decision in a stroke gives local authorities nearly unlimited ability to engage in Soviet-style planning of their local economy.

Find much more at SCOTUSblog here and here.

Update: Professor Bainbridge feels my pain.  Glenn Reynolds has updates here and here.  Reason's Hit and Run opines:

the majority opinion says, quoting an earlier decision, the "Court
long ago rejected any literal requirement that condemned property be
put into use for the ... public." Which is to say, they've rejected the
notion that "public use" means anything more stringent than:
"legislators want to do this." The Court's view is that any "public
purpose" will do, and such purposes apparently include increased tax
revenue. The straightforward implication is that any taking of
a private residence to hand it over to a business, or just from a poor
person to a wealthy person, will be a taking in service of a public
purpose: As a general rule, the rich pay more taxes than the poor, and
businesses pay more taxes than households.

Arguing with Signposts has a huge roundup here.  And I would love to all get behind this idea from Right Thinking:

Here's a thought: How about the GOP-controlled Congress puts the flag
desecration amendment on the back burner and gets to work on an
amendment limiting the power of the state to seize private property
from citizens?

The Left seems split on the decision.  Half are thrilled by the subjugation of property rights to government whim, while the other half are appalled that "public use" has come to be defined as maximizing property values.  It is a strange place we are in when we have lefties like Kos actively supporting a decision that allows government to take land from citizens so long as a wealthier resident replaces a poorer resident on the land, or so long as a commercial enterprise replaces a non-commercial one.

UPDATE:  Strata-Sphere has a roundup of some of the wacky things that local governments are doing with their newly-confirmed Kelo powers.

In a followup post to the impact of "smart growth" policies on housing prices and availability, Tim Cavanaugh has this in Reason:

What's weird is how rarely, in San Francisco media, you'll hear the above
argument made at all. The "crisis" in housing prices is almost invariably
described as an inexplicable force of nature (in the local TV news) or as a
conspiracy by developers (in the alt.weeklies). You'd think, in a city full of
progressives who can talk all day about how they wish they could afford a home,
somebody might have started to wonder whether there's a connection between
political decisions and the fact that the city is remarkably segregated and
prohibitively expensive.

He has more, as does Thomas Sowell:

That fact has much to do with skyrocketing home prices. The people who vote on
the laws that severely restrict building, create costly bureaucratic delays, and
impose arbitrary planning commission notions need not pay a dime toward the huge
costs imposed on anyone trying to build anything in the San Francisco Bay area.
Newcomers get stuck with those costs...

People who wring their hands about a need for "affordable housing" seldom
consider that the way to have affordable housing is to stop making it
unaffordable. Foster City housing was affordable before the restrictive land use
laws made all housing astronomically expensive. Contrary to the vision of the
left, the free market produced affordable housing -- before government
intervention made housing unaffordable.

I bet you thought I was kidding here when I said I might pursue my new niche in parking lot blogging.  Not so - here today is an idea from Ross Mayfield:

My uncle was a guru on wall street when I asked him where I should invest my paper route money. He said to visit the parking lots of Silicon Valley companies during the weekend. If the parking lot was full, there was a good chance they were close to a breakthrough or release.

At the corporations I worked for, this would probably just mean that everyone was working on Powerpoint presentation for an upcoming planning conference.  Anyway, I don't know much about Silicon Valley, so I don't know if it will work, but this is an interesting suggestion to use the Internet to gather intelligence:

But with enough mobloggers, a panopticon of performance may be a great leading indicator.  So this weekend I started the Parking Lot Indicatr group and people have taken interest.

Hopefully, the cars are not all there responding to an SEC inquiry.

Via the Commons, the story of how the Clear Skies initiative came off the rails, despite the fact it was initially seen as a win-win for both environmentalists and industry.  I don't know all the issues on the table, but I like the cap-and-trade concept for pollution control. 

Many folks, by the way, automatically assume that as a libertarian, I am automatically against pollution laws.  This is not the case.  In fact, this issue is a good example of how a thoughtful understanding of individual rights and property rights differs from just being blindly "pro-business".  In fact, pollution laws are nearly essential to strong property rights.  As I wrote then:

In fact, environmental laws are as critical to a nation with strong property rights as is contract law. Why? Imagine a world without any environmental legislation but with strong property rights. What happens when the first molecule of smoke from my iron furnace or from my farm tractor crosses over on to your land. I have violated your property rights, have I not, by sending unwanted substances onto your land, into your water, or into your airspace. To stop me, you might sue me. And so might the next guy downwind, etc. We would end up in an economic gridlock with everyone slapping injunctions on each other. Since economic activity is almost impossible without impacting surrounding property owners, at least in small ways, we need a framework for setting out maximums for this impact - e.g., environmental legislation.

Cap and trade strike me as the best, most free market way to limit pollution - this system shifts the burden of pollution control to the people and industries and technologies that can do it the cheapest.  Unfortunately, many environmentalists are command and control technocrats and/or socialists who greatly prefer having government micro-manage technology choices and industry by industry requirements.  Which is exactly what led to the problems referred to in the article around "new source review".

New source review is long and complicated, but basically says that existing power plants don't have to upgrade to new technologies, but new ones have to go through a very extensive environmental review and permitting process and have a suite of government mandated pollution control technologies installed.  OK, that has all been clear for 3+ decades.  The rub comes when a company considers upgrading or replacing a portion of a power plant.  For most of the life of the Clean Air Act, the government allowed utilities to upgrade and modernize plants without having to install the expensive suite of new controls.  The Clinton administration clamped down on this, making it harder to upgrade existing plants.  All the recent hullabaloo has occurred as GWB proposed to go back to the pre-Clinton rules.

This issue is a great test for environmentalists, because it separates them into those who really understand the issues and the science and legitimately want improvement, and those who care more about symbolism and politics.  Those who like symbolism have cast this move as a roll-back, and are fighting it tooth and nail.  Those who care about results know the following:

Experience under the Clinton rules has shown that most old plants will never be upgraded if they have to go through the planning process and install the new scrubbing and other technologies.  So, they will just keep running inefficiently, as-is, until they are finally shut down.  However, if allowed to be upgraded without review and new scrubbers, etc., they will become much more efficient.  No, they won't have the most modern scrubbing technology, but because they are more efficient, they burn less fuel (coal) to make the same amount of electricity and therefore will pollute less.  In some cases these rules even prevent switching to cleaner fuels like natural gas. 

In other words, most scientists, including scientific-oriented environmentalists, agree that GWB's proposal will result in less pollution, but environmentalists still oppose it because they don't like the symbolism of any pollution regulation appearing to be rolled back.  You can read a lot more about New Source Review and how it actually increases pollution in practice here.

Most "progressives" who reject capitalism do so in part because they do not trust the bottom-up organic progress and social structure that comes with capitalism.  They prefer top-down god-like statist technocratic control.

This is an interesting article contrasting the rejection by liberals and progressives of creationism in the complex systems within nature to their embrace of it in economics and society.

Just as in the natural world, society and the economy is self-organizing, and arises without any sort of central direction or central planning. This is a view that has been put forward by economists and social thinkers such as Frederick Hayek, Adam Smith, David Hume and many others and, like its non-creationist counterpart in the realm of biology, has the advantage of empirical support.

Cool article.  I have written on similar thoughts here.  Listen closely to about any politician today, liberal, conservative, progressive, etc and you will hear, in almost every statement, a distrust of individual decision-making.  Ironically there are many liberal professors out there who will explain to you all evening how termites can build an elaborate mound without any centralized control, but will deny to the death the suggestion that individual humans can build a strong economy and social structure without central control. 

My company operates campgrounds and other recreational facilities on government lands, and the US Forest Service is our most important partner.  We work day-to-day with about 20 or so district rangers, who are the front-line general managers of the Forest.

My observation over time is that USFS district rangers have a nearly impossible job.  By their enabling legislation, the USFS is tasked with balancing logging, mining, ranching, recreation, forest health and environmental stewardship in running the forest.  In our modern day age of uncompromising special interests and conflict resolution by lawsuit, it is absolutely impossible to make any decision  without sending some party scurrying to the courts.  In particular, environmental groups have become expert at tying up any decision in court, and attempting to block any of the other competing interests.

The current Administration has introduced new rules intended to make this job easier.  As reported in the New York Times via the Commons Blog,

Forest Service officials said the rules were intended to give local foresters more flexibility to respond to scientific advances and threats like intensifying wildfires and invasive species. They say the regulations will also speed up decisions, ending what some public and private foresters see as a legal and regulatory gridlock that has delayed forest plans for years because of litigation and requirements for time-consuming studies.

I hope this is true, because I feel for front line forestry personnel who joined the service mostly because of their love of the outdoors and the environment, and have been forced instead to become amateur lawyers.  However,  I doubt much will change.  I think that intelligent planning and negotiation may be gone forever in working on environmental issues in favor of litigation.