If you don’t visit Somewhat Reasonable and the Heartlander digital magazine every day, you’re missing out on some of the best news and commentary on liberty and free markets you can find. But worry not, freedom lovers! The Heartland Weekly Email is here for you every Friday with a highlight show. Subscribe to the email today, and read this week’s edition below.
LeftExposed.org Profile of the Week: The Clinton Foundation
LeftExposed.org is a new Heartland Institute project devoted to creating accurate profiles of prominent individuals and organizations on the political Left with a special focus on groups in the global warming (a.k.a “climate change”) debate. Project Manager Emily Zanotti and principal researcher Ron Arnold have written a devastating exposé of The Clinton Foundation, a global operation that wields great influence. Zanotti and Arnold document the organization’s founding, funding, and latest scandals. READ MORE
Wisconsin’s Unfair Sales Act
Matthew Glans, Heartland Research & Commentary
The recent attempt by the retailer Meijer to move into the Wisconsin market has rekindled a long-simmering debate over a Depression-era law, known as the Unfair Sales Act or Minimum Markup Law, that limits the ability of Wisconsin companies to lower their prices to attract customers. READ MORE
Heartland Benefit Dinner Was a Great Success!
Yesterday, the Heartland Institute celebrated its 31st anniversary at a dinner at The Cotillion in Palatine, Illinois. Those in attendance saw a fantastic program featuring 2015 Heartland Liberty Prize winner Donald J. Devine and keynote speaker Angelo Codevilla. We thank all those who attended in support of Heartland’s fight to preserve our liberty and advance free markets. If you could not attend, watch this email in the coming weeks for a link to video of the event. And you can also show your support by making a donation today! DONATE HERE
Feeling like John D. Rockefeller?
John D. Rockefeller was one of the world’s greatest entrepreneurs and philanthropists. Every student who attends The University of Chicago and every alumnus recognizes his name and recalls his generosity thanks in part to Rockefeller Chapel, the tallest building on campus. How do you want to be remembered? The Heartland Institute’s recent move to its own building in Arlington Heights creates naming opportunities and other donor recognition opportunities. For more information, call 312/377-4000 and ask for Gwen Carver.
Featured Podcast: Jay Lehr: EPA and (Other) Radical Environmental Groups
Heartland Science Director Jay Lehr, Ph.D., joins Environment & Climate News Managing Editor H. Sterling Burnett to discuss the incestuous relationship between EPA and radical environmental groups. Lehr explains how EPA has lost its focus on protecting people and the environment in an anti-capitalist crusade and thus needs to be replaced. READ MORE
The Heartland Institute Event Space Is Open for Business!
The Heartland Institute’s beautiful new event space is open, and we have several great events already lined up. Heartland is dedicated to bringing you the best content the liberty movement has to offer with debates, lectures, book talks, and luncheons. Upcoming events include book talks with authors Jared Meyer and Peter Ferrara. Register for an upcoming event today! And if you require space for your own liberty-centered event, let us know! We can comfortably host groups of up to 77 people. READ MORE
How the Feds Coerced States to Buy Into Common Core
Robert Holland, Pittsburgh Tribune-Review
Contrary to the Bill Gates-financed puff pieces about Common Core being purely voluntary for states, new evidence shows federal officials coerced states into adopting the national standards. U.S. Education Secretary Arne Duncan’s chief of staff, Joanne Weiss, recently explained how Race to the Top was used to push states into the controversial program. READ MORE
Study Finds Air Quality Not Impaired by Sand Mining
Isaac Orr, Wisconsin State Journal
Opponents of hydraulic fracturing frequently trump up hypothetical dangers of this revolutionary technique. Well, people living near industrial silica sand facilities can breathe easier knowing a new, authoritative, peer-reviewed scientific study monitoring air quality at four frac sand facilities in northwestern Wisconsin has found the facilities have minimal impact on air quality in surrounding areas and do not pose a threat to nearby residents’ health. READ MORE
Block Grants Would Prevent Medicaid ‘Pac Man’ from Gobbling up Budgets
Jesse Hathaway, Townhall
Everyone complains about the impending “entitlement crisis” but nobody does anything about it. It will be up to the next president to make some big decisions about how to pub Medicaid, Medicare, and other programs on a sustainable basis. One key reform would be Medicaid. block grants, a time-tested solution to run-away spending. READ MORE
In The Tank Podcast (ep6): Alcohol Prohibition, Economic Sinkhole States, and Presidential Campaign Blunders
In episode 6 of the podcast, Director of Communications Jim Lakely stands in as co-host with Donny Kendal while John Nothdurft, who was out of town, calls in as a guest. Kendal, Lakely, and Nothdurft debate the effects of alcohol prohibition, take a look at the most burdensome states for taxpayers, and reminisce on some of the worst presidential campaign blunders in modern history. LISTEN HERE
Why Obamacare’s Cost Control Efforts Aren’t Working
John C. Goodman, The Heartlander
Imagine if UnitedHealthcare or Humana or Cigna discovered a way to cut health care costs in half – with no reduction in quality or access to care. The stock price of the company that made this discovery would go through the roof, right? Not quite. Under rules imposed by the Obama administration, the company would be forced to give virtually all of its newfound profit back to Medicare. READ MORE
North Carolina Ends Multi-Million-Dollar Renewables Project
Sterling Burnett, Somewhat Reasonable
At the end of a midnight marathon session of the North Carolina House of Representatives, elected officials passed a compromise budget bill funding the government for the coming fiscal year. One of the provisions ends North Carolina’s generous 35 percent tax credit for solar or other renewable energy projects. One project alone, the Desert Wind Project, if completed would have cost North Carolina taxpayers more than $140 million. READ MORE
John Nothdurft returns as co-host with Donny Kendal in episode #7 of the In The Tank Podcast. This weekly podcast features (as always) interviews, debates, roundtable discussions, stories, and light-hearted segments on a variety of topics on the latest news. The show is available for download as part of the Heartland Daily Podcast every Friday.
In today’s episode of In The Tank, Donny and John debate about the how responsible the government is for the towering amounts of student loan debt. They also talk about why beer is so expensive and the truth behind the “Jimmy Carter freed up the beer market” stories. They also dive into the myths of recycling before discussing frequently used presidential campaign songs.
People living near industrial silica sand facilities can breathe easier knowing a new, authoritative, peer-reviewed scientific study monitoring air quality at four frac sand facilities in northwestern Wisconsin has found these facilities have minimal impact on air quality in surrounding areas and do not pose a threat to nearby residents’ health.
As the number of industrial sand mines grew from just a handful in 2009 to 63 active mines in the span of a few short years, nearby residents, local and state officials, and state regulators expressed concerns about the potential for these mines to generate hazardous levels of silica particles small enough to make their way into the deep tissue of lungs.
These particles, known as respirable crystalline silica (RCS), measure four micrometers in diameter and are also referred to as PM4. If present in high enough concentrations for a long enough period, RCS can cause silicosis, a very serious but preventable lung disease that occurs in professions such as sandblasting, construction and mining.
Though RCS is an occupational hazard, the study, which took more than 2,100, 24-hour samples over three years, concluded these facilities are not a threat to public health because concentrations of RCS monitored at the fence lines of these facilities are far below levels considered harmful by the California Office of Environmental Health Hazards Assessment (OEHHA) and the Minnesota Pollution Control Agency (MPCA).
Average RCS concentrations were less than 10 percent of the chronic reference exposure limit of 3 micrograms per cubic meter(µg/m3) adopted by OEHHA and MPCA. RCS concentrations were so low they could not even be detected on 88 percent of the 2,128 samples taken. These results are similar to the findings of studies by MPCA, which were unable to detect RCS in more than 94 percent of the sample dates, demonstrating industrial sand facilities are not a source of dangerous concentrations of air pollutants.
Another important aspect of the study is the upwind-downwind analysis. By having monitors placed upwind and downwind of the facilities in the directions of the prevailing winds, the researchers were able to establish a baseline for RCS concentrations in the air and determine how much RCS was already present in the air from sources such as farm fields, unpaved roads and construction sites, as well as how much was due to the operation of the industrial silica sand facility.
Results from the upwind-downwind analysis showed no difference on a vast majority of sample dates. In fact, there was no detectable difference between the upwind and downwind concentrations on 78 percent of the days during which the winds moved in a consistent and identifiable upwind-to-downwind direction, meaning these facilities contribute very little, if anything, to RCS concentrations in Wisconsin.
Finally, the study found RCS concentrations near frac sand facilities are similar to background concentrations of RCS taken throughout the Upper Midwest. The authors of the study conclude, “These data indicate the exposure to respirable crystalline silica near frac sand producing facilities is the same as exposures in areas throughout this region.”
Though additional sampling evaluating RCS concentrations at the fence lines of other industrial, agricultural and community sources will be helpful in determining ambient crystalline silica sources, this study is good news for those living near silica sand facilities because it means they are not at risk from the exceedingly low concentrations of respirable crystalline silica found at the facilities studied.
An electric truck manufacturer that was awarded $32 million from President Obama’s stimulus program has informed one of its investors that it is on the verge of bankruptcy, if it did not raise $4.5 million by Friday and $10 million by the end of October.
The troubled saga of Smith Electric Vehicles should be particularly sickening for taxpayers because it sprouted out of a similar failed company, of the same name, in Great Britain. Smith, as part of the U.K.-based Tanfield Group, stumbled out of Europe and re-established itself in Kansas City – opportunistically at the time that President Obama was rolling out his plans to “stimulate” the “green” energy sector in early 2009.
More on that momentarily, after a look at Smith’s current desperation. According to reports from investment Web sites in England, Tanfield – which currently holds a 5.8 percent ownership stake – was notified last week that Smith Electric needs an immediate cash infusion.
“[Smith Electric} has limited cash on hand to meet pending obligations,” a statement on Tanfield’s Web site said. “If the Board of Smith fails to raise $4.5 million on or about October 2nd then the company is likely to be forced to seek protection under U.S. bankruptcy laws or close down its operations.”
No news emerged at the end of last week about the status of the company or its fundraising, but in the 6-7 years of its U.S. existence, sales revenues and investment have fallen short of its expenditures. Indeed Smith arrived in Missouri from the U.K. under a cloud.
Selling itself as a manufacturer of electric-powered box trucks (primarily) designed for businesses’ product deliveries in urban settings that require only short routes, Smith landed in Kansas City in January 2009. But that arrival was no splash, but a reboot of Smith-U.K, which had functioned as a subsidiary under Tanfield Group.
The company’s (Tanfield’s) financial picture had tumbled in 2008, after previous fawning over its “Green” electric delivery trucks and praise from authorities such as former Prime Minister Tony Blair. By April that year experienced investors grew concerned, with one commenting to theLondon Telegraph, “There seemed to be no major reason for the shares to sink, as the company’s figures were still good, but suddenly over a few days the price dropped dramatically.”
Later the same month investors wondered if Tanfield was “more hype than reality,” the newspaper reported. Shares had dropped 20 percent in one week, and analysts were troubled by claims that its Smith vehicles were ordered by major customers, which couldn’t be verified. By July 2008 Tanfield’s stock price had “collapsed” (scroll down at link) and was harming other holdings of its founder, Roy Stanley, and his ability to raise funds for his other business ventures. In December 2011 NLPC documented the “circus” nature of the speculative Alternative Investment Market in London, upon which Tanfield was traded.
According to reports in The Telegraph, the London Stock Exchange investigated the company in July 2008 after a “major profits warning” led to the loss of 80 percent of its stock price in less than a day. In the course of one year, the company had lost more than 97 percent of its value, and the hit reverberated to Smith Electric’s suppliers. Tanfield’s accountants are also under investigation (now running five years) by the U.K. Accountancy and Actuarial Discipline Board, which confirmed last week that the inquiry is ongoing.
Upon this foundation, with no track record in the United States, the Obama administration saw fit to award Smith Electric-U.S. millions of dollars from American taxpayers. The Department of Energy granted the company $10 million in August 2009, and an additional $22 million in March 2010, ostensibly for its electric truck “demonstration program” in which it gave subsidies to buyers of its vehicles. Those giveaways to the “customers” turned out to be substantial, as NLPC reported in December 2011, with various grant and tax incentive programs helping offset nearly the entire cost of the trucks.
Alas, all that was insufficient, as Smith Electric at various times has announced new rounds of fundraisings and plans to attempt an initial public offering. A year ago it sold $11 million more in stock and engaged in a scheme to pay $340,000 for a majority stake in a small Colorado company, American Business Services, which ultimately was supposed to help it accomplish a reverse merger in which it would “gain access to capital without attempting an initial public offering,” according to theKansas City Business Journal. Smith would then be able to do so, theoretically, because ABS is traded on something called the “Over the Counter Bulletin Board.” Obviously that scheme didn’t work.
Predictably – at least for those few who knew the history in England – the Smith Electric-U.S. venture has been a bust. Tanfield Group, with its 5.8 percent stake, won’t even pitch in to help save its investment. It was easy to see that the company was completely dependent on taxpayer funding and investment capital, and that there was no demand for its product, despite the “stimulus.”
The report from Tanfield Group last week appears to reflect its last gasps.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.
In today’s edition of The Heartland Daily Podcast, we listen in as Research Fellow Heather Kays appears on the “Freedom Works Show” on Tantalk1340 in Florida with host Paul Molloy. Kays was on to talk about the various education related issues that are taking place around the country.
Kays and Molloy briefly talk about the Vergara lawsuit out of California and its implications, charter school waiting lists in Massachusetts, and anti-charter school rulings out of Washington state.
Socialism is a failed ideology. It was the avant-garde approach to how to do government – in the Twentieth Century. The Soviet Union was the flagship petri dish. That conquered, infiltrated or ingratiated themselves with many other nations – to establish them as additional petri dishes (Hello, Cuba). We certainly now have a large enough, long enough sample set – and the results are in. The system is contaminated – Socialism does not work.
Socialists feebly cry “But they weren’t Socialist – they were Communist.” Which is a distinction with very little difference. Communism is Socialism – with a boot in the neck. The Communist boot is almost always ultimately necessary – because people eventually figure out Socialism stinks on ice. Which is why so many peaceful Socialist experiments end up as Communist totalitarian regimes. See: Orwell, George.
Unfortunately, the vast majority of Americans attend government schools. As Neal Boortz rightly notes: “If you go to a Catholic school – you get a pro-Catholic education. So if you go to a government school – you get a pro-government education.” Our government school system doesn’t teach that Socialism stinks on ice. They have for decades defied decades of evidence – and declared Socialism to be great. (And our colleges are at least as bad – if not worse.)
Ignorance replicated – resonates. Flash forward to today: Avowed Socialist Senator Bernie Sanders is a force in the Democrat presidential primary. Little known factoid: When in the Senate, primary opponent Hillary Clinton was only 0.1% less Left than Sanders. And they were ranked Numbers 15 and 13 respectively in the Democrat caucus – meaning there were a dozen Senators more Left than them. Know why Democrat National Chairman Rep. Debbie Wasserman Schultz (D-FL) can’t distinguish between a Democrat and a Socialist? Because they are indistinguishable.
Speaking of Miss Clinton – behold Robert Reich. Who was a Labor Secretary during her husband’s presidential administration. (What does Reich do now? Teaches college, of course.) Is Reich a Socialist? If it walks and talks like a duck,….
In 2010, he praised the uber-failed ObamaCare – and proposed similar huge government power grabs for just about every other economic sector. Foreshadowing Sanders, he called for a 70%-90% top income tax rate.
Now, Reich thinks uber-failed ObamaCare wasn’t huge-government enough – and demands a government-only single-payer system. He robustly defends Sen. Bernard Sanders (I-VT)’ $18 trillion (at least) in new spending. (Our entire national debt is currently $18.4 trillion.)
Suffice to say, Reich has about the economy very little to say that is of any actual assistance. The amount of Reality totally missed by him and his ilk is always dangerous – but just occasionally, they can be amusing in their blinkered, naif-like naiveté. So it was when Reich for the New York Times recently penned “Big Tech Has Become Way Too Powerful.”
But as has happened before with other forms of property, the most politically influential owners of the new property are doing their utmost to increase their profits by creating monopolies that must eventually be broken up.
The most valuable intellectual properties are platforms so widely used that everyone else has to use them, too. Think of standard operating systems like Microsoft’s Windows or Google’s Android; Google’s search engine; Amazon’s shopping system; and Facebook’s communication network. Google runs two-thirds of all searches in the United States. Amazon sells more than 40 percent of new books. Facebook has nearly 1.5 billion active monthly users worldwide. This is where the money is.
Reich is lambasting some huge Internet players. Threatening them with an eventual government hammer to break them apart. “Government must intervene in the Tech Sector!” he cries.
Well, government recently did intervene in the Tech Sector. In massive, all-encompassing, Reich-like fashion. The Barack Obama Administration just fundamentally transformed (royally messed up) the basic economics of the entire Tech World. It’s called Network Neutrality:
Net Neutrality mandates all electronic bits be treated equally. No website can be treated differently than any other website. No Internet “fast lanes” – where a website can pay more for faster service. Which is about as anti-Reality as any policy ever devised. Your Mom-and-Pop embroidery website is a little different and uses a different amount of bandwidth than does Amazon.com. You shouldn’t have your bandwidth costs equalized with Amazon’s bandwidth costs. Gas stations don’t equalize fuel costs between eighteen-wheelers and Smart Cars. The Post Office doesn’t equalize postage between overnight and snail delivery. In Reality, Amazon should, would and could pay more for the massive bandwidth they use – and the faster speeds they want.
In actuality, Net Neutrality mandates that crony companies like Amazon, Netflix and Google get unequal, MUCH better treatment than do our Mom-and-Pop sites.
Get that? The huge companies Reich is decrying in the Times – just received a HUGE crony boost from Huge Government. This terrible government policy allows them a permanent, mass-transport free-ride. Where was Reich on this terrible government policy? In favor, of course. He was in favor in 2006. And he approved in February when the Obama Administration slammed it down.
But Reich now writes that the huge companies his favored policies heavily favored – are too big and must be broken up. Confused? That’s certainly understandable – because Reich is terminally confused.
This is what happens when government and our Betters try to micromanage the economy. Like it’s controlled by a bunch of levers, and our Betters can lower this one, raise that one – and magically make everything great.
In Reality, the economy is like a long, thin balloon – and when our Betters press on one section, other sections in unanticipated ways bubble and warp. When the government pressure gets too great (like when they mandate banks make too many bad home loans) – the economy pops.
Reich and his ilk dropped Net Neutrality on the economy ballon. And watched an unexpected bubble arise – that benefits the companies Reich says are overly-benefitted and should be broken down. Whiplash-inducing, is it not?
Reich the Wiser couldn’t see that coming? No, because Reich doesn’t understand economics. Or government. Or government’s effects on economics.
Socialism officially doesn’t work. May we please finally stop trying it? And stop listening to those who still think it does?
In today’s edition of The Heartland Daily Podcast, Heartland Science Director Jay Lehr joins managing editor of Environment & Climate News H. Sterling Burnett to discuss the incestuous relationship between the EPA and radical environmental groups.
Lehr explains how the EPA has lost its focus on protecting people and the environment in an anti-capitalist crusade and thus needs to be replaced. Lehr also gives insight into what might occur at the Paris climate conference.
Five presidential candidates, including former Florida governor Jeb Bush (R), support the amendment of federal healthcare regulations and laws to reposition substance abuse addiction as a disease that can be treated, and not a crime.
“But, as The Washington Post reported this weekend, the share of substance abuse treatment patients receiving in-facility care covered by health insurance dropped to 10 percent in 2014, down from 22 percent the previous year.”
According to the paper, Obamacare was supposed to improve access to mental health care for patients. But it has not. Many psychiatrists no longer even accept any form of health insurance, the Post reported today. There are psychotherapies and pharmacotherapies that can help addicts, but most health insurance companies will not pay for the complete treatment regime.
The Obama White House is about to amp-up its propaganda campaign for regulations to combat global warming, as the U.N. climate summit approaches this fall in Paris.
“How is it doing this? By bringing on Thomas Reynolds, ‘a top communications strategist at the Environmental Protection Agency and a seasoned political operative, to a new position dedicated solely to messaging Mr. Obama’s global warming agenda,’” according to The New York Times.
A report in The Daily Caller indicates that Reynolds has pushed EPA regulations for the past two years, and before that, “derived from his experience directing regional media operations for Mr. Obama’s 2012 reelection,” the Times reported. Reynolds spearheaded the EPA’s messaging campaign against coal-fired power plants, raising the ante in the “war on coal.”
There is no way to describe current Federal Reserve policy other than as monetary confusion and misdirection. In a nutshell, Janet Yellen and the other members of the Fed’s Board of Governors have no idea what to do. Do they raise certain interest rates over which they have some direct influence? Do they keep them at their current rock bottom levels, as they have for the last six years?
On the one hand, government measured unemployment levels have fallen from their high of over 10 percent at the depth of the recent recession to 5.1 percent in September 2015.
However, there is an alternative measure of unemployment also calculated by the U.S. Bureau of Labor Statistics. It includes not only those currently unemployed and looking for work during the previous four weeks, but also “discourage workers” who have stopped looking for jobs who would be interested in working if they found a suitable employment; and those who are part-time who would prefer to be employed full-time. If these two additional groups are included, the U.S. unemployment rate is 10 percent, double the headline “official” level of unemployment the administration touts as a “positive” sign of the economy’s recovery.
On the other hand, price inflation as measured by the Consumer Price Index seems to be barely rising. According to the Bureau of Labor Statistics, price inflation in August 2015 was .02 percent higher than twelve months earlier.
Again, however, when food and energy prices are subtracted out of the Consumer Price Index to leave what the government statisticians call “core” inflation, prices in August were 1.8 percent higher than a year ago. Certainly not a “galloping” inflation, but not the nearly zero price inflation rate the highline number suggests, particularly since food prices were up 1.6 percent over the year; the “drag” on measured price inflation was all due to a 15 percent decline in energy prices compared to twelve months earlier.
No Trade-Offs Between Employment and Inflation
If we look at that alternative unemployment rate of 10 percent in conjunction with the “core” price inflation rate of 1.8 percent, what we see is a moderate form of what in the 1970s was called “stagflation”: high unemployment with rising price inflation.
The Federal Reserve could try to nudge up the key interest rates it most directly has influence over, especially the Federal Funds rate at which banks lend to each other overnight, but with the risk of threatening the investment and home mortgage borrowing that it has attempted to “stimulate” through near zero interest rates.
Or the Federal Reserve could continue to keep those interest rates low through a continuation of their moderated “quantitative easing” monetary policy, but with the risk that price inflation (however measured) may start to rise faster than it has, creating the danger of price inflation above their declared target level of two percent a year.
(It should be kept in mind that even the Federal Reserve’s “modest” target rate of two percent annual price inflation would still result in a near 50 percent decrease in the value of every the dollar in our pockets in around 20 years.)
Either way, the old Keynesian notion that you can lower unemployment by accepting a higher rate of price inflation, and vice versa, shows itself to be as illusionary as when it was first touted back in the 1960s as the mechanical macroeconomic policy trade-off between unemployment and price inflation known as the Phillips Curve.
The European Central Bank, by the way, is in its own dilemma. European Union-wide official unemployment continues to hover above 10 percent with a modest price deflation as most recently measured, in spite of that central bank’s own version of “quantitative easing” of nearly $70 billion of new paper money-creation per month since the beginning of 2015.
The Fed Causes Booms and Busts
The only result of these years of monetary expansion and interest rate manipulation is economic instability and distortion. The financial market indices significantly gyrate up and down seemingly every day based on attempted nuanced readings of the latest public statements by any of the Federal Reserve Governors concerning interest rate policy changes.
The house of cards constructed on years of artificially low or zero interest rates in terms of investments undertaken with trillions of dollars of cheap money, as well as home mortgages at manipulated interest costs, hang in the balance again as in previous boom-bust cycles.
Every time the booms turn into busts, the central bankers insist that they have had nothing to do with it. It has been due to “irrational exuberance” in financial markets, or huckster bankers who duped people into taking out loans they could not really afford, or international events beyond a national central bank’s control, or just, well, “bad luck” with things happening in unpredictable ways even under the watchful eyes of the central bank “experts.”
The fact is, the boom-bust cycles that have plagued modern industrial societies for well over a century, including the Great Depression of the 1930s and this most recent “Great Recession,” as it has been dubbed, have not “just happened” or been the result of inherent and inescapable weaknesses in a market economy or capitalist financial markets.
The booms and busts of the business cycle are the result of the very central bank system that government policy-makers and central bankers insist they are there to either prevent or mitigate in its amplitude and duration.
As I explain in my new, recently released book, Monetary Central Planning and the State, published by the Future of Freedom Foundation, central banking suffers from the same political and economic shortcomings as all other forms of central planning.
Monetary Printing Press Plunder
First, placing the control of the monetary system in the hands of the government or a government-created agency such as the U.S. Federal Reserve System opens the door to the temptation of political abuse in many forms. On the one hand, the temptation exists to use the monetary printing press to create the money that covers the expenses of a government’s deficit spending and provides the artificially low interest rates to manipulate the costs of funding the government’s accumulated debt.
On the other hand, a central bank can also be used to “stimulate” employment and production in the service of politicians leading up to an election, to make it seem that those in political power have the magic wand to “create jobs” and better standards of living – what is sometimes referred to as the “political business cycle.”
It also enables pandering to special interest groups wanting sources of below-market rates of interest for loans, as well as the banking institutions themselves that have access to the created credit supplied by the central bank with which they earn interest income that otherwise might not have been there.
Government full or near monopoly control of any resource, asset or institution (such as a central bank) historically has always brought in its wake plunder and privilege for some at others’ expense that would not have been possible in a more open, competitive market setting.
Monetary Central Planning and the Business Cycle
However, even if those who oversee and manage central banks were as “pure” and benevolent as angels only wishing to do good for mankind with no ulterior self-interested motives or temptations, the monetary and banking system would still constantly run the risk of suffering from the same boom-bust cycles that we see in our world today.
That is because central banking is a form of central planning, and as such, manifests the same weaknesses and impossibilities as all centrally planned economic systems. Interest rates are market-generated prices that are meant to coordinate the decisions of savers with those of potential investors, by bringing the two sides of the loan market into balance.
Income-earners make a decision to spend a portion of their earned income on desired consumer goods and to save a portion of that income for planned and possible demands and uses in the future. The real resources that saved portion of their money incomes represent in terms of buying power in the market is transferred to interested and able borrowers; they use that saved portion of other people’s money income to enter the market and demand and purchase resources, raw materials, capital goods (machines,
tools, equipment) and labor services to undertake future-oriented and time-consuming investment projects of various types and lengths that will bring forth goods to be bought and sold in the future.
Interest rates, in other words, serve as the balancing rod to keep in coordinated order the use of scarce resources in society between the production of consumer goods closer to the present and the investments that will bring forth consumer goods further in the future. It is the balancing of resource uses and goods production across time.
Central Banker Hubris vs. Competitive Markets
There is no way to know what are the “correct” coordinating interest rates for different types of loans with differing periods of investment time in relation to people’s decisions to consume and save parts of their income other than to allow free, competitive financial markets to discover through the interactions of supply and demand what the “equilibrium” or market-balancing interest rates should be.
This is, of course, no different than in the case of any other good or service that can be offered on the market. No central planner can replace the competitive market and its free pricing system for integrating and coordinating all the complex knowledge and circumstances of multitudes of millions of suppliers and demanders in an ever-changing world.
And, likewise, it is shear arrogance and naïve hubris for central planners to believe that they do or ever can have the knowledge, wisdom and ability to correctly determine what the quantity of money should be in the economy, what money’s value or purchase power should be over goods and services in the marketplace, or what interest rates would assure that coordinated balance between savings and investments.
Monetary Freedom and Private Competitive Banking
That is why in is time to rethink and challenge the presumption of a need for and superior outcome from the institution of central banking, whether in the United States or anywhere else in the world.
In the twentieth century a group of economists known as members of or sympathizers with the “Austrian School of Economics” challenged the reasoning and rationale behind central banking. Among these leading Austrian economists were Ludwig von Mises and F. A. Hayek.
Though Austrian economists have differed sometimes in their emphases and arguments about the practical workings of a private, competitive free banking system, there is one underlying premise shared by all of them: a completely market-based monetary and banking system would be far superior to historical and current institutional forms of central banking.
Money is, perhaps, the most central and essential, economic good in the market, since it is the generally used medium of exchange to facilitate all transactions entered into by buyers and sellers. It makes smoother and more effective the exchange of goods and services throughout the economy.
Money and Banking is Too Important to Leave to Central Banks
But precisely because of its central role and significance in a complex and ever-changing market economy the supply and control of money is too important to leave in the hands of politicians or their central bank appointees.
They are either too open to the temptations of short-run political purposes in their control of the monetary printing press; or they suffer from what Hayek called a “pretense of knowledge” in presuming that they can ever know more or better than the cumulative knowledge of all the participants of the competitive market as manifested in the prices and interest rates that emerge through the interaction of supply and demand.
Historically, markets – which means all of us in our roles as consumers and productions – determined which commodities were most useful as media of exchange for different types and sizes of transactions. Money was not and need not be a creation or creature of the state, and has most often been commodities such as gold and silver.
Banking as the institutional procedure and process to facilitate and coordinate the decisions of savers and investors emerged out of the market discovery of profitable opportunities in providing intermediary services to minimize the costs of lenders and borrowers directly searching out trading partners for the exchanging of resources and goods across time.
Money Creation as a Tool of Plunder
Governments and their central bank creations usurped market-based monetary and banking systems to serve the plundering purposes of kings, princes, parliaments, and special interest groups who all wanted to hold the magical hand of the monetary printing press.
Print up money (or its digital substitutes and surrogates in more modern times) and you can have access to all the hard work of others who have invested in manufacturing and bringing to market all the goods and services you desire without having to undertake the reciprocal effort and work to make and trade an actual good or service to earn the money so as to honestly buy what you want from them. Some are so impolite as to refer to such monetary mischief as “fraud” and “theft.”
Added to this more “base” purpose of government monopolization of the monetary printing press, has been, over the last one hundred years, the arrogance and hubris of social engineers, bureaucratic elites of “experts” and “socially-oriented” policy-makers who presume to know how to micro-manage and macro-manage society better than leaving people to manage their own lives through peaceful interaction with others in the competitive marketplace.
Their century-long legacy in the arena of money and banking has been the booms and busts of the business cycle. The monetary social engineers have worn different hats at different times – calling themselves Keynesians, Monetarists, New Classical or Rational Expectations theories, or Post- and New Keynesians – but they remain variations on the same conceptual and ideological theme: monetary central planners imposing their notions of desired market outcomes by co-opting the functioning of a real and functioning market-based competitive system of free banking using market-chosen media of exchange.
The time has come to end the tragic and disruptive reign of monetary central planning.
In this episode of the weekly Budget & Tax News podcast, managing editor Jesse Hathaway takes a leap into the Final Frontier, talking with Texas Tech University economics professor Alex Salter about how current international legal policy and basic economics are causing a potentially deadly problem in the skies: space junk.
Too large to burn up and too small to be tracked, the danger of space junk in Earth orbit is caused by the lack of an economic incentive to clean up things like inoperative satellites or spent rocket casings, and outdated and ineffective extraterrestrial property laws remove the incentive for private companies to clean up orbits.
Instead of leaving the problem for nation-states to deal with on their own, at taxpayer expense, Salter proposes “renting” the right to clean orbits of valuable recyclable ore to private companies, creating a private-public partnership (P3) that’s truly out of this world!
In just two months, politicians and activists from all over the planet will begin the “most critical phase of the 2015 United Nations climate change conference in Paris,” according to a report published online by Deutsche Welle, the international, German-language broadcaster. Yesterday, the co-chairs of the ad hoc working group on the Durban platform (ADP) – the bureaucratic entitity tasked with negotiating the terms of the agreement – “submitted a first draft for the treaty text, which contains the basis for negotiation of the Paris climate package,” the news service reported.
The Paris summit is poised to adopt a framework directing governments around the globe as to how to manage climate change. “All member countries of the UN Framework Convention on Climate Change (UNFCCC) were asked to submit their emission reduction targets ( Intended Nationally Determined Contributions, INDCs ) for 2025 and 2030. An informal deadline passed October 1. Until now, the UNFCCC has received responses from 146 countries, or three-quarters of all member countries,” the news service reported.
A UNFCCC’s spokesperson, Nick Nuttall, told DW: “It is a really good number of countries with wide geographical spread. We have the major emitters, all the industry countries and big developing countries. While more will come in, it won’t make a significant difference.”
Still, many progressives worry, the report added, that global temperatures will continue to rise even if all of the political agreements are followed this fall to reduce carbon emissions.
The legislators in Raleigh recently took a step to lower North Carolinian’s tax bill.
At the end of midnight marathon session of the North Carolina House of Representatives, the House passed a compromise budget bill funding the government for the coming fiscal year. One of the provisions of the bill ends North Carolina’s generous 35 percent tax credit solar or other renewable energy projects. One project alone, the Desert Wind Project, if completed would cost North Carolina taxpayers more than $140 million to produce energy for out of state customers. Iberdrola, the Spanish company that owns Desert Wind, gets more subsidies from U.S. taxpayers than any other renewable energy company in the world, yet investors fear it is on the edge of financial collapse while it is simultaneously the subject of several federal investigations. There is no good reason for North Carolinians to throw more good money after bad.
Until the legislature ended this credit, North Carolinians had been forced to pay twice to prop up the state’s renewable energy lobby: once in the form of the tax credit and again for higher electric bills as a result the state’s renewable power mandate.
Unfortunately, having dealt with the first issue, the legislature failed to end a second source of the higher prices state residents and businesses pay for energy. HB 332 was not allowed an up or down vote in the Senate despite passing out of committee. In the debate over HB 322, according to WRAL, Republican State Sen. Bill Cook (Beaufort) said “It sounds like you’ve got one camp that’s real interested in promoting the wind and solar industry and another camp that’s interested in trying to save the rate-payers.” I couldn’t have said it better myself.
Some in the Senate evidently thought it was more important to cater to green special interests desires for unearned profits rather than put North Carolinians needs for affordable, reliable energy first.
HB 332, would have had North Carolina follow Ohio’s lead and freeze the state’s renewable energy mandate at its current level of six percent. Absent the freeze, utilities will be required to increase the amount of renewable energy they provide to 10% in 2018 and 12.5% in 2021. The bill would also reduce the guaranteed market for renewables by requiring utilities pay a standard rate for power from small renewable power generators.
The case for freezing the mandate, or even better, repealing it entirely as West Virginia and Kansas both did earlier this year, comes down to money. Renewable energy, like wind and solar power, costs more in part because it is not not available 100 percent of the time as are conventional fuel sources, thus you have extra costs associated to provide backup energy by traditional power sources when wind and solar drop off line, or as the power they supply fluctuates. Both problems are common.
Higher energy costs hit low-income households the hardest, as they must spend a larger share of their monthly income on utility bills than do higher middle- and upper income households.
What impact has six percent renewable mandate had on North Carolina? A lot! Earlier this year, Utah State University’s Institute of Political Economy estimated North Carolina residential ratepayers paid slightly more than $3,800 for a typical household in North Carolina in 2013 alone because of the renewable mandates. The study further concluded higher energy costs to commercial and industrial ratepayers has discouraged investment, already costing the state 24,000 jobs and $14.4 billion in personal income.
And it’s not just North Carolina as studies consistently show states with renewable power mandates have seen their energy costs rise higher and faster than states lacking such market interventions.
State Rep. Mike Hager (R-Rutherfordton), the sponsor of the bill in the House testified before the Senate Commerce committee the bill was about helping the poor, saying, “What we’re trying to do on that is protect those folks in each of your districts that can least afford to pay more on their power bills.”
Like all legislative mandates and tax credits for specific industries, the renewable tax credits which will now die, and the renewable mandate, which should be killed, distort the market. They are a form of welfare for the well-to-do, giving big bucks to politically connected renewable energy producers who know how to game the system. They, in turn, fund environmental groups and hire lobbyists to ensure the revenue stream continues flowing. Absent tax breaks and mandates wind and solar boondoggles just can’t survive, except for niche applications for the very rich, who don’t need such subsidies.
While HB 332 died in North Carolina’s Senate, in Ohio, the legislative committee established by the law freezing its renewable energy mandate until 2017 recommended maintaining the freeze indefinitely. The committee recognized that, if anything, the justification for freezing the mandate had become even stronger since it went into effect.
A study of the impact of Ohio’s renewable mandate by the same Utah State University think tank that examined the cost renewable energy to the state’s economy and residents found Ohio’s renewable mandate will cost electricity customers up to $1.92 billion between now and 2026.
In a news release announcing the study’s release, Ryan Yonk, one of the study’s authors said, “This study, one of the strongest and most widely examined ever conducted on RPS, shows there is significant evidence to suggest RPS mandates were not helping local economies. Rather, they were causing economic damage to families and businesses.”
The study reports Ohio’s renewable mandate will reduce personal income by $258 million between now and 2026. Ohioans can expect to receive approximately $3,800 less per household than households in states without a renewable mandate. In addition, the RPS could result in a loss of nearly 3,600 jobs.
This uncontroverted evidence led the Energy Mandates Study Committee to its decision to recommend extending the freeze indefinitely.
Oddly, Gov. John Kasich (R), who signed the earlier freeze, has come out against the Committee’s recommendation. Perhaps, Kasich’s presidential ambitions have overcome his concern for Ohio’s ratepayers and businesses – maybe he’s trying to win the vote of moderate Republicans and independents who consider a candidates views on the environment as important when they vote.
The reason most often cited for the success of the nonpolitical candidates is the frustration with Washington; the sense that the system is broken. Voters feel that we have no control and that government has gone wild. Even people who don’t watch the news or closely follow politics are aware of the “overreach.” It seems that, perhaps, the messages the outsiders have been heralding on the trail has caught on.
Washington’s overreach has been rolled back—by courts and commissioners and, even, in response, the government itself. In little more than 30 days, there have been five distinct cases that you may have missed—each, a victory for responsible land use.
First was WOTUS, or the Waters of the U.S. rule—which was scheduled for full implementation on, Friday, August 28. WOTUS attempted to greatly expand the federal government’s authority over water and land and could apply to ditches, streams, wetlands and small isolated bodies of water. Late on Thursday, August 27, U.S. District Judge Ralph Erickson issued a temporary injunction sought by North Dakota and 12 other states. In his decision, Erickson wrote: “Once the rule takes effect, the states will lose their sovereignty over interstate waters that will then be subject to the scope of the Clean Water Act.” Calling the rule “arbitrary and capricious,” he declared that the EPA “violated its congressional grant of authority in its promulgation of the rule.”
Undaunted, the Environmental Protection Agency (EPA) pushed back, stating that the rule only applied to the thirteen states that requested the injunction. For the remaining 37 states, the EPA is enforcing the regulation as planned. At least 10 lawsuits—including 29 states and 14 agricultural and industry organizations—have been filed in federal district court challenging the rule.
Constitutional and environmental law professor, Jonathan H. Adler, addressed WOTUS in the Washington Post, saying: “As a general matter (and as the Supreme Court has recognized) land-use control is generally beyond the scope of federal power. In this case, the district court concluded that the states were likely to succeed on the merits as the EPA had adopted an ‘exceptionally expansive’ view of its own jurisdiction under the CWA.”
Perhaps, as you’ll see, if the WOTUS deadline was a month later, the EPA may not have been so bold in its assertion that it would continue to enforce the rule. But, then again, this is the Obama EPA.
Lesser Prairie Chicken
Once again, a federal agency has been acting “arbitrarily and capriciously.” This time, it is the U.S. Fish and Wildlife Service (FWS). On September 2, U.S. District Judge Robert A. Junell overturned the Obama administration’s 2014 listing of the lesser prairie chicken (LPC) as a threatened species, which gave the bird protection under the Endangered Species Act (ESA) and limited land use in five states.
Citing the “more than 180 oil and gas, pipeline, electric transmission and wind energy companies” that had enrolled in voluntary conservation plans, The Permian Basin Petroleum Association challenged the listing, as soon as it was finalized.
The FWS is required to consider the conservation plans. The court determined that FWS “did not properly consider active conservation efforts for the bird when listing it.” Junell wrote: “The Court finds FWS did conduct an analysis, however this analysis was neither ‘rigorous’ nor valid as FWS failed to consider important questions and material information necessary to make a proper evaluation.”
Addressing the LPC decision, The National Law Review, states: the “ruling raises important questions about the upcoming Service decision whether to list the greater sage-grouse under the ESA. A sage-grouse decision was due on September 30.
Representative Rob Bishop (R-UT), Chairman of the House Natural Resources Committee, sees that the FWS “has been illegally steam rolling states by their own secret rules.” He added: “The Obama administration has been merciless in its quest to list species—even when the science says otherwise.”
Hydraulic Fracturing Rule
On September 30, another federal district court judge smacked down another federal agency—this time the Interior Department’s Bureau of Land Management (BLM), which, in March, issued federal fracking rules designed to spur states to follow suit (most energy-producing states already regulate fracking). BloombergBusiness states: “There are more than 100,000 wells on federal land making up 11 percent of the nation’s natural gas production and five percent of its oil.” The rule, if implemented and adopted by states, as hoped for by the administration, would magnify the impact, “potentially slowing development of oil and natural gas resources”—which is likely the goal. As a result, BloombergBusiness adds, producers “would have faced higher costs at a time when profits already are strangled by low crude prices.”
In his 54-page decision, Wyoming’s U.S. District Judge Scott Skavdahl wrote: “Congress has not authorized or delegated the BLM authority to regulate hydraulic fracturing and, under our constitutional structure, it is only through congressional action that the BLM can acquire this authority.” He issued a preliminary injunction barring implementation of the rules, “finding that those suing had a good chance of winning their case and getting a permanent order barring enforcement.”
Different from the EPA’s arrogant decision to move forward with implementing WOTUS, a BLM spokeswoman, according to the Wall Street Journal, said: “While the matter is being resolved, the BLM will follow the Court’s order and will continue to process applications for permit to drill and inspect wells sites under its pre-existing regulations.”
Kathleen Sgamma, vice president of government and public affairs at Western Energy Alliance, a party to the lawsuit against the government, is overjoyed to finally be “getting relief from the courts regarding the regulatory overreach of the Obama administration.” She added: “We hope the BLM, EPA and other agencies that are rushing to implement even more regulations on the very businesses that create jobs will pause and actually follow the law and regulatory procedure.”
“The case will proceed to a final resolution,” BloombergBusiness reports, “probably early next year.”
Ranchers in and around New Mexico’s Gila Forest have been fighting the federal government’s plan to release “another dozen or so Mexican grey wolves.” Already, in the region, wolves since their introduction in 1998 have killed livestock, and children waiting for the school bus often do so in cages for protection. I’ve written on the sad tale several times.
On September 29, in a 7-0 vote, concerned about the impact to ranchers and elk hunters, the New Mexico Game Commission upheld an earlier decision denying the FWS permits to release Mexican wolves into federal land in southwestern New Mexico.
“Federal policy requires FWS to consult state agencies and comply with their permitting processes when releasing endangered animals from captivity,” Science Magazine reports, “even when releases are made on federal land.”
In June, according the Santa Fe New Mexican, “New Mexico Game and Fish Department Director Alexandra Sandoval rejected a federal permit for the Mexican wolf program because she said the FWS lacked a detailed plan to release up to ten captive wolves in the Gila National Forest, leaving her without enough information on what effects the predators would have on deer and elk populations.”
In response to the decision, Game Commissioner Elizabeth Ryan of Roswell, NM, said she and her colleagues could only overturn the director’s decision on the wolf permit if they found it “arbitrary and capricious.”
This string of recent decisions may have been noticed by the Obama administration. On September 22, after years of debate, and after the LPC listing was overturned, Department of Interior (DOI) Secretary Sally Jewell announced that the sage grouse would not be listed under ESA. The Washington Post reports that “the chicken-like grouse does not meet the required standard because a collaboration of federal agencies, states, ranchers, industry and environmental groups has already begun to restore areas where it breeds.” “According to state fish and game agencies,” Kent Holsinger, a Colorado attorney specializing in lands, wildlife and water law, told me: “sage grouse populations have risen 63 percent over the past two springs.”
An ESA listing would “significantly limit future development.”
The ESA, Brian Seasholes, director of the endangered species program at the Reason Foundation, states: “has a well-deserved reputation for putting severe restrictions on otherwise normal and legal forms of land and resource use, such as farming and energy development.” In an op-ed in The Hill, he adds: “When a species is listed under ESA, landowners can face steep fines, penalties and land use controls that can devalue their property.”
While environmental groups see the decision as a victory for “industry and its supporters,” others, such as Utah Governor Gary Herbert—who estimated Utah would lose more than $40 billion in economic production from oil and gas if the sage grouse were listed—are still not happy.
Rather than listing the sage grouse—which would likely be overturned in court—the DOI’s BLM has released a plan to implement more than 90 land use strategies. Herbert sees that the federal government rejected the successful sage-grouse conservation plan and says the land use plans that govern use of over 60 million acres of federal land “constitute the equivalent of a listing decision outside the normal process.” He calls the plans “a significant overreach by the federal government.” Bishop agrees: “Do not be fooled. The announcement not to list the sage-grouse is a cynical ploy… With the stroke of a pen, the Obama Administration’s oppressive land management plan is the same as a listing.” The land-use restrictions have been decried as “every bit as rigid as could be expected under ESA.”
While “the West’s sage-grouse worries are far from over,” I see that, when combined with the aforementioned stories, the unwarranted decision is still welcome news. Land-use plans will be easier to revise under a new administration than removing an ESA listing. But, more importantly, I view it as a recognition that big government overreach has reached its limits.
The good news about having so many reform-minded outsiders running for president is that they are like a band of crusaders spreading the message of big government overreach far and wide. That message is, apparently, being heard. Voters are, hopefully, ready for responsible land use. The tide is being rolled back.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column. Follow her @EnergyRabbit.
Heartland Daily Podcast – Dr. Merrill Matthews: Hillary Clinton’s Plan Makes Prescription Drugs More Expensive
In today’s edition of the Heartland Daily Podcast, Dr. Merrill Matthews, a resident scholar with the Institute for Policy Innovation, a research-based, public policy think tank in the Dallas area, joins managing editor Kenneth Artz to discuss Hillary Clinton’s plan to make prescription drugs even more expensive.
Hillary Clinton, Democratic presidential candidate, announced in September her plan to introduce price controls on prescription drugs. Immediately the biotechnology and health care sectors tanked, as investors fled those industries, taking billions of dollars of capital with them.
But she wasn’t through. Right after telling us she wants price controls on prescription drugs, she turned to health insurance, doubling-down on Obamacare. Matthews says both these prescriptions are the wrong tonic for curing what’s wrong with the American health care system.
New research has emerged showing the world’s oceans are cooling the planet by emitting vast amounts of volatile organic compounds (VOCs) into the atmosphere. These VOCs are not presently accounted for by climate models and may explain in part or in whole the growing gap between the temperatures predicted by the models and those actually measured by satellites, weather balloons, and surface temperature stations.
The VOC isoprene, which like all VOCs tends to cool the planet, has long been known to be produced by plants and trees on land and plankton in the sea. Now, atmospheric chemists from France and Germany have discovered huge amounts of isoprene are also produced in the “microlayer” at the top of the ocean by sunlight acting directly on floating chemicals – no life being necessary. Global models presently assume total emissions of isoprene from all life-form sources – trees, plants, plankton – of around 1.9 megatons per year. The new research shows “abiotic” processes occurring in the oceans release as much as 3.5 megatons on their own.
A new form of informant is emerging in politically correct California — the “water rat.” The water rat is a person who dials “311” to report that a neighbor is wasting water in Los Angeles, or who files a complaint on the other residents of their street at savewater.ca.gov, the government’s informant tip site. The informants are creating a wave of anxiety in Hollywood, according to a report in The Hollywood Reporter. “I called the DPW (Department of Public Works) and told them there was a hose draining a huge amount of water from someone’s driveway,” the trade paper reported, of comments made by a tipster. “The water waste stopped the next day. I still check every day. It’s been more than a month, and I do feel it was due to me.”
During the month of May 2015, alone, 29,000 Californians informed on their neighbors about suspected water use violations in the drought-stricken state. Use of too much water is considered, today, in LA, an obscene form of demonstration of wealth, and is not socially acceptable for movie stars, movie producers, or executives in related industries.
To reduce their chances of being busted by the water police, wealthy Californians are planting “drought-tolerant” fruit trees, like pomegranates; figs; feijoa; and the pineapple guava. They are also adding gravel gardens, desertscapes, and California native plantings, according to the trade weekly.
The world has changed. Although few yet understand it, the revolution in the production of oil and natural gas from shale has altered the course of global energy, affecting most of the world’s people. This is not a short-term event. Citizens, industries and nations will be impacted for decades to come.
We are witnessing a modern energy miracle. For more than 30 years, U.S. crude oil production fell from 9.6 million barrels per day in 1970 to 5 million barrels per day in 2008. Oil production, an annual $200 billion industry, was in long-term decline. Industry experts proclaimed that we had reached “peak oil” and that world oil output would soon fall. But beginning in 2008, U.S. production soared, again reaching 9.6 million barrels in June of this year, recovering all of a 30-year decline in just seven short years.
For more than a century, geologists searched for pockets of oil and gas between rock layers. But by using the technological advances of hydraulic fracturing, or fracking, and horizontal drilling, geologists learned how to squeeze oil and gas out of the rock itself. Shale is a common rock formation that covers large areas in the U.S. and other nations. In a 2013 study, the Energy Information Administration concluded, “the world shale oil and shale gas resource is vast.” The shale revolution has opened additional centuries of low-cost hydrocarbon resources to modern society.
On the world stage, the most obvious shale shock impact is the precipitous drop in world oil price. The price of a barrel of West Texas crude dropped from $106 in July 2014 to $53 in January of this year. Prices have now fallen to under $45 per barrel, a level not seen since 2009. Our current $2.50 price for a gallon of gasoline is a direct result.
For the first time in four decades, the world market price for petroleum is determined by competition. The Organization of Petroleum Exporting Countries (OPEC) can no longer dictate the price of crude oil by restricting production. Small firms that led the shale revolution, such as Baker Hughes, Cabot Oil & Gas, and Range Resources, now have the ability to quickly ramp or reduce production from shale fields, depending on market price. Big oil firms like ExxonMobil and BP are reacting to the shale shock along with everyone else.
It appears that low oil prices are the new normal. In the shale fields, oil production per drilling rig has increased 500 percent in the last seven years. Energy expert Mark Mills of the Manhattan Institute estimates that the fracker cost will soon drop to $20 per barrel, on par with the low-cost oil fields of Saudi Arabia.
The geopolitical implications of the shale shock are huge. Low oil prices have crippled the economies of oil-baron nations Venezuela and Nigeria. Food and medicine shortages are rampant in Venezuela, and prices are soaring. Oil provides 80 percent of the government revenue of Nigeria, where low prices have forced budget cuts and stimulated civil unrest. In Russia, oil and gas account for over 50 percent of the national budget and 75 percent of export revenue. The Russian ruble has weakened to 71 rubles per dollar, halved in value over the last year.
On the positive side, affordable prices are great for consumers and the world’s poor. Lower oil prices are reflected not only in energy but also in transported food and consumer goods. Low prices are boosting the economies of nations not dependent upon hydrocarbon production.
The anti-fossil fuel environmental movement is in despair. For decades, proponents of the ideology of sustainable development preached that humanity was running out of oil and gas, that consumption of hydrocarbons was destroying the climate and that renewable energy was rapidly becoming a cost-effective alternative. But the shale shock has slain peak oil and promises low-cost oil and gas for centuries to come.
Oil and gas from shale will provide irresistible pressure for global carbon dioxide emissions to increase. Environmental groups are engaged in an all-out effort to stop fracking, but these efforts will ultimately fail. The world’s one billion automobiles today will double to two billion in the next 40 years, buoyed by inexpensive hydrocarbon vehicle fuel.
Electric cars and biofuels are already being impacted. US sales of hybrid and plug-in electric vehicles fell 15 percent in the first half of 2015 compared to last year. Ethanol vehicle fuel, an alternative when gasoline was priced at $4 per gallon, is no longer competitive.
Natural gas from the shale revolution provides a tremendous advantage for our nation. U.S. natural gas prices are one-half those of Europe and one-third those of Japan. Inexpensive gas now powers a growing number of power plants, keeping U.S. electricity prices low. Global chemical producers are relocating to the U.S. to use low-cost ethane feedstock from natural gas.
The shale industry will provide a U.S. competitive advantage for many years. More than two billion well-feet of horizontal shaft have been drilled in the U.S. over the last 20 years, a distance equal to 15 times around Earth. Fracturing is just starting in China, Argentina and the United Kingdom, but such efforts are more than a decade behind.
The shale shock is a tribute to U.S. hydrocarbon geologists and to human ingenuity. Dozens of small companies perfected hydraulic fracturing, launched the shale revolution and changed the world. As the late economist Julian Simon pointed out, the greatest resource of mankind is not material in the ground, but the ingenuity of people operating in a free society.
This year, coinciding with All Hallows’ Eve, U.S. House of Representatives Speaker John Boehner (R-OH) is retiring, ending a quarter-century career in Congress, which was capped by successfully organizing a historic papal speech to both houses of Congress.
With Boehner’s resignation, the Export-Import Bank (Ex-Im) is effectively dead and buried, and lawmakers jockeying to take up his mantle should commit to keeping the zombie crony-capitalist program six feet under.
Boehner was the only member of House leadership supporting the reauthorization of the Export-Import Bank, a government agency created by President Franklin Delano Roosevelt in 1934 “to remove obstacles to the free flow of interstate and foreign commerce which tend to diminish the amount thereof” and “to reduce and relieve unemployment, to improve standards of labor, and otherwise to rehabilitate industry.”
Ex-Im provided a mechanism for using taxpayer money to guarantee loans to domestic businesses unwilling or unable to obtain loans for exporting goods. Congress rightly opted to allow Ex-Im’s charter to expire at the end of June, which it should have done decades earlier. A bipartisan team of Senate leaders had voted to raise Ex-Im from the dead and reauthorize it as a rider in an unrelated spending bill, but House leaders refused to take up the bill, favoring their own spending bill and leaving Ex-Im to expire on June 30.
In April, Boehner warned of dire repercussions if Congress did not reauthorize the Great Depression-era corporate welfare program, telling reporters, “There are thousands of jobs on the line that would disappear pretty quickly if the Ex-Im Bank were to disappear.”
Nearly three months after Ex-Im’s corpse was laid to rest, the spirit of Ex-Im job loss has yet to materialize, like the subject of a failed All Hallows’ Eve séance.
In September, General Electric (GE) executives claimed forcing GE to seek private financing of export loans resulted in 400 jobs being outsourced to France, but that isn’t what happened in the real world.
As reported by the Washington Examiner, GE had planned to move those jobs, which do not currently exist, to France as early as 2014. GE committed, in writing, to exporting those jobs, as a deal sweetener, swaying French regulators to approve a then-pending purchase of Alstom, a French power generation company.
So GE was planning to move U.S. jobs overseas despite receiving a huge amount of Ex-Im encouragement to keep them here. According to research conducted by Mercatus Center Senior Research Fellow Veronique de Rugy, GE was one of Ex-Im’s biggest beneficiaries, receiving a total of $2.6 billion in financial assistance from U.S. taxpayers.
Not only did Ex-Im fail to prevent GE from moving jobs overseas, the program doesn’t create jobs.
According to a 2011 American Action Fund study of Ex-Im’s economic effects, “For the economy as a whole, export financing merely redistributes jobs across the economy, rather than create more overall jobs.”
After Boehner enters retirement, his replacement should continue to treat taxpayers by resisting the urge to breathe life into Ex-Im’s dusty old bones. Ex-Im is a dead idea, and it should be allowed to rest in peace in the graveyard of failed government interventions.
In his 1998 State of the State address, Ohio Governor George Voinovich (R) famously referred to Medicaid spending as the “Pac-Man” of entitlement spending, noting how it ends up “gobbling up ever larger portions” of government funds.
By following through on entitlement reforms started in the 1990s, Congress can defuse a ticking entitlement-spending time bomb and allow states to lead the way on holding costs down and better serving taxpayers.
According to estimates from the Congressional Budget Office (CBO), the national deficit will exceed $1.088 trillion, or roughly $8,369 per U.S. household, by 2025. Much of the growth in the deficit will come from increases in major health care program costs, including Medicaid.
In 2014, $3 of every $20 spent by the federal government was spent on Medicaid. Over the next decade, CBO predicts, Medicaid spending will increase by 87 percent, ballooning from about $952.86 for every man, woman, and child in the United States in 2014 to about $1,635.77 per capita in 2024.
Block grants are a time-tested solution to the problem of skyrocketing Medicaid spending.
In the 1990s, increasing welfare costs kept federal lawmakers up at night, so Congress and President Bill Clinton worked together to transform welfare from a top-down federal program into a more efficient state-administered program.
In 1996, Congress replaced the old and busted Aid to Families with Dependent Children program with Temporary Assistance for Needy Families, allowing states to take charge of their own destinies and conform welfare to their particular circumstances. As states tailored their programs to suit their individual needs, the overall costs of entitlement programs fell and the quality of service increased.
At the time, lawmakers seriously considered including Medicaid block-grants in the reform bill that ultimately became the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). In early 1996, Clinton was open to including Medicaid in the reforms, as recounted by Peter Edelman, an anti-reform advisor to the president.
In a 1997 article for The Atlantic, Edelman, who opposed PRWORA so much that he quit his job after Clinton signed it, wrote, “When the governors came to town for their winter meetings early last year, the President invited them to draft and submit new proposals on welfare and, for that matter, Medicaid.”
Medicaid is fundamentally broken because of how it was designed. New York, a state with about 6.2 percent of the nation’s population, sucked up 12.4 percent of all federal Medicaid money in 2014. As that fact indicates, Medicaid has powerful incentives for high spending by states like New York that can afford it. The more a state spends other people’s money, the more of other people’s money it gets.
Finishing the work Congress and Clinton started with PRWORA would empower states to improve Medicaid with new ideas such as global spending caps, health savings accounts, and program budget rebalancing. Cost overruns would be discouraged, as state lawmakers would face pressure from taxpayers to avoid mismanagement and optimize for efficiency.
It’s urgent for Congress to build on the work it started more than 20 years ago and block-grant the “Pac-Man” Medicaid monster before it gobbles up an even bigger proportion of cash-strapped state budgets.