south park

In Offense of Ben Bernanke, Part III: Bernanke, Blinder, and Underpants Gnomes

by Alex Schibuola on December 14, 2010

in Economy

Part I: The Fed is Competent?
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Professor Blinder writes:

Here’s the first Economics 101 question: When central banks seek to stimulate their economies, how do they normally do it? If you answered, ‘by lowering short-term interest rates,’ you get half credit. For full credit, you must explain how: They create new bank reserves to purchase short-term government securities (in the U.S., that’s mostly Treasury bills). Yes, they print money. [Italics added]

But short-term rates are practically zero in the U.S. now, so the Fed wants to push down medium- and long-term interest rates instead. How? You guessed it: by creating new bank reserves to purchase medium- and long-term government securities.

I’m afraid that’s only partial credit, though. What the Federal Reserve has yet to elaborate on is why this “stimulates” the economy. You should know, Professor Blinder, that investment appears to be interest-rate inelastic. You wrote this in your journal article, “Is There a Core of Macroeconomics That We Should All Believe?”

The claim that QE2 is supposed to “stimulate the economy” bothers me. For those of you who watch the TV show, South Park, it reminds me of the underpants gnomes episode. The gnomes collect underpants and give the following explanation for why:

Underpants Gnomes:

Phase 1: Collect underpants.

Phase 2: ???

Phase 3: Profit!

Bernanke and Blinder:

Phase 1: QE2.

Phase 2: ???

Phase 3: Economic recovery!

I still want a better explanation for Phase 2… from the Fed. They say they want to be clear and explain their thinking, but I have yet to hear an explanation other than that.

If you want a more sane explanation for QE2: one could point out that many of the Fed’s current assets are maturing. This means that cash will be flowing back into the Fed and they want it out. Thus, the Fed is trying to keep its balance sheet steady rather than expand it per se.

I surmise that they intend to raise the opportunity cost of holding Treasuries, thus making private sector debt and equities relatively more enticing to hold. Then banks go back to private lending, commercial paper, corporate bonds, etc., and investment expands. So it looks like the people at the Fed have discovered a free lunch. But as ECON101 teaches us, Professor Blinder, There ain’t no such thing as a free lunch!

Will Grading Cars Dispell or Enhance “MPG Illusion”?

by Marlo Lewis on September 2, 2010 · 2 comments

in Global Warming, Mobility

As discussed in my recent post “Obama’s EPA: School Marms R Us,” EPA and the National Highway Traffic Safety Administration (NTSHA) are proposing to revise the mandatory fuel economy label or “sticker” affixed to new cars to include letter grades based on the car’s fuel economy and carbon dioxide (CO2) emissions. Electric vehicles and plug-in hybrids would get an A+; the biggest, heaviest, gas guzzling SUVs would get a D.

To view the current sticker, click here. To see what the tut-tutting scolds at EPA and NHTSA want to replace it with, click here.

 Among other rationales for the new sticker design, the agencies claim that adding letter grades will help consumers make smarter purchases by combating something called the “MPG Illusion.”

The MPG Illusion refers to the common misperception that fuel savings from mpg increases are linear. People often assume that each additional 1 mile per gallon increase in a vehicle’s fuel economy reduces fuel consumption and gasoline expenditures by the same amount. Hence, some may conclude, if they can’t afford (or simply don’t want) a Toyota Prius, Chevy Volt, or some other high-mpg vehicle, there’s no point in buying a car with only modestly better fuel economy than their current vehicle. In reality, fuel consumption avoided and dollars saved decrease as mpg increases. Which is to say, the biggest fuel savings come from modest fuel-economy improvements in the lowest mpg vehicles. Some hypothetical (indeed fanciful) examples will make this crystal clear.

Suppose that your current car gets only 1 mile per gallon, you drive 100 miles per week, and gasoline costs $3.00 per gallon. This means you consume 100 gallons and spend $300.00 per week. If you replace that car with a 2 mpg vehicle, you’ll consume 50 gallons and save $150.00 per week. At the very bottom end of the scale, even a 1 mpg increase in fuel economy yields big savings.

Suppose now that your current car gets 99 mpg, you drive 100 miles per week, and gas costs $3.00. This means you consume 1.01 gallons and spend $3.03 per week. If you replace that car with a 100 mpg vehicle, you’ll consume 1 gallon and save 3 cents per week. At the very top of the fuel economy scale, the fuel and cost savings from an extra 1 mpg are negligible.

Turning to more realistic examples, EPA and NTSHA calculate (p. 28) that replacing a 10 mpg vehicle with a 15 mgp vehicle saves 33 gallons of gas for every 1000 miles driven whereas replacing a 30 mpg vehicle with a 35 mpg vehicle saves only an additional 5 gallons of gas for every 1000 miles driven. The same increase in fuel economy — in this case, an extra 5 mpg – saves more than six times as much fuel if the vehicle replaced gets 10 mpg rather than 30 mpg.

Professors Rick Larrick and Jack Soll of Princeton University put the MPG Illusion on the map when they published an article about it in Science magazine. They clearly explain the basic arithmetic in this Youtube video. Their illustrative case assumes a motorist who drives 100 miles per week. If the motorist has a 10 mpg vehicle and switches to a 20 mpg vehicle, he’ll cut his weekly fuel consumption from 10 gallons to 5 gallons — a savings of 5 gallons. If the motorist has a 25 mpg vehicle and switches to a 50 mpg  vehicle, he’ll cut his weekly fuel consumption from 4 gallons to 2 gallons — a savings of only 2 gallons.

“The key insight,” says Larrick, “is that improving inefficient cars, that have low mpgs, by even low mpg increases, saves a lot of gas.” Soll elaborates: “If you’re comparing two vehicles, one that gets 12 miles per gallon and the other that gets 15 miles per gallon, if you drive 10,000 miles in a year, you’ve saved about 170 gallons of gas [in the 15 mpg vehicle], and that comes out to be about $700.00 at $4.00 a gallon. So this [savings] is a significant amount even though the jump from 12 to 15 [mpg] may look pretty small.”

To counter the MPG Illusion, Larrick and Soll advise policymakers to express fuel economy in terms of the amount of fuel consumed per unit of distance traveled. Expressing fuel economy in the conventional way, as miles per gallon, leads people to “undervalue small improvements on inefficient vehicles” and “underestimate the value of removing the most fuel inefficient vehicles,” the researchers argue in Science magazine.

This, of course, is music to the ears of the anti-SUV crowd. Greenies would love to believe that the market for SUVs is sustained by an “illusion.” Because if that is so, then EPA and NHTSA can depress SUV sales just by making simple changes in how fuel-economy information is presented — just by redesigning the sticker! 

Years of SUV-bashing, fuel-economy prosyletizing, climate-change scaremongering, and high gasoline prices have failed to kill SUV sales. Could that have something to do with the attributes of the vehicles — their size, safety, and utility? I mean, there are objective differences between SUVs and cars greenies insist are “smart.” Just have a look! Nothing illusory about that.

If the MPG Illusion has anything to do with SUV sales, then you gotta ask: Who’s responsible for foisting the illusion on the public? Answer: the very people who’ve tried to brow beat us into believing that the only vehicle attribute worth considering is its mpg — the preachers and proselytizers of fuel economy! There’s no escaping the law of unintended consequences.

EPA and NHTSA  propose to combat the MPG Illusion in two ways. First, the sticker will estimate how many gallons of fuel the car will consume per 100 miles (as per Larrick and Soll’s advice). Second, the sticker will carry a letter grade. Presumably (the agencies don’t spell it out), EPA and NHTSA expect that bad grades will stigmatize gas guzzlers and discourage people from buying them.

Although the first option may counteract the MPG Illusion, the second will enhance it. As Larrick and Soll show, there is only a small difference in fuel savings between a 25 mpg car and a 50 mpg car. However, in the proposed EPA/NHTSA ratings (p. 37), the 25 mpg car gets a B and the 50 mpg car gets an A-. As anyone knows who has ever applied to college, an A- GPA is way better than a B GPA. The grading system implies that the biggest fuel savings are achieved at the top end of the scale.

On the other hand, a 14 mpg vehicle gets a C- whereas a 17 mpg vehicle gets a C. That 3 mpg increment is a big deal in fuel savings, according to Larrick and Soll. Yet how many car buyers will be impressed because a particular vehicle is rated C rather than C-? Except in jest, I’ve never met anyone who boasted of getting solid Cs in high school or college.

In short, the proposed EPA/NHTSA grading system perpetuates the MPG Illusion, which, unfortunately for fuel-economy zealots, cuts both ways. The illusion of linearity not only under-values savings from fuel-economy improvements in low-mpg vehicles, it also over-values savings from fuel-economy improvements in high-mpg vehicles.

EPA and NHTSA, apparently, want to manipulate the MPG Illusion rather than actually dispell it. They don’t like the illusion when (as they believe) it promotes SUV sales, but they like it when (as they hope) it promotes hybrid, plug-in hybrid, and electric vehicle sales. But the attempted manipulation fails, because the grading system, like the MPG Illusion, both over-values high-end mpg improvements and under-values low-end mpg improvements.

Grading cars actually means grading the people who buy them. People who buy cars with super-low or zero emissions are A or A+ people. Those who buy gas guzzlers wear dunce caps. The South Park spoof on the “Toyonda Pius,” Smug Alert, all-too-accurately depicts the greener-than-thou pretension of EPA and NHTSA’s proposed grading system.

Greenhouse Protection Racket — An Update

by Marlo Lewis on September 2, 2010

in Global Warming, Legal

Last week, the Obama Administration filed a brief  on behalf of industry petitioners urging the Supreme Court to vacate an appeals court decision (State of Connecticut et al. v. American Electric Power et al.) that would allow States and private parties to sue coal-burning electric utilities for their alleged contribution to global warming-related “injuries.”

The brief clearly lays out the absurdities of attempting to regulate greenhouse gases via common-law public nuisance litigation. Because global warming is, well, global, practically anyone on Earth could claim to be a victim. And because companies emit carbon dioxide (CO2) only as a byproduct of providing goods and services (electricity, cars, food, medical care, bites of information, etc.) to people, practically everyone on the planet could be sued as a contributor to the alleged injuries. In the memorable words of South Park’s hilarious global warming episode, Two Days Before The Day After Tomorrow, “We all broke the dam!”

In addition, the Obama brief points out that, “Establishing appropriate levels for the reductions of carbon dioxide emissions from power plants by a ‘specified percentage each year for at least a decade’ (as Plaintiffs request), would inevitably entail multifarious policy judgments, which should be made by decision-makers who are politically accountable, have expertise, and are able to pursue a coherent national or international strategy — either at a single stroke or incrementally.”

Yet the brief stops short of reaching the obvious conclusion implied by its argument, namely, that climate policy is a “non-justiciable political question.” Instead, it advises the Supreme Court to direct the court of appeals to reassess its decision on “prudential” grounds. Rather than seek a decision that would preempt all future CO2 litigation, the brief instead seeks to put one particular CO2 lawsuit on ice.

I smell a rat. The Administration, I suspect, does not want the Court to rule that the political question doctrine precludes public nuisance litigation against CO2-emitters, because it wants the only solid, durable shield against litigation chaos to be the EPA’s “displacement” of common-law injury claims via the agency’s endangerment rule and the ensuing regulatory cascade.

Just as the Administration used the endangerment rule to try and spook Congress and industry into supporting cap-and-trade, it is now using CO2 litigation to try and spook them into supporting — or at least not aggressively attacking — EPA regulation of greenhouse gases via the Clean Air Act. 

In short, as I discuss in a column this week in Pajamas Media, the Administration needs to keep the prospect of CO2 litigation alive in order to sustain the ”greenhouse protection racket” — the strategy of regulatory extortion — on which warmists increasingly rely to promote their agenda.

Audi Super Bowl Ad: Working Both Sides of Street? (Updated Feb. 10, 2010)

by Marlo Lewis on February 9, 2010 · 2 comments

in Global Warming, Nanny State

(Revised Feb. 10, 2010. My conclusion was rushed, because I wanted to leave the office before the snowstorm suspended bus service from D.C.-area metro stops. Revisions below are in italics.)

If you missed it Sunday, the Audi Super Bowl ad is on Youtube, and it’s a hoot. The ad promotes the Audi A3 TDI clean diesel. The main selling point, surprisingly, is not that this car, which won a “Green Car of the Year” award, is good for the planet, but that if you drive it, you won’t be hassled, bullied, and jailed by the “green police.”

The ad tries to work both sides of the street. It attempts to appeal to those who believe SUVs are destroying the planet – and those who resent eco-elitists and busybodies telling them how to live.

The hilarious South Park episode, “Smug Alert” (Season 10), frames the issue with which the Audi ad execs seem to be wrestling.

In the episode, clouds of smug from ”Toyonda Pious” sales in South Park, George Clooney’s acceptance speech at the 78th Academy Awards, and San Francisco’s pretensions as a progressive city all coverge, creating a “perfect smug storm” that threatens to destroy everything in its path. The citizens of South Park scrap their hybrids just in time to avoid annihilation, although thousands of homes are destroyed. However, it is too late to save San Francisco, which “disappears up its own @!*hole.”

At the end of the episode, Kyle, echoing the famous NRA slogan (“Guns don’t kill people, people do”), argues that hybrids are a good thing, it’s only when hybrid owners become smug and act like they’re better than everybody else that the danger arises. However, like the liberals who don’t want a gun in the house, fearing they might use it, the people of South Park decide they are not ready to own hybrids without becoming  smug — “it’s simply asking too much.”

The Audi ad tells preening, greener-than-thou progressives ‘here is the car for you.’ At the same time, it lampoons the authoritarianism of green busybodies, allowing the rest of us to admire the car’s mpg rating without feeling we have to identify with Al Gore or the Sierra Club.

Or, at least, I think that’s the objective. Another way to put is the Audi folks want to have their cake and eat it. They want to be both green and independent of green.

My suspicion is it doesn’t work. Eco-activists are likely offended by the ad, whether because it mocks them or because it comes too near the mark of what life would be like in a society that heeds Al Gore’s injunction to make “rescue of the environment” the “central organizing principle for civilization.” On the other hand, people who resent officious bureaucrats may remember little about the ad except that Audi has something to do with “green police.”

Lastly, Audi is foolish if it expects to prosper under a green police state. The Audi A3 TDI gets above 40 mpg, but its fuel still comes from Big Oil. The Gorethodox won’t be satisfied until cars are all-electric, and the electricity comes from solar panels and wind turbines. Even if levened by tongue-in-cheek, greener-than-thou feeds the perception that global warming is a “planetary emergency” and government must restrict our liberties to save us from ourselves.

What do you think? Watch the Audi ad, and post a comment!

California federal court dismisses global warming common law nuisance lawsuit

by Marlo Lewis on October 16, 2009 · 3 comments

in Global Warming, Legal

My weekend is starting out fine, thanks to this happy news.

Peter Glaser, an environmental attorney with Troutman Sanders, just sent around his analysis. Here it is:

California Federal Court Dismisses Global Warming Common Law Nuisance Lawsuit

In another chapter in the continuing saga of whether energy companies can be sued under tort law for emitting greenhouse gases (GHGs), a federal district court in California yesterday dismissed a lawsuit brought by the Kivalina Alaska Native Village and others against a large number of energy companies.  The Court became the fourth federal district court to find, in essence, that there is no common law nuisance tort of global warming.  One of those district court decisions, however, was recently reversed by the United States Court of Appeals for the Second Circuit in the Connecticut v. AEP case, which we reported on extensively in a previous client alert available at the link provided below. 

The lawsuit dismissed yesterday alleged that the defendants’ GHG emissions contribute to global warming that has diminished the Artic sea ice that protects the Kivalina coastline.  As a result, the plaintiffs argued that their protection from winter storms has diminished, resulting in erosion and destruction of the land which will require that Kivalina’s residents be relocated.  Plaintiffs sought monetary damages for these impacts, which they estimated in a range of $95-400 million.

The United States District Court for the Northern District of California dismissed the lawsuit on the ground that the case involved a political question more properly decided by the legislative and executive branches.  The court also concluded that the plaintiffs lacked standing.  On the political question issue, the Court ruled that:

Regardless of the relief sought, the resolution of Plaintiff’s nuisance claim requires balancing the social utility of Defendants’ conduct with the harm it inflicts.  That process, by definition, entails a determination of what would have been an acceptable limit on the level of greenhouse gases emitted by Defendants….the allocation of fault – and cost of global warming is a matter appropriately left for determination by the executive and legislative branch in the first instance.

On standing, the court ruled that “[i]n view of the undifferentiated nature of greenhouse gas emissions from all global sources and their worldwide accumulation over long periods of time, the pleadings make clear that there is no realistic possibility of tracing any particular alleged effect of global warming to any particular emissions by any specific person, entity, group at any particular point in time.”

The decision will undoubtedly be appealed to the United States Court of Appeals for the Ninth Circuit, a court known for its liberal outlook.  At the same time, one of the other lawsuits, involving allegations that energy companies’ emissions contributed to Hurricane Katrina, is now pending and awaiting decision in the United States Court of Appeals for the Fifth Circuit.  Defendants in the Second Circuit Connecticut v. AEP case are currently considering whether to seek rehearing.  Ultimately, this issue may end up in the Supreme Court.

See our discussion of the Second Circuit Connecticut v. AEP case and the issues these global warming tort lawsuits raise.

* * *

P.S., I also blogged on the Second Circuit case here.

Rent-seeking utilities: you reap what you sow

by Marlo Lewis on September 22, 2009 · 3 comments

in Global Warming, Legal

Yesterday, in State of Connecticut et al. v. American Electric Power et al., the 2nd U.S. Court of Appeals decided that states and other plaintiffs have the right to sue five electric utilities – American Electric Power, Cinergy, Southern Co., Excel Energy, and the Tennessey Valley Authority – for creating a ”public nuisance” by emitting CO2 and, thus, contributing to global warming.

With regard to American Electric Power (AEP) and Cinergy, I am tempted to say, it couldn’t happen to a nicer bunch of guys. These utilities for years have lobbied for carbon cap-and-trade schemes. Instead of opposing climate alarmism, they have helped promote it. Boys, you reap what you sow!  How are you going to deny plaintiffs’ allegations that your CO2 emissions are a public nuisance, when you have repeatedly stated on the record that man-made global warming is a big, big problem?

In the 139-page decision, Judges Joseph McClaughlin and Peter Hall (appointed by Presidents George H.W. Bush and George W. Bush respectively) rejected the lower court’s opinion (and the utilities’ argument) that the relief sought by plaintiffs — a gradually decreasing cap on the utilities’ CO2 emissions — raised “non-justificiable political questions.”

In a sane universe, the Appelate Court would have upheld the lower court’s decision. Energy policy is manifestly a political question — perhaps the most politicized issue to come down the pike in decades. If courts and litigators can dictate energy policy (actually, anti-energy policy) to the nation, then constitutional self-government is at an end.

The Court held that granting plaintiffs’ proposed remedy would not “decide overarching policy questions such as whether other industries or emission sources not before the court must also reduce emissions or determine how across-the board emissions reductions would affect the economy and national security.” Rather, the Court said, granting the remedy sought would only require the lower court to “resolve the particular nuisance issue before it” involving just the five utilities in the case (p. 30).

Who do Judges McClaughlin and Hall think they’re fooling? If plaintiffs sue the utilities and win, the precedent they establish would have enormous policy consequences. That’s the whole point. Setting the precedent for additional “public nuisance” litigation to restructure energy markets and the economy is what the case is all about.

Nobody seriously believes that capping the five utilites’ emissions would in itself provide any measurable relief from climate change, or any damages allegedly resulting from climate change. The litigation is either political grandstanding  and ambulance chasing, or it is designed to set the stage for a broader, policy-changing, litigation campaign. 

Once a court actually determines that CO2 emissions are a public nuisance, the same plaintiffs — or others — could argue that nothing less than eliminating AEP and Cinergy’s emissions is adequate to avoid dangerous “tipping points” and reduce “injuries” to the public (p. 8). Logically, if lower emissions is better, zero emissions is best.

Surely there is no shortage of eco-litigation groups willing to press the legal logic as far as it will go. The Center for Biological Diversity, for example, leads a coalition calling itself 350 or Bust. The idea is to use all available legal means to bring atmospheric CO2 concentrations down to 350 parts per million (today’s level is about 387 ppm). Accomplishing that goal would likely require a global depression over many decades. Pardon me if I view the alliance of climate alarmism and judicial activism as one of the biggest public nuisances we face.

It’s easy to suppose that public nuisance litigation will target only major emitters such as coal-burning utilities. But remember, utilities emit CO2 only in the process of serving customers who consume electricity. People powering their factories, lighting their homes, and running their laptops are ultimately to blame for destroying the planet, according to the “science” invoked by plaintiffs. In their worldview, everybody is injuring everybody else. So, shouldn’t everybody have the right sue everybody else?

I am reminded of the South Park Episode, Two Days Before the Day After Tomorrow – a parody of the preachy, global warming, Sci-Fi disaster film, The Day After Tomorrow. 

Stan and Cartman crash a speed boat into the world’s largest beaver dam, flooding the people of Beaverton out of their homes. Later that night, Stan, feeling guilty, asks his parents what’s being done to rescue the flood victims. Stan’s father says that’s not as important as finding out who deserves the blame. Some in South Park accuse George Bush; others accuse Al Qaeda. Stan’s father and other Colorado scientists announce they have found the real culprit: global warming.

Then comes the really bad news: Global warming will strike not the day after tomorrow, as scientists had previously thought, but two days before the day after tomorrow – today! There is panic in the streets, not just in South Park but all around the country. Fearing that global warming will shift the climate into an ice age, Stan’s father dons Arctic weather gear and nearly perishes in the summer heat. 

The Army rescues the Beaverton residents still stranded on their rooftops and ends the global warming panic — but only by blaming the flood on yet another bogeyman: Six-Legged, pincered, “Crab People.” Unable to live with the guilt any longer, Stan confesses to the people of South Park: ”I broke the dam.” One of the adults translates: “Don’t you see what this child is saying … we all broke the dam.” Another adult steps forward and says, “I broke the dam.” Then another and another.

We all emit CO2. We all consume electricity. Even if our utility generates juice from nukes or hydro, we drive CO2-emitting cars and consume goods and services made either directly or indirectly with CO2-emitting fossil energy. According to the “science” underpinning plaintiffs’ lawsuit, we’re all responsible for every damage and harm that anyone can plausibly (or implausibly) blame on global warming — every flood, every eroded beach, every summer dry spell, every tornado, and hurricane, etc. We have met the public nuisance, and it is us!

South Park explains the two-fold appeal of global warming hysteria. First, warmism feeds and legitimizes the desire to punish and blame. It justifies and focuses political indignation. It incites political and legal attack on coal-power plants and oil companies – key sources of our prosperity.

Second, warmism gratifies the need to feel connected to something really big and important, usually on the cheap. It feeds feelings of collective guilt (“we all broke the dam”) while offering a number of easy expiation rituals (“I recyle,” ”I voted for Obama,” “I support cap-and-trade”). 

In light of this, ahem, analysis, we should expect future common law CO2 litigation cases to (a) demand bigger penalties for major emitters and bigger cuts in their CO2 emissions than plaintiffs in State of Connecticut currently demand, and (b) target smaller and smaller entities as public nuisances.

Blame Canada (arts funding)

by Ivan Osorio on September 16, 2008

in Culture, Economy, International, Sanctimony

In any list of programs that could be easily cut without much disruption — except to a small rent-seeking elite — is arts funding. It cannot be argued as being essential to the functioning of society as in, say, infrastructure or courts, and a large share the benefits flow to the well-off.

Now in Canada, the Conservative government of Stephen Harper has come to that conclusion. In doing so, it has unintentionally exposed another reason to not establish such programs in the first place: To keep from breeding a rent-seeking constituency so coddled that its members aren’t even good at whining. Reports Canada’s CTV: [click to continue…]