Monthly Archives: November 2013

Q: What do you get when you cross environmentalists with Tea Partiers?*

 

A: Common ground on the bad environmental economics of the ethanol mandate.

The summary:

This week, the EPA is expected to announce changes to the ethanol mandate, a 2007 law that requires energy companies to mix billions of gallons of ethanol into gasoline and diesel fuels. After six years in the mix, corn-based ethanol has lost its popularity, and a diverse group of critics is calling for the law’s repeal.

Why are environmentalists in favor of a rollback/repeal?

Though ethanol fuel releases less carbon dioxide than other kinds of gas, many question if the side effects of production are worth it…Growing corn requires fertilizer, which requires natural gas to make. Fertilizer also has contaminated rivers and drinking water, says the report. And ethanol factories usually burn coal or gas, which dumps carbon dioxide into the atmosphere.

Why are Tea Partiers in favor of a rollback/repeal?

Other opponents complain the mandate — like any energy subsidy — is free market poison, claiming it “distorts fuel markets and will raise gasoline prices, especially as the increased blending requirements collide with declining demand for gasoline,” reports Politico.

Strange bedfellows indeed.

And who is in favor of keeping the mandate?

Meanwhile, the ethanol industry is asking the AP to retract the story. “At best, the AP article is lazy journalism, but at worst, it appears purposefully designed to damage the ethanol industry,” American Coalition for Ethanol Executive Vice President Brian Jennings said in a statement to the press. “There was an incredibly reckless disregard for the truth in the handiwork of this hit-piece.”

And who is the American Coalition for Ethanol?

ACE is a non-profit, membership-based organization with about 1,500 members including:

  • ethanol producers
  • farmers
  • investors
  • the agriculture community
  • industry suppliers
  • rural electric cooperatives
  • others supportive of ethanol.

Hmmmm.

*Partial credit if you answered ‘Tim’

Q: What do you get when you cross environmentalists with Tea Partiers?*
Tim Haab
Wed, 13 Nov 2013 14:53:48 GMT

Redistribution in Cities: The Case of Mayor De Blasio/Virginia

I’ll bet on more limits  on the ability to redistribute wealth than the new mayor expects.

While Google doesn’t have it recorded,  roughly 15 years ago, Ed Glaeser, Jordan Rappaport and I wrote a paper titled “Redistribution in Cities”.   With the election of the new progressive mayor of NYC, this paper merits a second look.  Using data from the Census of Governments, we studied the determinants of which cities spend the most on health, and welfare.  A New York City version of the paper is published here.     Our work focused on the simple idea of product differentiation and substitutes.  A progressive mayor can redistribute if the tax base can’t flee.  Are there other cities in the United States that are “close substitutes” in the minds of the 1% for New York City?  If Woody Allen and Mia and “their” son are willing to move to Philly, then Mayor De Blasio won’t be able to raise taxes much without learning about the Laffer Curve.  If NYC is a monopolist then he will be able to tax his golden goose without experience a revenue drop.

Redistribution in Cities: The Case of Mayor De Blasio
Matthew Kahn
Wed, 06 Nov 2013 05:49:00 GMT

 

Virginia governor’s race was close than expected.

Caught with his “pants down”!

 

One of the Federal Reserve‘s biggest inflation fighters confessed Friday he’s been caught off guard when he sees how calm price pressures have been in the face of epic levels of central bank stimulus.

Speaking in Philadelphia, Federal Reserve Bank of Richmond President Jeffrey Lacker said, “I have been surprised by the stability of inflation and inflation expectations.

Mr. Lacker has been a persistent critic of central bank efforts to drive up growth and lower unemployment via rock bottom interest rates and campaigns of bond buying. One of his most persistent concerns has been that Fed actions will drive up price pressure to levels considered unacceptable to the central bank. To that end, Mr. Lacker was a dissenter at monetary-policy-setting Federal Open Market Committee meetings when he last held a voting role in 2012.

But he shouldn´t, being a central banker and all. The charts show the behavior of two measures of inflation expectations (10year) and the Fed´s preferred inflation indicator, the PCE-Core.

Pants down_1

The following charts show what was going on with broad money supply growth (Divisia M3), NGDP and velocity growth. Note that in 2007, with the first indications of financial troubles, velocity falls (money demand increases). Money supply growth increased, offsetting the increase in money demand, with the result that NGDP growth was kept relatively steady

In early 2008, with velocity falling (negative growth) money supply growth falls strongly. The result could only be the steep fall in NGDP growth.

With QE1 velocity rises, more than offsetting the continued fall in money supply, so NGDP growth climbs. More recently, the fall in velocity is not adequately offset by an increase in money supply growth, so that NGDP growth falls back below 4%.

Pants down_2

In short,Jeffrey Lacker´s (and more generally the Fed´s) inflationphobia has been misplaced all along. The costs have been staggering!

Caught with his “pants down”!
Marcus Nunes
Sat, 02 Nov 2013 17:58:55 GMT