Thursday, August 11, 2005

Neither helps the economy

Capital Freedom has a new and outstanding blog -- I highly recommend it, particularly with her knowledge of what the Constitution really says. On Tuesday she pointed out the bad economics of the energy bill. Last Friday I explained why Thomas Friedman is wrong to call on the federal government to "do something" about the "energy crisis": there's no need. Update: that is, no need because the price system automatically encourages reduced and more efficient use of resources as their price goes up.

From her position as a financial analyst, Capital Freedom also assures us that there's no need for state intervention:
Through the energy bill, the government is immediately imposing huge costs but is not and cannot provide any real benefits. No long-run strategy needs to be adopted by the government - long-run strategies are already being adopted by profit-seeking entrepreneurs.
Capital Freedom probably sighed, as I did, upon reading President Bush's remarks after he signed the super-pork transportation bill. At $286 billion, it's even greater than the $284 billion plan approved in March. The new figure represents a 31% increase over the previous plan, which Clinton signed in 1999. That's about a 4.65% increase annually, about double our current inflation rate.

Bush promised last year that he would veto the transportation bill if it would add to the federal budget deficit. Today he broke that promise. I noted that last March that the bill certainly will add to the existing federal budget deficit unless Bush does one of two things: veto it, or reduce other spending by the cost of the transportation bill.

The AP article starts immediately with bad economics:
Bush: Highway Bill Will Spur the Economy

MONTGOMERY, Ill. - President Bush opened the gates Wednesday for spending a whopping $286.4 billion on roads and bridges, rail and bus facilities, bike paths and recreational trails, saying the projects from coast to coast would spur the economy and save lives.

Critics said the 1,000-page transportation bill was weighed down with pet projects to benefit nearly every member of Congress. The bill's price tag over six years was $30 billion more than Bush had recommended, but he said he was proud to sign it.

"Highways just don't happen," Bush said. "People have got to show up and do the work to refit a highway or build a bridge, and they need new equipment to do so. So the bill I'm signing is going to help give hundreds of thousands of Americans good-paying jobs." ...

Bush mentioned a pet project in [House Speaker Dennis] Hastert's district — the $207 million Prairie Parkway connector to join two major highways in the growing region outside Chicago. Hastert has been pushing the project for years although state officials are not convinced it's the best way to ease traffic, and some critics say it will promote urban sprawl, hurt the environment and swallow up fertile farmland....

The president had threatened to veto the highway bill if it was too fat. White House spokesman Trent Duffy said some House members wanted to spend $400 billion, so Bush considered $286.4 billion a good compromise.
Incredible. Only in the federal government can Bush accept a $286 billion bill, $30 billion above what he previously warned was his top limit, because it was a "good compromise" with Congressional porkers who wanted to spend $400 billion.

I agree with President Bush on massive tax cuts (particulary on the wealthy, because after all, they do have the most money) and our military action in Afghanistan and Iraq. However, I have to lump him in with the other conservatives who become socialists. In that entry, I talked about the "conservatives" like John Gambling, Rudy Giuliani and George Pataki who claimed the West Side Stadium would have generated jobs. But if they had bothered to read a little Bastiat, they'd have realized the generated jobs would have been offset by an equal value of lost jobs elsewhere. Once again, I'll quote what Bastiat wrote in "What Is Seen and What Is Not Seen":
Well, then, suppose I arrange to have a navvy dig me a ditch in my field for the sum of a hundred sous. Just as I conclude this agreement, the tax collector takes my hundred sous from me and has them passed on to the Minister of the Interior. My contract is broken, but the Minister will add another dish at his dinner. On what basis do you dare to affirm that this official expenditure is an addition to the national industry? Do you not see that it is only a simple transfer of consumption and of labor? A cabinet minister has his table more lavishly set, it is true; but a farmer has his field less well drained, and this is just as true. A Parisian caterer has gained a hundred sous, I grant you; but grant me that a provincial ditchdigger has lost five francs. All that one can say is that the official dish and the satisfied caterer are what is seen; the swampy field and the excavator out of work are what is not seen.
Or as I put it in modern terms regarding the proposed Manhattan West Side Stadium:
It's easy to see huge sums spent at a stadium, but not that it means fewer drinks ordered at a bar in Buffalo, fewer trips up to the American side of Niagara Falls, reduced grocery purchases at a Schenectady grocery store, and fewer lunches ordered from a Manhattan restaurant. When the scale is in the millions of dollars, it's too hard to quantify all these resulting small decreases in consumer spending, which by definition add up precisely to the few large increases in public spending.
The jobs will be transferred, at best. Usually there's some loss, because taxes create a disincentive to produce more. There is no way that this bill will create net jobs. None. Bush may have signed a bill that will "give" good-paying jobs to hundreds of thousands of people, but it necessarily and simultaneously will destroy a lot of other good-paying jobs for hundreds of thousands of people.

The controversy over the Prairie Parkway would not exist if we followed the principle of private property rights. This applies even where government has the authority to construct roads and bridges. It would still have to buy the land from someone, who'd have to judge whether the government has offered enough money that it's worth giving up the farmland. If not, the government can either look elsewhere or give up on the project.

Is the proposed road worth losing farmland? Let the free market determine that via prices. Between a buyer's eagerness and a seller's greed, free market forces will determine the optimal allocation of resources. Let the farmland's owner ask a certain price, and if the government thinks the road is worth that, the exchange will be made. If the government thinks the asking price is too high, it can seek alternatives or give up the project altogether.

Will the parkway cause urban sprawl? Let the free market decide if that's even a problem (notwithstanding when it actually is, it's a problem created by government policies). Consumers will, on their own, determine their own optimal balances between higher product costs (due to the convenience of closer proximity) and higher traveling costs.

Will it hurt the environment? That's an ambiguous question, for what is the "environment"? If by that you mean trees, shrubs, bodies of water, then yes, a parkway will likely destroy them and displace any local wildlife. But you should also ask a commuter who drives and can take advantage of a convenient new parkway: his commuting environment is much improved. A tree may be cut down somewhere, to the loss of the "environment" -- but then someone, somewhere will gain, whether it's furniture, pencils or paper.

There's a simple solution for environmentalists who want to "protect" and "preserve" the "natural state" of lands: they can buy the property and make it completely private. They won't do that, however. Like I pointed out about Ted Turner, environmentalists prefer to lobby government and use the nearly almighty power of the state to declare lands off-limit. And woe to you if you have endangered species on your property, as Walter Williams wrote. Why should environmentalists bother to buy your property or compensate you? Because compared to dealing with the true value of the land, abusing government power costs Ted and the rest only pennies on the dollar.

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1 Comments:

Anonymous anomdebus said...

I thought he had said that he would veto anything over $284 billion. At least that is what was reported by NPR yesterday.
Still too much for a worthless bill, but 2/284th margin of error does not seem as bad (as 30/284).

Thursday, August 11, 2005 12:32:00 PM  

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