Chris Edwards on Hurricane Katrina on National Review Online
Why could Louisiana or New Orleans not afford to pay for its own levees and flood control system? If you say corruption, you are missing a larger point.
If corruption were the sole problem, why are all these Congressmen so busy trying to take money home? Simple, the federal government's share of the tax load is far, far too high.
Let's look at the marginal income tax in one state, that I know: Indiana. We still pay the federal marginal tax rate of 35%. Add to that the Indiana flat rate of 3.4%. Without deductions and other adjustments, that theoretically means more than 90% of Indiana's income taxes go to the federal government. Theory is not sound in its detail because the deduction makes this analysis far more complicated. Nevertheless, its principle is sound: the federal government is taking more than 7 times as much revenue from income as the state of Indiana.
That means that Indiana has to beg the Congress for money to get close to getting its money back. If Indiana does get its money back then other states won't because someone has to pay for the Army, Congress, the White House, the Supreme Court, the IRS, etc., etc., etc.
What did we learn out of Katrina? Local resources are sorely underfunded by the dollars going to their stated purpose. From Rita, we learned that major cities gridlock is more than just everyday commuter trouble. It is life threatening in an emergency. The interstates rely on private vehicles. Private vehicles depend on public roads (unless you own an SUV and have courage enough to go off roading through your neighbor's yard with Rita at your back).
The Democrats will seek to "raise taxes." As I have noted before, the word "tax" is really a hanging modifier. Do they want higher tax rates (e.g., more than the 35% noted above) or do they want more tax revenue (e.g., more cash in the federal treasury). More tax revenues are coming through Bush's lower tax rates. Do they prefer higher tax rates with lower tax revenues?
I would argue that the overall tax burden needs to be lower and it needs to be shifted toward the states. The Army Corps of Engineers should not be the primary contracting agency for levees or dams. It should be the repository of engineering expertise as consultant to the state and the central planning agency on interstate waters like the Mississippi. Like the relationship of a private developer to a zoning board, the states should build and the Corps should approve or veto within a pre-existing plan.
This would move the budgeting control and oversight to a small group of people. The federal government would have less control but spend less money for more effect.
If states like Louisiana are corrupt and wasteful, the federal government's rebuilding dollars should be forthcoming but with strings for legal reforms and prosecution of fraud. The state's cleaning will be then both physical and political.
If local officials know that failure of their home-built and -managed infrastructure could lead to their individual prosecution if it should fail, their incentive will be to overbuild. Then local legislature will have the ability to use its purse-strings to control the overspending.
This still leaves me with a problem for which I have no satisfactory conclusion. What happens if and when the legislatures fail to perform their function? Legislators of 30-year tenure are the epitomy of bad legislatures. Federal government dollars in rebuilding need to sting local legislatures for legislative failures.
I am all for democracy, but I am not a big fan of Jacksonian democracy in the modern era. I have no opinion whether it worked in the past but I can say with certainty from a state working under a Jacksonian constitution that it stinks today.
The federal executive's failures are due to its size. No president can manage that many people.
The state executive does not have the same problem. His problem is that in a Jacksonian system, he controls too few departments yet is blamed for all failures.
The federal executive ironically can be more responsive. If a FEMA director fails, you fire him. If an attorney general fails, you fire him. With only one elected official at the head of the government, the secretary and undersecretaries are more at risk and must keep the president content.
In a Jacksonian system, like Indiana, if the attorney general is off in a different direction than the governor in enforcing laws, there is likely to be political fights between the offices and no real correction made until the next election.
Well run companies use the CEO chopping block as the means to control the company. The threat of bad news leading to the CEO's termination makes the underlyings more responsive to the CEO's wishes, particularly if the CEO's underlyings are his cronies. This is a good thing. Firing the CEO is firing the team. Ultimately, this means that the CEO can fire individuals for a period of time to perfect his plan. After a time the plan either works or fails. If it fails, the CEO goes -- along with his failing team.
If the stakes in the state legislature go up so that the legislature knows that a flooded first-class city means they lose their jobs, is that enough to make sure the levees are built properly?
I don't know. All I know is that these same local officials can blame Washington for their own thievery now. Is that really better to institutionalize passing the buck? Not likely.
Monday, September 26, 2005
Wednesday, September 14, 2005
Cheap Gas Is a Bad Habit
Cheap Gas Is a Bad Habit . . . for Whom?
Mr. Samuelson believes gas prices being low is bad. I agree. He proposes more gas taxes. I agree. I disagree about why. Gas taxes need to be higher only because we need new highway construction (at least here in Indiana, and I suspect many other places).
The problem is that Mr. Samuelson wants to keep people out of certain cars. That may be the result of high taxes, but it will worsen the problem that he proposes to remedy: our dependence on foreign oil.
If the cost of gas has nothing to do with the cost of exploration and development, higher taxes might increase our dependence on foreign oil.
If I am an executive at Exxon, I want to maximize profits. That means find or buy oil cheap and sell it for a reasonable mark-up. Reasonableness is important because I want to sell many gallons of gas to each customer. If I economically rape the customer, he won't come back. For example, if I make 5% on a $2.00 gallon of case, I will get 10 cents for each gallon. SUV's may have 30 gallon tanks (I don't know. I don't own one.) That's $3.00 per fill up. If that customer comes to me every week, that is $150 (assume a couple slow weeks, too) per year for one vehicle.
If I make 20% on a $2.30 gallon, I may get $12.00 one time, but will I get the customer the rest of the year? Not if my competitors beat my price.
If the oil companies want to make money, they have to keep oil flowing. If the price of gas gets to be high based on taxes and my oil company will not stand to make more money from the increased prices, my profits will not go up. I have no incentive to produce more oil. Only the cheapest producers keep tapping wells. But let's hold that thought a moment.
Here is the clincher: the cost of production for a barrel of oil is not equal in all locations. It is cheapest in the Middle East (about $5) and most expensive closer to home (e.g., Colorado or Canada at around $20). As I understand it, most of those costs are in the capital investment and not in the on-going opeations of the production facilities. So if a price rises over a period of years, more production facilities will become cost effective. If my oil company was getting the profits from the increased prices, guess what happens? Our dependence on foreign oil (or at least OPEC oil) decreases!
Now let's revisit the gap in price for oil versus the price of taxed gas. We already concluded that only cheap producers tap new wells. That means that OPEC will be the only ones that benefit. The worst possible situtation for OPEC is to have new competitors, because that allows OPEC greater opportunities to violate the cartel's rules, thereby lowering prices.
If we want less foreign oil, American oil companies need greater profit. Why do you think that these proponents want higher taxes? That's another article.
Mr. Samuelson believes gas prices being low is bad. I agree. He proposes more gas taxes. I agree. I disagree about why. Gas taxes need to be higher only because we need new highway construction (at least here in Indiana, and I suspect many other places).
The problem is that Mr. Samuelson wants to keep people out of certain cars. That may be the result of high taxes, but it will worsen the problem that he proposes to remedy: our dependence on foreign oil.
If the cost of gas has nothing to do with the cost of exploration and development, higher taxes might increase our dependence on foreign oil.
If I am an executive at Exxon, I want to maximize profits. That means find or buy oil cheap and sell it for a reasonable mark-up. Reasonableness is important because I want to sell many gallons of gas to each customer. If I economically rape the customer, he won't come back. For example, if I make 5% on a $2.00 gallon of case, I will get 10 cents for each gallon. SUV's may have 30 gallon tanks (I don't know. I don't own one.) That's $3.00 per fill up. If that customer comes to me every week, that is $150 (assume a couple slow weeks, too) per year for one vehicle.
If I make 20% on a $2.30 gallon, I may get $12.00 one time, but will I get the customer the rest of the year? Not if my competitors beat my price.
If the oil companies want to make money, they have to keep oil flowing. If the price of gas gets to be high based on taxes and my oil company will not stand to make more money from the increased prices, my profits will not go up. I have no incentive to produce more oil. Only the cheapest producers keep tapping wells. But let's hold that thought a moment.
Here is the clincher: the cost of production for a barrel of oil is not equal in all locations. It is cheapest in the Middle East (about $5) and most expensive closer to home (e.g., Colorado or Canada at around $20). As I understand it, most of those costs are in the capital investment and not in the on-going opeations of the production facilities. So if a price rises over a period of years, more production facilities will become cost effective. If my oil company was getting the profits from the increased prices, guess what happens? Our dependence on foreign oil (or at least OPEC oil) decreases!
Now let's revisit the gap in price for oil versus the price of taxed gas. We already concluded that only cheap producers tap new wells. That means that OPEC will be the only ones that benefit. The worst possible situtation for OPEC is to have new competitors, because that allows OPEC greater opportunities to violate the cartel's rules, thereby lowering prices.
If we want less foreign oil, American oil companies need greater profit. Why do you think that these proponents want higher taxes? That's another article.
Friday, September 02, 2005
Price Gouging?
Price Gouging?
Think about the people starving and standing outside a fully stocked Walmart in New Orleans. Why is the Walmart not open? Simple: no power, no personnel.
Why no personnel? There is no way a person is going to risk their life to work at a friggin' Walmart for minimum wage. Why minimum wage? Because raising Walmart's price to deal with the new risks and headaches of a shellshocked New Orleans would be treated as price gouging. Because newly-found homeless persons don't have enough cash or credit cards to pay.
What if we decided that it would be perfectly acceptable to allow prices to increase 1000%? Walmart might be able to afford to pay managers, stockboys, and head cashiers premium wages of $50 maybe $75 per hour. Walmart might be able to afford to pay for special shipments of dry goods and water to there stores. Walmart might be able to afford semi-trucks bearing generators and cellphone towers/satellite dishes to run their stores and maybe serve as new communication hubs for their old neighborhoods. Walmart might make enough money to afford to allow pastors and priests, nuns, Salvation Army colonels to take the materials they need at pre-hurricane prices. Walmart could charge FEMA inflated prices. This would discourage FEMA from controlling the distribution of all food and water and allow the re-establishment of private means of distribution, thereby allieviating suffering at an exponential rate.
What about customers? If they have the money, they can afford to get water that they think they need. They can buy the food they think they need. They will hoard food, but Walmart will make so much profit so fast that they will send extra trucks.
What if the store is damaged? There might be enough profit to bring in a bulldozer to clear the parking lot and throw up tents to serve as temporary stores. A history of allowing these huge profits would encourage Walmart not to build cheap buildings like warehouses in hurricane country or earthquake country but fortresses that are designed to withstand the elements. They know that bad events are boons to their bottom line so it is a good investment in durable and resilient stores. These stores could even become shelters if the toy department is emptied as children are entertained and replacement supplies are focused on food & water, clothing, shelter (e.g., tents), etc.
The Red Cross is wonderful, but it should try to be a competitor to the world's best designed and run distribution center -- which happens to be based near hurrican country.
Let the free market run rampant. Where have 100,000's people ever starved to death for lack of food availability when the free market is allowed to work? Starvation largely occurs when distribution systems are interrupted or prevented from working. Price gouging laws fit the bill.
In SEC securities law there is rule against fraudulent statements called 12b-5. Most companies sued for securities fraud are hit with these fraud counts.
The problem with "price gouging" is that the focus is on the pricing -- the result. There is never a question as to why the prices are high. What if lawyers were likely to use existing fraud law from the common law to pursue people who start rumors of gas supplies ending? What if defrauding parties were pursued not for good economics of raising prices but spreading fraudulent rumors to generate panic?
What if stores would stair-step pricing: 5 liters of water per visit per person at 200% price, the next 5 at 500% price, and every other bottle at 2000% price? This would be easy with pre-programmed cash registers for catastrophe pricing.
What if churches all had several Red Cross trained members with prior cross-training from the Red Cross, Wal-mart, FEMA, and local authorities.? What if churches had reserve sheriff deputies assigned to the church to be the government's liaison to the respective churches? What if Kiwanis Clubs, Boy Scout troops, etc. all hade training on the catastrophe "phone tree" that is run by foot or cell phone or walkie-talkie?
What if these groups had pre-arranged payment systems with Walmart or other big box stores so that they could buy using purchase orders rather than cash? What if the churches had mini-satellite receivers that could communicate with the semi-truck satellite at the Wal-mart parking lot?
Just a bit of profit for Wal-mart will slow unnecessary demand and encourage social benefits that better serve their communities.
Think about the people starving and standing outside a fully stocked Walmart in New Orleans. Why is the Walmart not open? Simple: no power, no personnel.
Why no personnel? There is no way a person is going to risk their life to work at a friggin' Walmart for minimum wage. Why minimum wage? Because raising Walmart's price to deal with the new risks and headaches of a shellshocked New Orleans would be treated as price gouging. Because newly-found homeless persons don't have enough cash or credit cards to pay.
What if we decided that it would be perfectly acceptable to allow prices to increase 1000%? Walmart might be able to afford to pay managers, stockboys, and head cashiers premium wages of $50 maybe $75 per hour. Walmart might be able to afford to pay for special shipments of dry goods and water to there stores. Walmart might be able to afford semi-trucks bearing generators and cellphone towers/satellite dishes to run their stores and maybe serve as new communication hubs for their old neighborhoods. Walmart might make enough money to afford to allow pastors and priests, nuns, Salvation Army colonels to take the materials they need at pre-hurricane prices. Walmart could charge FEMA inflated prices. This would discourage FEMA from controlling the distribution of all food and water and allow the re-establishment of private means of distribution, thereby allieviating suffering at an exponential rate.
What about customers? If they have the money, they can afford to get water that they think they need. They can buy the food they think they need. They will hoard food, but Walmart will make so much profit so fast that they will send extra trucks.
What if the store is damaged? There might be enough profit to bring in a bulldozer to clear the parking lot and throw up tents to serve as temporary stores. A history of allowing these huge profits would encourage Walmart not to build cheap buildings like warehouses in hurricane country or earthquake country but fortresses that are designed to withstand the elements. They know that bad events are boons to their bottom line so it is a good investment in durable and resilient stores. These stores could even become shelters if the toy department is emptied as children are entertained and replacement supplies are focused on food & water, clothing, shelter (e.g., tents), etc.
The Red Cross is wonderful, but it should try to be a competitor to the world's best designed and run distribution center -- which happens to be based near hurrican country.
Let the free market run rampant. Where have 100,000's people ever starved to death for lack of food availability when the free market is allowed to work? Starvation largely occurs when distribution systems are interrupted or prevented from working. Price gouging laws fit the bill.
In SEC securities law there is rule against fraudulent statements called 12b-5. Most companies sued for securities fraud are hit with these fraud counts.
The problem with "price gouging" is that the focus is on the pricing -- the result. There is never a question as to why the prices are high. What if lawyers were likely to use existing fraud law from the common law to pursue people who start rumors of gas supplies ending? What if defrauding parties were pursued not for good economics of raising prices but spreading fraudulent rumors to generate panic?
What if stores would stair-step pricing: 5 liters of water per visit per person at 200% price, the next 5 at 500% price, and every other bottle at 2000% price? This would be easy with pre-programmed cash registers for catastrophe pricing.
What if churches all had several Red Cross trained members with prior cross-training from the Red Cross, Wal-mart, FEMA, and local authorities.? What if churches had reserve sheriff deputies assigned to the church to be the government's liaison to the respective churches? What if Kiwanis Clubs, Boy Scout troops, etc. all hade training on the catastrophe "phone tree" that is run by foot or cell phone or walkie-talkie?
What if these groups had pre-arranged payment systems with Walmart or other big box stores so that they could buy using purchase orders rather than cash? What if the churches had mini-satellite receivers that could communicate with the semi-truck satellite at the Wal-mart parking lot?
Just a bit of profit for Wal-mart will slow unnecessary demand and encourage social benefits that better serve their communities.
New Orleans: A case study for federalism?
New Orleans: A case study for federalism?
The blame on politicians has started.
I have a question: why is the federal government the proper agency to protect a city?
One city is a huge voting section of Baton Rouge's thinking. It is a tiny part of Washington's.
Why should the federal government have much say on how a city protects itself? This is reverse political bribery. The politicians bribe the voter to vote for the politician.
If New Orleans was protected by Louisiana's projects, then they could invest what they wished in protecting their city.
If St. Louis and Missouri chose a different protection mechanism and protocol than New Orleans -- great. We would learn which mechanisms work the best. Insurance premiums would even help score the success. Higher premiums for similar starting points would indicate bad methodologies. Theory would score until reality serves as the final referee.
Washington has no business determining how New Orleans is protected or built so it had no business building levees.
Now Washington has made bad decisions starting with LBJ's era in relying on levees by and large. Washington now has to foot some of the bill because of its bad choice.
Washington should get out of this business and make the states carry their own loads.
The blame on politicians has started.
I have a question: why is the federal government the proper agency to protect a city?
One city is a huge voting section of Baton Rouge's thinking. It is a tiny part of Washington's.
Why should the federal government have much say on how a city protects itself? This is reverse political bribery. The politicians bribe the voter to vote for the politician.
If New Orleans was protected by Louisiana's projects, then they could invest what they wished in protecting their city.
If St. Louis and Missouri chose a different protection mechanism and protocol than New Orleans -- great. We would learn which mechanisms work the best. Insurance premiums would even help score the success. Higher premiums for similar starting points would indicate bad methodologies. Theory would score until reality serves as the final referee.
Washington has no business determining how New Orleans is protected or built so it had no business building levees.
Now Washington has made bad decisions starting with LBJ's era in relying on levees by and large. Washington now has to foot some of the bill because of its bad choice.
Washington should get out of this business and make the states carry their own loads.
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