Is it possible to finally slay the most monstrous of all green boondoggles?

The various subsidies and mandates for corn ethanol are not the most stupid and ludicrous alternative-fuel policies out there. That title goes to cellulosic ethanol.  But they have probably been the most costly and deadly.  Perhaps there is hope that this monster of a boondoggle will be given the boot.

The Missouri Quality Jobs Program: Simply a waste of money

Back in late January I testified in front of the Missouri House Committee on Government Oversight and Accountability about the Missouri Quality Jobs Program.  The program provides tax credits to firms that promise to provide new jobs in Missouri, and has given out hundreds of millions of dollars in credits since 2006.  The Missouri Department of Economic Development claims that the program has directly created more than 11,000 jobs.  This claim is simply the sum of the new jobs associated with projects that received the credits.

The problem with the DED's claim is that it assumes that all of those jobs would not have been created were it not for the credits.  This is clearly incorrect, however, because many firms only apply for the credits after deciding on a project.  In addition, the claim ignores that the most of the workers filling these new jobs usually come from other jobs within Missouri. Thus, they are merely shuffled from one Missouri firm to another.

I presented some preliminary estimates that the overall effects of the program so far was a small decrease in employment.  The best-case would be if the program was simply a waste of money.  I'm waiting for new data so that I can do a complete analysis of the policy. 

Here are some summaries of the hearing:

Department of Economic Development's Forecasting Model Questioned, El Dorado Springs Sun, March 7.
Economist Casts Doubt on Mo. Business Incentives, BloombergBusinessweek, January 28.
House Committee Looks for Ways to Improve Quality Jobs Program, Missourinet, January 28.
Lawmakers Address Mamtek, abc17news, January 28.

A catalog of economic incompetence

Someday there will be an extremely long book that catalogues the stupendously wrong-headed economic policies pursued by President Obama.  In the meantime, Richard Epstein has a good summary.

As an aside, I can no longer say that every economic policy pursued by the administration is the opposite of what should be done. The president's modest proposal to trim social security payments by using a more-accurate inflation measure is perfectly sensible.  That said, I'm not sure it's a good idea.  But at least it's not the opposite of what should be done.

Experts shmexperts

Michael Greve has a nice discussion of how the economy and much of the government has been outsourced to panels of experts who are not particularly expert:

How is this working out? Not so well, in my judgment—not for the pubchoice reasons of old, but for more Hayekean reasons.

For starters, it’s obvious that the experts don’t have a clue. The Fed’s pronouncements anno 2007, to the effect that everything was firmly in hand, are the stuff of legend, and its models have proven lamentably inaccurate in predicting even short-term economic performance. As for the experts’ climate change models about the planet’s behavior a century hence, right.

Even so, expert government proceeds on an implied premise of omniscience. The intergovernmental committee that decides, under and pursuant to the Endangered Species Act, whether the One-Eyed Toad shall live or die is called, only semi-ironically, the “God Squad.” (That would have been a terrific title for IPAB, but it’s already taken.) The squad’s reasoned decision-making is one step up from shooting dice. We can live with that, even if the toad cannot. However, expert ignorance increases with the scale, scope, and complexity of the experts’ mandate; and when we’re taking about the U.S. economy or the planet, that’s biggish. Still, we’re supposed to believe that there’s nothing wrong with the attempt to predict and manage these systems—nothing, that is, that can’t be fixed by an econometrician in the Fed’s basement or perhaps the Mann Brothers’ Earth Band (Michael with the hockey stick and Manfred with the keyboards).

Hard to say, from where I sit, what’s worse: the dark suspicion that the experts may actually believe their own models, or the fact that they’re putting on a game face in public and, in so doing, impede a serious discussion over what the institutions can and cannot do.

I'm beginning to wonder if they have even the slightest idea

Back in January 2010 our economic policy was beginning its drive down a bold new path.  The Obama administration had enacted a $900 billion stimulus package the previous year, and was embarking on a transformation of the economy: Obamacare, wind and solar power, Keynesian stimulus ad infinitum, etc.  In the meantime, the Fed was continuing its loose-money policies and maintaing interest rates close to zero. 

The administration and the Fed were confident that their actions would set the economy on a path of prosperity, as evidenced by the rosy forecasts they made at the time.  Because neither has really strayed much from the path it set out on, it's fair to take a look at how their notion of the economy compares with the actual one.  Specifically, we can look back on the forecasts they made at the time to see how well their visions of the economy stack up against reality.

Here are two charts outlining the Obama administration's notion of how the economy works.  The forecasts are taken from the 2010 Economic Report of the President (Table 2-3):

Hmm.  According to the Obama administration, the economy was supposed to be booming by now as a result of all the great things that had been done.  But it turns out that real GDP growth in 2012 was only 1.7 percent rather than the 4.3 percent that was forecast.  And despite Joe Biden's declaration that the President would focus on one three-letter word, J-O-B-S, payroll employment is nowhere near where it is supposed to be.  In fact, there are about 4.8 million fewer jobs than were promised by these glorious policies. 

Perhaps the Fed was better at this than the administation.  After all, they're free from politics and have hundreds of PhD economists running around the place.  Well, it turns out that they know about as much about the economy as the President does.  Here are the forecasts from the FOMC in January 2010.  They are the central tendencies of members of the FOMC, and according to them, the economy should have seen its boom in 2011.

Forecasting is a notoriously tricky business, so one shouldn't bee too harsh when forecasts are off by a bit.  On the other hand, when you are grabbing the levers of the economy with both hands shouting that you're capable of driving this thing, you had better be somewhere in the neighborhood of where you said you were taking us. 

Yet another Obama failure, but a U.S. success

Despite his best efforts, our President has failed to kill off fossil fuels.  In fact, the United States has become the world's largest oil producer, having passed Saudi Arabia last November.

Marx has always been full of it

Having spent a lot of time on university campuses, it's easy to recognize Marx's acolytes. They tend to resemble him in many ways: dirty, smelly, hippy, anti-semites.

Macroeconomists have always been full of it

Olivier Blanchard, former MIT professor and current chief economist at the IMF, recently offered five lessons that economists should have learned from fhe recent financial crisis.  He should have said that "macroeconomists" should have learned the lessons, because many actual economists already knew them.

1. Humility is in order: Yes, macroeconomists are full of it and it's shocking how arrogant they are given how little they know.
2. The financial system matters - a lot:  Why yes, but the financial system is too difficult to put into little toy models.  It's best to assume the financial system away so that macroeconomists can focus on important things like attending conferences in exotic places.
3. Interconnectedness matters: Why yes, the U.S. economy is connected to the rest of the world and models of closed economies might not be realistic enough.  But then again, that would make the math hard, and it's all about the math.
4. We don't know if macro-prudential tools work: Actually, we do know that when the economy is in the hands of politicians whose objective is to inflate housing bubbles to curry favor with selected constituents, things will go wrong.  If anything, traditional tools of fiscal and monetary policy can wreak havoc in financial markets when they're in the wrong hands.
5. Central bank independence wasn't designed for what central banks are now asked to do:  When politics trumps sound economics, it's left to central banks to pick up the pieces.  Central banks themselves were, and continue to be, a big part of the problem because they were instrumental in inflating the housing bubble and are now distorting financial markets so much that they are holding back what little recovery we might be able to have given our dire fiscal and regulatory regime.

Ricardo Caballero has an excellent update of Hayek's view that macroeconomists labor under a pretense of knowledge. He concurs with Blanchard about how macro has neglected financial markets.

Obama has always been full of himself

Our President's narcissism seems to know no end, to the extent that he is unable to see himself as others do.  We see him as the President who is responsible for the calamity that is our economy and for a government that borrows about 40 cents of every dollar it spends.  He sees himself as one who, on April Fools Day, can proclaim April to be

“National Financial Capability Month,” during which his administration will do things such as teach young people “how to budget responsibly." “I call upon all Americans to observe this month with programs and activities to improve their understanding of financial principles and practices."

You can't make this stuff up.

Al Gore was always full of it

Steven Hayward has a nice post about the failure of those much ballyhooed climate models to actually predict climate.  The crux of the problem is that climate models, like economic forecasting models, are created by using past statistical relationships to determine time-invariant laws that can be used to project into the future.  It's relatively easy to get a model to fit the past (the in-sample fit), but the worth of a model is its ability to fit out of sample.

The problem arises because you can create a model that is a good fit for past data even though the model itself is not an accurate description of how the world works.  This can happen because the modeler can impose a structure that forces a good fit rather than being a good representation of the world's actual structure, which is probably a lot more complicated.

Now that IPPC climate models have been around for some time, there are enough observations to put them to the test.  Well, it turns out that the models have done a pretty crappy job in that they grossly overestimated the path for global mean temperature, which has been flat for over a decade.  Specifically, according to the models, the actual 2012 global mean temperature had a less than 5 percent chance of occurring.  And this was no fluke one-year event because the actual world has been trending this way for over a decade (see the chart below).  If the predictive power of these models collapses so quickly, then maybe we shouldn't rely on them as evidence that we have an urgent need to dramatically reduce our standard of living to fend off the chimera of global warming.  I've said before that climatologists remind me of macroeconomists, and I didn't mean that as a compliment to either group.

Richard Florida was always full of it

Patrick Ishmael has an excellent series of blogs (1, 2, 3) about the emptiness of Richard Florida's claims that the creative class is a key to urban growth.  Florida's research is extremely flimsy and it's shameful that it has received anything more than a snicker (Ed Glaeser has it right).  Ishmael shows how the hipster model of growth is bound to fail and has failed in St. Louis.

Perhaps even Paul Krugman will be satisfied with this amount of "stimulus"

Petition to Build Death Star Gaining Steam
To many, including the current administration, the problem with our economy is that no matter how much the government spends, it is always too little. They should, therefore, jump all over the proposal to build a Death Star.  No need to worry about the cost.  We can always rely on the Fed to keep the presses running.

Who says that bipartisanship is dead?

Even Democrats are beginning to see it for the legislative monstrosity that it is: Senate Democrats Urge Undoing of ObamaCare

Hmm, maybe there's a spending problem

Justin Hohn has done some back-of-the-envelope calculations to put government budgets in perspective.  Keep in mind that his calculations are based on there being no behavioral responses to tax rates:

The data indicate that 17,446,537 tax returns showed an income over $100,000.  These returns represented a total income of $3.765 trillion. Estimated 2012 spending comes in at $3.796 trillion. This is still $30 billion more than a 100% confiscation of the annual income of all Americans that reported more than $100K of income for 2009.

The bottom line is that we cannot fund our current levels of spending even if we make unrealistically charitable assumptions about taxpayer response to confiscatory tax rates and confiscate the entire annual income of every American who made more than $100K in 2009.

Rising seas: No biggie

The New York Times has an interesting interactive graphic meant to show the devestation of rising seas as global temperatures rise.  Choose the 5 foot option to see the predicted effects of rising sea levels over the next 100 to 200 years. No doubt the Times intended to raise the alarm so that we drastically cut our carbon emissions, thereby impoverishing ourselves and our ancestors by trillions upon trillions of dollars, just to make a modest dent in the chimera of anthropogenic global warming.  Instead, the relatively minor effects they illustrate help to make the case for adaptation, which would cost much less and which could be done as the effects begin occurring, rather than now, when simplistic and rigged computer models are our only guide.

Insane or delusional?

Gosh, it's difficult to know where to start on Paul Krugman's latest inane screed. One really has to wonder what goes through his head. He's certainly intelligent enough to know that the numbers and "facts" that he throws out are nonsense. So it's either that he is doing it on purpose to fool others who will give deference because he has a Nobel Prize in something completely divorced from what he's talking about, or he has lost his mind.  I suspect that latter, but, not being a psychiatrist, I won't hazard a specific diagnosis.

At any rate, let's start with the sheer stupidity of doing policy analysis by cherry-picking from a single period of history.  Krugman's basic claim is that situation of the 1950s (high taxes on corporations and the very rich, union power) worked just fine, so we can certainly go back to that now.  After all, according to Krugman,

the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.

Let me think for a second.  Was there anything else that might have has something to do with what happened to the economy starting in 1947?  Well, it's been a while since I was in school, but I do seem to recall something about a massive worldwide depression followed by a war of some sort in which 50-70 million people were killed and all of Europe and much of Asia were flattened.  I also seem to remember talk about economic miracles in Germany and Japan, but perhaps that's just my imagination.

Assuming that my memory is correct, however, maybe we should really go whole hog on this replicating the conditions of the 1950s idea.  Wow, Krugman is way ahead of me on this already.

Update from James Taranto:

Still Crazy After All These Years
The Daily Princetonian profiles Paul Krugman, who in addition to being a former Enron adviser is a professor at Princeton:

Since he won the Nobel Memorial Prize in Economic Sciences in 2008, Krugman has been on more or less "50 percent duty" as a professor, Gene Grossman, chair of the economics department, said. When he won the top award in economics, his public profile increased significantly, meaning he suddenly had fewer free hours to commit to his job as a professor, Krugman said in an interview in his office last spring.

"Since the Nobel, with all of the pressures, I am buying back my falls, which is not going to continue indefinitely," he said, noting that his other commitments are why he only teaches in the spring. "In some ways teaching keeps you sane. I feel disconnected from reality after a semester of not teaching . .  it is good to come back and teach basics," he explained.

In case that's too long to read, here are the main points: 1. Teaching keeps you sane. 2. Krugman has a drastically reduced teaching load.

New Poverty can never be eliminated

The Census Bureau released a new supplemental poverty measure the other day.  As Mickey Kaus points out, it is a complete scam that does not actual measure poverty as people normally think of it.  The old measure tries to capture absolute poverty, but the new one measures relative poverty.  It would be possible for poverty to be eliminated under the old definition, but, by definition, it it can never be eliminated under the new one.  No wonder those who benefit from the existence of poverty (i.e., the poverty industrial complex and most of the media) like this one so much better.

How could this unexpected?

The rate of poverty in the United States spiked up between 2010 and 2011 and this is supposed to be some sort of surprise.  What do people expect happens when the Federal government enacts scores of laws and regulations to discourage economic growth, favors pet industries over efficient ones, and promises to do more of the same for the next four years? 

Apt commentary on the election

Be careful what you vote for

I am not a Libertarian, but I do like this ad.

When was shame replaced by entitlement?

I recently turned 50 and have decided that I am now old enough for two life-altering changes.  In decreasing order of importance: I can now wear a fishing vest and hat wherever and whenever I darn well please; and I can now begin arguments and debates with variations on the phrase "Back when I was your age, things were different."  To the chagrin of my children, I have already embarked on the former change.  To the chagrin of anyone who is reading this blog, I will now embark on the latter.

From a proud Missourian

I have not blogged since mid-September because I was getting tired of coming up with new ways to say how I thought that nearly every economic and regulatory policy put in place since the end of 2008 was pretty much the opposite of what should have been done.  Also, how many times can you say that the new employment/GDP/budget numbers show the long-term economic stagnation wrought by those misguided policies?

The utter stupidity of our ethanol policies

Who says that economists can't agree on anything?  The IGM Economics Experts Panel is unanimous on ethanol policy.

Shocking!! Politics defeats business in state-owned corporations

Here's a shocker.  The Obama Administration refuses to sell its GM shares because it would reveal to the public the many billions of dollars that the taxpayers poured in to bail out the UAW.  Bad political optics will always triumph over good business sense.

Why statists hate corporations

In a nutshell, from David Burge:

'Government' is just a word for things we do together. 'Corporations' is just a word for things we do together voluntarily.

If a central entity isn't forcing you to do things under threat of jail or worse, you're just not doing it for the "right" reasons.