Newshoggers.com

Losing choke point control

By Fester

The best spot to be in most bidding situations is to be the marginally decisive point. At that point, an individual has a great deal of power because their acceptance or decline of a bid means that the market for action has been set. They are veto players, they are chokepoints of activity, they are rentiers of political space. In the US Senate, the two dominant chokepoints is whomever will be the 50th vote for passage if the bill is a Democraticly favored bill (as Democrats can count on VP Biden to break a tie in their favor) or the 51st vote for a conservatively favored bill, and the 60th vote to break a filibuster or waive certain rules. Until last week the 60th vote was the far more vital chokepoint.

The occupant of that 60th vote varied on each issue, but the membership of the club that controls the 60th vote on Democratic priorities is fairly small. Its frequent members are Senators Nelson of Nebraska, Landrieu of Lousiana, Pryor and Lincoln of Arkansas, Bayh of Indiana, Conrad of North Dakota and for the Republicans the potential pick-offs on some issues are the two Senators from Maine, Snowe and Collins as well as the occassional chance of picking off a few others on idiosyncratic issues.

If Senator Reid follows through on his threat to impose harsh party line discipline on cloture, then the 60th Vote Club is functionally irrelevant and powerless:

So, I suppose it should come as no surprise that, Senate leaders are now asking members of the Democratic caucus to vote party-line on procedural issues, reversing the stance they took on caucus unity just last week.

Reid is actually putting himself on the line. "On procedural votes," he predicted, "we'll keep Democrats together."

Roll Call notes that Reid and his leadership does not anticipate keeping the entire caucus on the final vote, but wants it on the cloture vote:

“They may vote against final passage on a bill. They may vote with Republicans on amendments,” he said. “But on this idea of allowing the filibuster to stop the whole Senate, I think, we have persuaded them more often than not that they shouldn’t let the Republicans control our agenda. We ought to control our own agenda.”

If this actually happens, consistent party unity on cloture votes means that the Group hanging around the 60th vote are almost irrelevant.  They will either be voting for “I Love Puppies and Ice Cream” bills that will run up an 85 to 12 majority or they are on the losing side of a 56 to 43 final count.  In either case their negoatiating leverage goes down massively.  The new, marginally decisive Democrat moves from being Nelson to someone like McCaskill from Missouri who is far closer to the Democratic median and average position that any concessions on most issues to get her vote will be fairly small. 

So I can understand the gang that comprise the 57th to 61st votes throwing a hissy fit as this move would effectively render them powerless and their fundraising pitch perilous.

 

Lowering Emissions today

By Fester:

The Energy Information Agency has the issued its short term fuel and energy report for July.  There are notable drops in consumption in the US and around the world:

On Oil:

The global economic downturn curtailed world oil consumption during the second half of 2008 and the first half of 2009.  Compared with the year prior, world oil consumption was down an average of 3.0 million barrels per day (bbl/d) from the fourth quarter of 2008 through the second quarter of 2009.....

Total consumption of liquid fuels and other petroleum products is projected to decrease by 650,000 bbl/d (3.3 percent) in 2009 (U.S. Petroleum Products Consumption Growth Chart), including a decline of 280,000 bbl/d (7.0 percent) in distillate fuel consumption and 140,000 bbl/d (8.7 percent) in jet fuel consumption.  Motor gasoline consumption is projected to remain virtually flat as the significant price decline from last summer offsets some of the impact of the economic downturn.  Modest economic recovery in 2010 is expected to contribute to a 310,000-bbl/d (1.6 percent) increase in total liquid fuels consumption....

On Coal:

The projected electric-power-sector consumption of about 990 million short tons of coal in 2009 would be the first time since 2002 that annual consumption would be below the billion-short-ton level.  The 5.2-percent decline in coal consumption

SET Energy is doing some back of the envelope calculations and has some good news and a challenge:

Emissions projections for coal, oil, and natural gas were all lowered in its July Short Term Energy Outlook — meaning, by my calculations, that US emissions are expected to fall4.3% this year alone.

The Details

After 2008 witnessed a US emissions fall of almost 3% (due mostly to oil demand decreasing in response to higher prices), all fossil fuels are contributing to this year’s emissions drop. Coal has the biggest drop, now estimated to be ~6.9% due to lower industrial demand and low-priced natural gas replacing some coal in the electricity sector. Oil demand is revised downward from June to a fall of 3.3% for the year. And natural gas was revised downward to a consumption level 2.3% below 2008. All of these drops translate into energy-related emissions that are 4.3% below last year.

1990 Levels Not Far Away

Such a drop would make 2009 emissions just ~6.5% above 1990 levels and already 7.5% below 2005 levels. It would make 1990 emissions levels within reach by 2015 and the Waxman-Markey goal of 17% below 2005 achievable by 2017 (rather than 2020) by just reducing emissions 1% per year going forward....

The challenge is simple --- how does the argument that emissions can be reduced without significantly impinging on economic activity be made when the recency bias of emission reduction occurs within the context of a massive economic crunch and a significant drop in global trade?

The Price of a 'Decent Outcome'

By Fester

Ahh, a decent interval before America can forget and the idiots in charge can continue to be idiots and in charge.

Via IOZ:

Today in 2009 we’re in a lot of ways back to where we were four years ago—able for American forces to start leaving on a high note, confident that they performed their job with skill, and leaving Iraqi leaders with a handshake.

-Matthew Yglesias

Or you could say that in 2009 a tactically exhausted and strategically impotent American army is beginning a pullback, leaving behind a million or two (it is a mark, a stain, a dishonor, a horror that we frankly have no idea) extra dead and displaced Iraqis under the rule of a gangster president who looks ever more like his predecessor, whose ouster we sought at the cost of those hundreds of thousands of lives. You could say that the "high note" on which we depart, having made the world safe for British Petroleum, consists of a level of daily terror and violence, both on behalf of the extant state and on behalf of the various insurgencies, hold-outs, rebels, extremists, and others, that would fracture and destroy any internally peaceful western society. The "job" performed so admirably by American forces was the unprovoked invasion and occupation of a foreign nation, and the fact that the American military has subsequently managed to mop much of the blood from the gutters does not obviate or abnegate these facts.....

If anything IOZ has understated the case as the best estimate is several hundred thousand dead and 4.7 million refugees, or roughly one sixth to one fifth of the pre-war population dead or displaced. All that for a decent interval before the resource conflicts start up again....

Congress has few philospher kings

By Fester:

I like to live in the real world. It is messy, it is confusing, it often produces non-optimal outcomes (depending on the relevant constraints) but it is tangible. I can also live in a normative world where everything is neat, clean, organized and optimized towards the relevant constraints. However that world seldom exists. I often look for satisficing improvements instead of optimal solutions because the improvements are achievable.

I don't understand the critique of Waxman-Markley that Andrew Samwick and others are advancing in that it is a satisficaing improvement but non-optimal on several grounds:

Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.

Economically, a clean carbon tax and a clean cap and trade bill will do the same thing. They will both internalize the currently externalize cost of carbon dioxide emissions. There are two big differences. The first is that a a carbon tax is a price certain option while the cap and trade system is a quantity certain feature.  Secondly, cap and trade is economically more efficient as it allows for market discovery of prices of a scarce good instead of hoping that Congress can hit the right number at any given time for optimal economic efficiency for a given amount of emissions.  

 

His argument is that a carbon tax would be neater and less messy.  Lobbyists would not be able to claw out special interest exemptions and transfers and the legislation would be only several pages long.  He is arguing a straw man here in my opinion.  A properly designed cap and trade system could also be written in a fairly short and concise manner as well.

 

He is bitching and moaning about basic political incentives here.  A complex bill with exemptions, curlicues and who knows what else in it for concentrated interests is far more profitable to the relevant players than a simple, clean sheet proposal with no exemptions.  Dr. Samwick is implicitly arguing that a carbon tax would be less susceptible to this type of manipulation than a cap and trade regime.  I have severe doubts about that.  We have plenty of evidence that tax bills, even comparatively simple tax bills that are mere modifications of existing tax laws can and will be massively abused with exemptions, exceptions, partially refundable credits, donut hole deductions and anything else that concentrated interests can muster to improve their interests against the counterfactual of a clean bill.  The classic example is the agricultural bill where there are significant subsidies for sugar, mohair, honey and other products because there is a strong lobby for those interests while the public purpose of food security, public health and reasonably low prices for a wide selection of goods is often ignored. 

 

I have yet to see a good political reason why the concessions that the Democrats on the Agricultural Committee wanted and received to weaken the bill and make the bill more complex for cap and trade would not also be granted in a carbon tax system.  I think it is very reasonable to assume that Agricultural Committee Democrats would want land use carbon emissions to be exempted from the carbon tax or at least counted under a friendly system.  Those are the concessions that they basically got in cap and trade, and those would be the concessions they would have wanted from a carbon tax regime.  Otherwise they most likely and there would be nothing. 

 

Now if Dr. Samwick wants to argue that doing nothing now is a superior option as the costs of action and inaction escalate the pressure to pass a much cleaner bill that is more to his liking at some uncertain point in the future, that is a defensible argument.  However that is not the argument he is making.  He is whining that Congress is acting like politicians engaged in politics with attendant incentives instead of philosopher king technocrats who will agree with his preferred solutions.  Me, I’m happy for an improvement with the hope that institutional inertia will lead to a good process and outcome over time. 

 

 

On the MEND

By Fester:

MEND is a Nigerian insurgent/oil smuggling group that has effectively closed between a fifth to a third of Nigerian oil production potential for the past few years.  Their overt goal is to divert more oil revenue into the oil produce states' economies while a tacit goal may be to get rich smuggling oil.  MEND has been increasing the size and scope of their operations recently. 

Via Agence France Press:

The attack on Bille-Krakrama pipeline, which feeds the key Bonny export terminal in southern Rivers State, was carried out shortly after midnight Thursday.

This and other attacks, as well as future potential attacks against the brittle production network may be able to shut down the entire domestic energy market and force the government into an impossible position of credibility loss.

From the Nigerian Guardian:

Yesterday, the government admitted that it had no more crude for its refineries to process for local consumption.

Consequently, the Warri and Port Harcourt refineries have been shut. The Kaduna Refinery, though functioning, has no crude to process because the Warri plant, which feeds it is shut due to a damage to major pipelines. The only stock, which was reserved, will be exhausted in the next 15 days, the Nigerian National Petroleum Corporation (NNPC) said yesterday.

The corporation's Group Managing Director (GMD), Mohammed Sanusi Barkindo, who painted the pathetic picture of the industry, said in the next 15 days, it will run out of crude for domestic consumption.

The Nigerian government has very few options.  The first and their preferred option is for Alien Space Bats to abduct anyone involved in pipeline sabotage and publicly guarantee the pipeline security so that repair crews can get back to work in the next few days.  This is unlikely. 

The dilemma is that system sabotage is so cheap to execute and capital non-intensive MEND can credibly shut down the domestic pipeline system (and their own smuggling revenue streams) in the face of a large search and destroy sweep mission that will look good on TV but do nothing for security on the ground.

The Nigerian government can either concede the primary political goals of MEND and hope that there is enough internal policing and social cohesion to have all actors associated with MEND adhere to the agreement, or they can see their budgets blown up.  If local refined product production is shut down, the Nigerian government can either spend valuable hard currency on imports or see their entire urban economy come to a standstill.  The Nigerian government is in comparatively decent financial shape as they had been running decent size current account surpluses for the past few years so there may be cash reserves available to finance a few months of imports but MEND will have the ability to keep Nigerian hard currency cash flow negative for as long as they would like. 

Fungibilility and non-inteference

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By Fester:

The United States and the West have very little leverage in Iran. Global trade is falling fast, global credit is far less available now than it was three years ago, and oil prices are going up again in dollar terms past Iran's break even point. The US military is tied down in two wars, the rest of NATO either can not or will not deploy additional forces to Afghanistan to act as fungible units to free up US forces. There are not too many obvious and effective leverage points avaialble to nation states that want to lend support to the protesters or to harm the current regime.

The only plausible leverage point is economic. A complete embargo on the oil as a means of pressuring the ruling elite is being proposed. We know that sanctions have worked wonders on quickly overthrowing the Castro regime in Cuba.... instead of allowing the elites to blame outside actors for their own failings.
Raymond Lears at the Huffington Post proposes this idea without thinking through the consequences.

Though the United States does not currently import Iranian crude, the fungiblity of oil is such that our government espousing such a boycott would carry a meaningful impact. The cutoff of Iranian oil shipments through a buyer's boycott is entirely feasible in the structure of today's oil market. Inventories throughout the world are filled to overflowing, supertankers are loaded with 100's of millions barrels oil, lying at anchor at sea waiting for customers or storage on shore....Without the income from oil, Iran's dictatorship will be increasingly vulnerable.

There are several significant practical road blocks to this.

First is the political-economic one of domestic political support in Europe or Japan --- all of those economies are under as much or more pressure than the US economy with consumers retrenching, concerns about jobs and concerns about debt levels --- where is the political support for individuals to pay another ten to fifteen percent per gallon/liter if the boycott was 100% effective? That to me seems like the quickest way for a government to lose its mandate as they would be effectively be placing a regressive tax that would mainly be a transfer from oil consumers to non-Iranian oil producers.

The countervailing effect is that the boycott would not be effective as Iran would still be able to export several million barrels of oil per day to a different customer set.

We know that China has two primary current foreign policy concerns. The first is to maintain its supply lines for crucial raw materials. This is fueling the expansion of Chinese trade with Brazil and Australia as well as backing the Chinese influence push into Africa. Iran already has decent to good ties with China and as a customer of last resort, those ties would strengthen. The second major foreign policy concern for China is a concerted effort to push for a precedent of international non-interference in the internal affairs of nation states. China and its oil buyers will not be a part of a buyers' embargo.

The end result is public diplomacy masturbation as the embargo would be toothless while giving the current hardliners a validation of their story that they and the rest of the Iranian people are being pressured by foreign, colonialist influences. That is not a good solution

Economic Inefficiency as Damning Evidence....

By Fester:

The United States massively and expensively subsidizes local sugar production which means consumers pay higher prices and my soft drinks don't taste quite as good as they could.  We do this because of domestic political constraints and interest group politics that lock in preferential treatment to small, vocal and wealthy groups who are able to scream far louder for concentrated benefits than the mere murmurs from the vast majority of people who are minimally harmed by this policy. 

It is a stupid policy, but there is a rational explanation for the policy that is rooted in internal domestic politics.  There are plenty of policies that are less than economically efficient but make ideological or political sense. 

Dave Schuler is arguing that economic inefficiency is an indictment on Iranian nuclear ambitions:

Finally, while Iran has a right to pursue the peaceful application of nuclear energy doing so to maintain energy independence makes little sense and it’s a waste of Iran’s resources to do so. They can get more results for less money simply by modernizing their oil production facilities.

National prestige projects, of which nuclear energy is one, rarely have to pass cost benefit analysis.  It would be far more efficient for Iran to open up its entire energy sector to foreign investment and control, but there are strong ideological constraints that prevents this from happening.  It would be more efficient for the US Navy to buy foreign designed and built corvettes but ideological and political constraints prevent this as well.

Dave assembles a bit more evidence to argue against peaceful Iranian nuclear intentions, and that evidence is more convincing, but the economic efficiency angle is damn weak. 

Fear-Mongering Over Mileage

By BJ Bjornson

Obama got around to pushing for some new mileage standards for the US auto fleet, and immediately the wail went up that he’s going to cause thousands of American deaths because smaller cars are less safe.

The Obama administration's sweeping fuel-economy and emissions initiative announced Tuesday reopens a fierce debate over tradeoffs between fuel economy and auto safety.

The government says no tradeoff exists, because nothing in the new rules would force automakers to sell more small cars, which are more dangerous in crashes than larger ones. But some safety experts think otherwise.

. . .

The National Academy of Sciences, Insurance Institute for Highway Safety, Congressional Budget Office and National Highway Traffic Safety Administration have separately concluded in multiple studies dating back about 20 years that fuel-economy standards force automakers to build more small cars, which has led to thousands more deaths in crashes annually. Even though the standards were updated in recent years to reduce the incentive for automakers to sell more small cars by allowing different fuel-economy targets for different vehicles, the fastest way to make cars more fuel-efficient is to make them smaller.

Of course, there is another way to look at those statistics, as Carl at The Reaction notes:

Yes, I'm aware of the apparent rise in fatalities when automakers increase their car fleet, but look at those accidents more closely.

First, automakers in an attempt to cut corners make vital safety components out of cheaper material, rather than re-engineer a car for safety. Second, many of those fatalities occured in accidents with an SUV or pick up!

Substantially reduce the number of those on the road, and auto fatalities will decline permanently. It's a simple matter of physics. When two masses collide, the smaller mass usually bears the brunt of the damage.

There is little question that I wouldn’t want to be sitting in a Smart car and finding myself in a major collision with an Escalade or GMC Yukon, but replace those with a Civic or Camry and my chances for survival increase dramatically.

And the physics involved wipes out the advantage of being in the behemoth vehicle if you’re not running over the little Smart cars but running into other behemoths.  In fact, thanks to all of the extra mass/momentum involved, two giant vehicles running into each other causes a lot more damage than two smaller vehicles doing so.  Basically, the bigger is safer meme only works if everybody else is driving smaller vehicles.  Reduce the size of the biggest vehicles and you make the roads safer for everybody, not to mention making the vehicles more efficient and reducing the wear and tear on the roads.

Why it has somehow become a mark of conservatives to come out forcefully against efficiency, when even the Department of Defense is acknowledging that their massive use of oil is a problem, has never made any sense to me.  The simple fact is that the regulations Obama has proposed are relatively minor and easily met, and probably would have been met even easier and sooner had such improvements not been fought against madly for the last several decades.

Rising Oil Prices, Rising Stability?

By Fester:

For the past year, I have been banging the drum that governments that depend heavily on energy exports would be facing a significant cash flow and potentially balance sheet issue.  Energy prices were declining, and traditional forms of bridge capital were being shut down by the global credit crisis.  Even well hedged states such as Mexico had only short term hedges for FY09 and would be facing market exposure in FY10. 

The drum banging may need to quiet down a little bit as the dip down back to the mid 30's per barrel looks to be over and even reduced demand caused by the global recession is creating significant seasonal price pressures as the Northern Hemisphere high demand driving season starts this weekend. 

From the LA Times:

Oil rose above $60 a barrel Tuesday in Asia after investors took heart from signs the U.S. recession is easing.

Most of the oil exporting nations' budgets balance at a price between $ 50 per barrel (Saudi Arabia) and an estimated $80 per barrel (Iraq FY 10).  Oil moving back into the this zone reduces significant stress for oil exporting nations that do not have large foreign reserves as they no longer need to make as many tough decisions between attempting to access foreign capital or reducing spending and pissing off local elites whose patronage machine is being squeezed. 

Regulation Equalization

By Fester:

If a society wants more of something, that something is made comparatively cheaper than the undesired or less desired items.  And over the course of time, the background structure of that society will reflect the comparative pricing of the different options.  In certain cases, the less desired option is a vastly superior option so it will still exist but the default implementation will be the cheaper and more heavily subsidized option.  Changing the pattern of subsidy is a major change of societal assumptions. 

The Angry Drunk Bureaucrat has two relevant rules that I want to discuss today:

Rule #4: "It's about the money; follow the money."

Rule #18: "Money is not created equal."

Our society has decided to value automobile centric organization and habituation over most other forms of urban development.  This decision started in the 1920s and became most apparant in the 1950s.  And so we have undertaken a massive subsidy program for the automobile and shockingly we have created a built environment that is optimized for the automobile.

Reuters has a good piece on how we have done this in the Houston region:

 for now, the U.S. government will pay as much as 80 percent of the multibillion dollar cost of a proposed 180-mile ring road around Houston...even though it serves a thinly populated rural area.

In contrast, an expansion of the city's light-rail system is only eligible for getting 50 percent of the cost paid by the federal government, she said.

Yet more than 147,000 people live within a half-mile of the ten stations on the light rail system, Holzer said....

Houston's light-rail system was subject to voter approval as well as strict cost-benefit analysis and environmental provisions. Highways do not require voter approval, are not subject to such cost-benefit provisions and qualify for much more federal cash

Local stakeholders have to front less cash and have far fewer levels of hassles to get highways approved.  Shockingly, highways are approved and built quite frequently while non-automobile dedicated infrastructure is seldom built. 

Equalizing the regulatory hurdles would be a dramatic shift towards a denser and more urban future.  The equalization could be done either by increasing the share of rail, subway and bus-way projects that is paid for be the federal government, decreasing the share of the highway projects costs borne by the feds or a bit of both.  More importantly, the hurdles such as a full-scale CBA that is reluctant to address induced demand would make highways far less attractive compared to mass transit. 

This is a fairly small technical change that could have massive political and real-world impacts for decades to come as it would be a potential game changer on urban and inner-ring suburban infrastructure debates.