A Dose Of Renewable Energy Realism

An odd thing about the "climate" debates is the lack of much discussion of the practical challenges and costs of trying to convert production of energy for a modern economy to something near 100% "renewables," or maybe even something close to 100% from just wind and solar.  Currently, according to the EIA here, only about 10% of U.S. energy usage comes from all "renewables" combined -- and about half of that is from hydropower that is almost as much reviled by environmentalists as fossil fuels.  Trendy but intermittent wind and solar account for less than half the "renewable" share, at about 4% of the total usage.  Over in the "real energy that actually works" category, we find that more than 80% of U.S. energy usage comes from fossil fuels (coal, oil and natural gas), and the remaining about 8% comes from nuclear.   

So what is the problem with converting the U.S. economy over to almost entirely wind and solar over the course of the next few decades?  Can't we just build some more wind turbines and solar panels until we have enough of them to satisfy the demand?  In my post on Tuesday about New York Governor Andrew Cuomo's energy schemes, I cited Mark Mills's article for the proposition that New York already has wind turbines with about the same "capacity" as the Indian Point nuclear plant, but they produce only approximately one-fourth the amount of electricity over the course of a year.  So then, how about just building wind and solar facilities with four times the capacity of the existing fossil fuel or nuclear plants?  It might be a little pricey, but isn't this the complete answer to the problem?

If you think that might work, I suggest that you consider this January 10 article from something called Energy Post by prominent German economist Heiner Flassbeck.  The title is "The End of the Energiewende?"  Recall that Germany has managed to get its electricity production from solar and wind up to 31% of its consumption, averaged over the course of the year.  According to charts at a Wikipedia article here, as of 2014 Germany had installed wind "capacity" of about 40,000 MW, and installed solar "capacity" of another about 40,000 MW.  Presumably those numbers have gone up somewhat since.  Per a chart in Flassbeck's article reproduced below, Germany's average electricity demand is around 70,000 MW, with peak demand around 90,000 MW.  Doesn't that mean that the wind and solar should be supplying essentially all of the demand, rather than less than a third?

And of course the problem is that electricity production from wind and solar swings wildly and unpredictably back and forth from supplying all or nearly all of Germany's power some days to almost none on other days.  Flassbeck:

This winter could go down in history as the event that proved the German energy transition to be unsubstantiated and incapable of becoming a success story. Electricity from wind and solar generation has been catastrophically low for several weeks. December brought new declines. A persistent winter high-pressure system with dense fog throughout Central Europe has been sufficient to unmask the fairy tale of a successful energy transition, even for me as a lay person.

Here is Flassbeck's chart of total German energy demand and energy production for the first half of December 2016, with wind, solar and other "renewable" energy production broken out separately:

You can see that, although wind plus solar production sometimes met up to about half the demand, there were also two extended periods -- December 2 - 7, and December 12 - 16 -- when production from wind and solar was catastrophically low.  The worst days were the 12th and 14th:

Of power demand totaling 69.0 gigawatts (GW) at 3 pm on the 12th, for instance, just 0.7 GW was provided by solar energy, 1.0 by onshore wind power and 0.4 offshore. At noontime on the 14th of December, 70 GW were consumed, with 4 GW solar, 1 GW onshore and somewhat over 0.3 offshore wind. The Agora graphs make apparent that such wide-ranging doldrums may persist for several days.

At both of those times, they had sufficient wind and solar "capacity" to supply all of the electricity demanded; but the wind and solar facilities only provided about 3% of the demand at one of the times, and about 7% of the demand at the other time.  Fortunately, they had enough "conventional" facilities to supply the full demand.  But really, what good are the wind and solar facilities if, after building enough of them to have "capacity" to fulfill all of your need, you still literally can't afford to get rid of any of the fossil fuel facilities?

And then Flassbeck points out what he calls the "futility" of building still more wind turbines and solar panels:

[Even] three times the number of solar panels and wind turbines (assuming current technologies) could logically produce only three times the amount of electricity. The deficiency of prevailing winds and sunshine will affect all of these installations, no matter how many there are.  Even threefold wind and solar generation [on a day like December 14] would then fulfill just 20% of requirements. . . .    

So, to deal with a day like December 14, you would need wind and solar "capacity" equal to 15 times actual usage.  But even that wouldn't help you on the afternoon of the 12th, when it would have taken wind and solar "capacity" more like 35 times the usage to supply the demand.  

Many of the comments to Flassbeck's article are interesting.  Substantial numbers of the commenters agree that trying to get to 50% or more of a first world country's energy from just wind and solar is a complete joke.  But others think they have easy answers.  For example, commenter Helmut Frik says that on the same days of low German wind and solar production in December there were production records in Scotland and Sweden, presumably due to high winds there.  So, all they need to do is to build a big enough connector!  But of course, that assumes that on the maybe 20 or 30 days a year when Germany has no wind, Scotland and Sweden -- countries with combined population of less than 20% that of Germany -- will consistently have enough surplus wind power to sell to make up Germany's deficit.  As of now, Scotland and Sweden combined don't have remotely enough wind "capacity" to cover for a calm in Germany (their combined wind "capacity" is less than one-third that of Germany), and it's hard to believe they will be willing to essentially cover themselves over with wind turbines just so that they can bail out Germany a few days a year.  Who or what is going to pay for all those excess wind turbines the rest of the time?  And then, couldn't there be a day (or several days) when it is calm in Germany, Scotland and Sweden all at the same time?  It might be rare, but the big problem here is that you need to have a system that works all the time, even in the most extreme circumstances.  

Meanwhile, many of the commenters dismiss the proposed easy solutions as "fairy tales" or something similar.  I'm with them.  I would say that this is an enormously complicated engineering problem, where any potential routes to get a majority of energy from wind and solar are extremely expensive and still likely to work imperfectly.  Private investors are way to smart to even try, when we have abundant fossil fuel energy that works just fine and is ready for the taking.

Socialist Death Spirals, Young And Mature Versions

Every month when I pay my subscription fee for the print edition of the New York Times ($70.40 -- ouch!) I swear that this month will be the last.  But somehow I'm having too much fun bashing them to give it up.  One of my posts about Pravda a couple of weeks ago suddenly got about 50,000 readers (and counting).  So perhaps you readers out there -- particularly those who have had the good judgment to discontinue your Times subscriptions months or years ago -- would enjoy another post on today's dose of cluelessness.

We find on the front page of today's New York Times two big lead stories.  The one on the left is about the current economic crisis in Venezuela: "Risking Lives to Flee Ruin/Hungry Venezuelans Flock to Boats as Economy Collapses."  On the right, it's about Obamacare: "Where Trump Won, Many Want to Keep Health Care/Florida Offers Glimpse of G.O.P.'s Obstacles in Trying to Undo Obama's Law."   Now, in multi-thousands of words in these two articles put together, can we find any mention or recognition that these are two examples of a single economic phenomenon, namely the inevitable failure of socialism?  Of course not.  Indeed, a fair description of the Obamacare article is that it argues for continuation of the law without any change, and without containing any recognition that the current structure is not sustainable.

I started writing about the phenomenon of the Socialist Death Spiral in June 2015 here.  In a post in April 2016, I had this to say specifically about Obamacare:

There's every reason to think that Obamacare is in the early stages of a socialist death spiral.  After all, all you really need to know to predict a socialist death spiral is that people aren't stupid.  As soon as the government puts you on the "from" side of "from each according to his abilities, to each according to his needs," you start to spend your waking hours figuring out how to minimize or otherwise get out from under the confiscation. 

Of the Times's two articles today, the one on Venezuela is far the longer, and should be given at least a little credit for slightly associating the economic collapse with the explicit Socialism of the economic program that caused it:

And as Mr. Chávez’s Socialist-inspired revolution collapses into economic ruin, as food and medicine slip further out of reach, the new migrants include the same impoverished people that Venezuela’s policies were supposed to help.

But aside from that one mention of the genesis of the problem in Socialism, the rest of the article -- several thousand words -- is mostly just a litany of stories of the thousands now fleeing and the hardships they are suffering. For example:

Desperate Venezuelans are streaming across the Amazon Basin by the tens of thousands to reach Brazil. They are concocting elaborate scams to sneak through airports in Caribbean nations that once accepted them freely. When Venezuela opened its border with Colombia for just two days in July, 120,000 people poured across, simply to buy food, officials said. An untold number stayed.

Do you mean that government efforts to provide for all by massive universal handouts can end in disaster?  The conclusion is never explicitly drawn.    

Over in the Obamacare article, the theme is that hundreds of thousands of people, even including some Trump supporters, have come to "depend" on the new Obamacare subsidies to obtain "health care."  

Ninety-one percent of plan holders in Florida this year receive premium subsidies — a higher percentage than in any other state — and 71 percent also have reduced deductibles, a benefit available to people at or below 250 percent of the poverty level.  Some of them, like Ms. Carmeli, voted for Mr. Trump. She pays $45 toward her monthly premium, with a subsidy of about $600 covering the rest.

Is there any possible problem with that?  Not that you'll find in this article.  If people have come to "depend" on a government handout once given, how could anyone be so cruel and heartless as to suggest that it should not be continued forever?

Well, Obamacare is still in what we might call the "young" phase of the Socialist Death Spiral.  It couldn't all fall apart some day, could it?  You can always look to the "mature" version of the death spiral if you want the answer.  Venezuela is a current example for anyone willing to look.

And a special bonus, try this lengthy article on the death of Fidel Castro.  It didn't make it into today's print edition, but is available online.  It's too long to quote extensively here, but a fair summary is that, despite some recognition of "repression" and "abject poverty," the Times still cannot let go of its fundamental admiration of this brutal dictator.  For a far more straight assessment of economic conditions in Cuba after 50+ years of the Castro dictatorship, try this article by Scott Beyer in National Review last October.  Average wages in Cuba are about $20 per month.  We can have that too if we pursue far enough the economic policies advocated by the Times!  Cuba is the really mature version of the Socialist Death Spiral.  Should we start a pool on how long the dictatorship lasts now that Castro is gone?  

Who Gerrymandered The Boundaries Of The States?

The subject of lawsuits challenging gerrymandered legislative districts has been relatively quiet since the Supreme Court's decision in Vieth v. Jubelirer back in 2004.  In that case the Supremes essentially found the whole subject of whether a redistricting has been used by one political party to disadvantage the other to be non-justiciable in almost all cases.  (Racially-based gerrymanders remained an exception.)  Prior to that decision, the courts had from time to time entertained challenges to particularly egregious gerrymanders, but had struggled to come up with any coherent generally-applicable test to distinguish the permissible from the impermissible.  In such ambiguous circumstances, almost any redistricting could bring forth a barrage of lawsuits.  Really, in the absence of any clear standard for what you could and couldn't do, it would almost be political malpractice for the winners of the most recent elections to fail to redistrict in a way to disadvantage their opponents at least a little.  

Vieth put an end to most of the endless litigation; but it did not quite completely end the issue.  That's because Vieth was what is called a plurality opinion.  Four judges joined the main opinion (written by Justice Scalia); four dissented (in three separate opinions written by Justices Stevens, Souter and Breyer); and the final justice, Kennedy, joined with Scalia on the result, but with different logic.  Basically, Kennedy agreed with Scalia that nearly all political gerrymanders are non-justiciable, but held open the door just a teensy crack that if one was bad enough it could be challenged:

A decision ordering the correction of all election district lines drawn for partisan reasons would commit federal and state courts to unprecedented intervention in the American political process. The Court is correct to refrain from directing this substantial intrusion into the Nation’s political life. While agreeing with the plurality that the complaint the appellants filed in the District Court must be dismissed, and while understanding that great caution is necessary when approaching this subject, I would not foreclose all possibility of judicial relief if some limited and precise rationale were found to correct an established violation of the Constitution in some redistricting cases. 

And what, pray tell, is the "limited and precise rationale" that might justify federal judicial intervention into a redistricting process conducted by a state legislature?  Kennedy forthrightly admits that he is unable to articulate it -- it's just that he doesn't want to foreclose forever even the possibility that somebody some day might come up with such a thing.  Meanwhile, each of Stevens, Souter and Breyer took a crack at the challenge, coming up with three different proposed tests.  And Scalia ridiculed the whole project, pointing out that not only were three different tests proposed in this case alone, but prior case law contained multiple proposed tests which were also different from the ones proposed by the dissenters.

Fast forward twelve more years.  Justice Scalia has died.  Justices Stevens and Souter have left the court.  And a three-judge District Court panel in Wisconsin, by a 2-1 vote, has just invalidated the 2011 redistricting plan adopted in Wisconsin by its legislature, in a case called Whitford v. Gill. It seems that when the 2011 redistricting came along, Wisconsin's Republicans had just retaken control of the state legislature and undertook to redistrict to their advantage.  In the 2012 election, for example, the plaintiffs in the case claimed that the Republicans won 48.6% of the votes for the state Assembly, but 61 of 99 seats.  Shocking!

There's no way this decision would pass muster under Scalia's plurality opinion in Vieth, so these judges must be playing to Justice Kennedy.  What, then, is the "limited and precise rationale" adopted by this court that would support judicial intervention only in egregious cases?  Here is the test that this court articulates:

[T]he First Amendment and the Equal Protection clause prohibit a redistricting scheme which (1) is intended to place a severe impediment on the effectiveness of the votes of individual citizens on the basis of their political affiliation, (2) has that effect, and (3) cannot be justified on other, legitimate legislative grounds. 

Doesn't sound very "limited and precise" to me, but what do I know?  (By the way, in case you are interested, the majority opinion was written by Judge Kenneth Ripple, who normally sits on the Seventh Circuit and was appointed by President Reagan.  The judge who joined the majority is Barbara Crabb, appointed by President Carter; and the dissenting judge is William Griesbach, appointed by President George W. Bush.)  Dissenting judge Griesbach makes a number of good points in his opinion, including that a far more egregious gerrymander in Indiana was upheld by the Supreme Court in 1986, and that a concept called the "efficiency gap," cooked up by experts for the plaintiffs, makes no sense as part of some kind of constitutional standard for gerrymandering cases.  The "efficiency gap" purports to be a measure of the effectiveness of each voter's vote toward actually electing a representative, and is calculated by comparing the number of votes for candidates of each party to the number of legislative seats won by that party.  The plaintiffs had offered the "efficiency gap" as their effort to find the "limited and precise" rationale that Justice Kennedy is looking for; but the majority did not use that "gap" as the deciding factor, and rather relied on it only as evidence of supposedly wrongful partisan intent.

In latching onto the "efficiency gap" concept, even if not as the sole gravamen of its decision, the court's majority essentially bought into a fallacy.  Sorry guys, but even in the absence of gerrymandering, there is no inherent reason why the percent of seats in a legislature should match, or even be be very close to, the percent of voters who vote for each party.  For example, consider a state with an electorate that is about 55% Democrat and 45% Republican, with the voters of each party evenly spread throughout the state; and assume that there is a complete absence of gerrymandering.  It is entirely possible that the Democrats would win every single seat, and highly likely that they would win way more than 55% of the seats.  As another example, the Conservative Party (Tories) in England often win an absolute majority of seats in Parliament even though they win only around 40% of the vote.  This happens because their opponents split the left-wing vote among multiple parties.  

Anyway, this Wisconsin case now goes direct to the Supreme Court under an unusual procedural statute that sends this type of case to three-judge panels first and then straight to the Supremes. For reasons stated, I think the reasoning of the case is weak, and maybe even so weak as to fail to attract some or all of the "liberal" votes on the Court.

If the subject of gerrymandering intrigues you, I'll give you a couple of additional situations to ponder.  In the world of naturally-occurring factors causing a big "efficiency gap" for voters in the absence of (very much) partisan gerrymandering, consider my own home state of New York.  In both national and local elections, our state-wide electorate in recent years has voted consistently about 55-60% Democrat and about 40-45% Republican.  Theoretically, a perfect gerrymander orchestrated by Democrats could give them nearly every seat of both houses of the legislature and of the Congressional delegation.  To achieve that result, the redistricters would somehow have to assign collections of Democratic New York City voters to upstate districts, creating a map that no one can even imagine.  In the real world, New York has what might be viewed as a "natural gerrymander" that substantially favors the minority Republicans.  The Democratic voters are concentrated in small areas (mostly New York City, plus upstate cities like Buffalo and Albany), while the Republicans are spread across the state in large areas where they have small but consistent majorities.  In any map of reasonably contiguous and compact districts, the Republicans continue to win large numbers of seats.  Result:  the Republicans just won 9 of 27 Congressional seats, and they actually have control of the State Senate!

And then there is the United States as a whole.  For the second time in just the last five elections, the Republicans have won the electoral college in a presidential race while losing the popular vote.  If the state boundaries had been drawn by an evil cabal of back room Republicans, it is hard to imagine that they could have come up with a much better gerrymander of the United States for electoral college purposes than the state boundaries as they exist.  The Democratic votes are heavily concentrated in a few places (California, New York, Massachusetts, Illinois, Maryland, D.C.), where they are then "wasted" (in the terminology of the Whitford case).  Here are a couple of extreme scenarios that are completely possible given our state boundaries as drawn:

1. In the recent election, Hillary Clinton won the popular vote in California by about 3.5 million votes, and in New York by about 1.5 million votes, for a margin of about 5 million votes from just those two states.  Consider a future Democratic candidate who wins just those two states by the same margins, while the Republican wins all the other states (and even D.C.!) by margins of 100,000 per state.  The Democrat wins the popular vote by 100,000, while the Republican wins the electoral vote by 454-84.
2. Or consider an election in which the Democrat wins all the states won by Clinton, and by the same margins as Clinton, while the Republican wins the states won by Trump, but by only 100,000 per state.  The electoral college majority for the Republican would be the same as Trump's 306-232 margin over Clinton, but the Democrat would have won the popular vote by some 10 million or so, while losing the election.

This all seems to be working to the tremendous advantage of the Republicans these days, but remember that it was not always so -- and the pendulum could easily swing back.  Probably the most famous gerrymander in my lifetime occurred when the Democrats took control of the legislature of formerly-Republican California in time for the 1981 redistricting.  California's house delegation promptly went from a 21-21 Democrat-Republican split to 28-17.  That handiwork was not overturned in court, but so offended the voters that they ultimately imposed a redistricting commission system.  Meanwhile, California has become so heavily Democratic that its Congressional delegation has gone to 39-14, even in the absence of (egregious) gerrymandering. 

More Counterproductive Progressivism: CFPB

A recurring theme here is the paradox that progressive policies supposedly designed to help the disadvantaged somehow end up making the intended beneficiaries worse off.  Thus, for example, we find that the jurisdictions that try hardest to decrease income inequality by collections of government handouts and welfare programs then end up with the highest measured income inequality in the country; that Obamacare, supposedly intended to make health insurance "affordable" for all, ends up with huge price increases, pricing lower-middle-income people out of the health insurance market; that dramatically increased minimum wages render many minority youth unemployable; and so forth.

This past week, I attended the Federalist Society conference in Washington, and was introduced to another dramatic instance of the same phenomenon that I had not previously appreciated.  This is the extent to which so-called "consumer protection" regulations, supposedly designed to protect lower-income and disadvantaged people against being taken advantage of by banks and other large financial institutions, instead actually harm the intended beneficiaries.  The harm takes the form of making bank accounts and credit (including credit cards) less available to such people.  Much of the harm has been done in very recent years by the Consumer Financial Protection Bureau, an entity newly-established in 2011 under the 2010 "Dodd-Frank" financial regulation law.

You will recognize the CFPB as being the personal baby of crusading progressive Massachusetts Senator Elizabeth Warren.  Here is a bio on her from Wikipedia.  Prior to her election as Senator in 2012, Warren used her perches as a professor at Harvard Law and as a top Congressional staffer to advocate for the creation of what became the CFPB, and she was influential in creating the highly unusual structure of the agency.  (That structure includes funding independent from Congressional appropriations via the Federal Reserve, and a sole administrator supposedly immune from firing by the President.  That last provision was declared unconstitutional by the D.C. Circuit in October.)  Immediately after passage of Dodd-Frank, Warren was appointed by President Obama as "Special Advisor" in setting up the agency.  Upon its creation, she then aggressively angled to get the non-firable position that she had designed; but it went to Richard Cordray instead.  So she ran for the Senatorship from Massachusetts, and the rest is history.  (Although Cordray's position was supposedly protected under the statute, now that that protection has been declared unconstitutional, it is widely expected that new President Trump will promptly demand his resignation after the inauguration.) 

So how have recent financial regulations supposedly designed to protect the disadvantaged fared in achieving their intended goal?  At the Federalist Society convention, a professor from George Mason University, Todd Zywicki, presented some extensive research on the subject.  The most important part of his presentation was derived from Senate testimony that he gave in April 2016, and that is available here in pdf form.  The takeaway:

The tragedy of Dodd-Frank and the CFPB is that it squandered this unprecedented opportunity to modernize the consumer credit system to promote competition, consumer choice, and innovation. Instead, the post-crisis regulatory framework has resulted in higher prices and reduced choice for consumers and little improvement in consumer financial protection. Indeed, by stifling competition and driving millions of Americans out of the mainstream financial system, it may actually result in more consumer protection problems. 

What about Dodd-Frank generally and CFPB in particular led to such results?  Zywicki's testimony contains a long list of statutory provisions and regulatory actions that in the aggregate have limited fees that institutions could charge, and raised their costs of compliance and dispute resolution, leaving them unable or unwilling to deal with low income or low credit score consumers.  Such actions and provisions have included: limiting "interchange fees" on debit card transactions (the so-called "Durbin amendment" of Dodd-Frank); limiting fees for things like overdrafts and credit lines; prohibiting arbitration and restrictions on class actions in dispute resolution; and aggressive discretionary enforcement by the CFPB, leading to many high-cost settlements by banks of dubious claims, without adjudication.  

Zywicki's research documents dramatic adverse effects of these actions and provisions on low-income consumers, on multiple fronts: decrease in availability of free checking accounts (which occurred almost immediately after the enactment of Dodd-Frank); decrease in the availability of credit cards to people with low credit scores; and decrease in the availability of mortgages to people of low income and/or low credit score.  For example, as to credit cards:

Consumers have also suffered a loss of access to credit cards in the post-crisis era, not only because of Dodd-Frank but also the impact of the Credit Card Accountability Responsibility and Disclosure Act—and once again, low-income consumers have suffered the most. According to the CFPB’s own estimates, the period between July 2008 and December 2012 saw the closure of 275 million credit card accounts and elimination of $1.7 trillion in credit card line of credit. Overall, the CFPB found a significant decline in the percentage of households that had cards, from 76 percent to 71 percent. But even this figure understates the disproportionate impact on low-income consumers. According to Federal Reserve Board economists Glenn Canner and Gregory Elliehausen, the percentage of households in the lowest quintile of credit scores with credit cards fell from 65 percent in 2008 to 54 percent in 2010.  Loss of access to credit cards has forced those consumers into great reliance on higher-cost products such as payday loans and overdraft protection. 

The bottom line in each instance that Zywicki analyzes is the same: when banks withdraw from a given market due to regulatory burden and hostility, the breach gets filled by much higher-cost and shadier operators like check cashing services, pay-day loan providers, pawnshops, and the like.  For the poor and low-income consumers, it all means less availability of bank accounts and credit, and at much higher cost.  Congratulations, Senator Warren!  You might think that Elizabeth Warren must be "smart," because, after all, she was a professor at Harvard Law School.  In fact, the entire great depth of her thinking consists of the idea that if the federal government orders something, then it will be so, without any adverse or unintended consequences.  And, when the adverse and unintended consequences inevitably emerge, she blames the evil bankers.  Is this the best that the Democratic Party can do?      

What Is With This Infrastructure Fetish?

Donald Trump and Hillary Clinton didn't agree on much during the recent campaign, but one thing they agreed on mightily was the need for massive new federal infrastructure spending.  Trump's proposal was a $1 trillion spending program (love those huge round numbers!) over ten years.  He was as usual light on specifics, but mentioned things like "airports, highways, bridges and pipelines."  (Is it now going to be a taxpayer responsibility to pay for building pipelines?)  Hillary's proposal, while more complex and mind-numbing, came to essentially the same thing:  $500 billion, but over five years, broken into $275 billion of direct spending and another $225 billion that she was supposedly going to "leverage" by creating an "infrastructure bank" and giving it access to federally-backed credit.  (How has that kind of scheme worked out with, for example, Fannie and Freddie?)

Elsewhere, it's hard to find anyone to say a bad word for increased infrastructure spending.  Hey, our infrastructure is "crumbling"!  Infrastructure spending was the supposed linchpin of the Obama "stimulus" of 2009 - 10.  (Do you remember "shovel-ready projects"?).  Keynesian economists like Paul Krugman have been advocating for greatly increased infrastructure spending for years.  (For example, February 27, 2016: "[E]conomics makes a powerful case for (much) more infrastructure spending.")  The document containing Hillary's proposal advises that "every $1 billion in infrastructure investment creates 13,000 jobs."  Does that mean that $1 trillion in such "investment" will "create" 13 million jobs.  Wow, that's almost double the number of people reported by the Labor Department as unemployed!  Sounds great!

So let the Manhattan Contrarian be the first to pour a little cold water on the excitement.  The chance that a massive federal infrastructure spending initiative can be a net wealth creator rather than a wealth destroyer is just about zero.  Paul Krugman is not smart enough to ever figure that out, but you are.  Just think about it for a minute.  The key to enhancing wealth is using all resources as effectively and efficiently as possible.  A huge pile of seemingly free federal infrastructure money will immediately bring forth thousands of projects whose costs cannot be justified ("bridges to nowhere") looking to get in on a cut of the loot.  Many of them will then be built -- thereby diverting resources from making millions of the things that the people could have spent their own money on if it had been left up to them.  When people spend their own money, they spend it cost-effectively.  That's why capitalism works.  When the government spends vast sums without cost-effectiveness criteria, the people become poorer, not richer.

Now, I am not at all saying that all federally-funded infrastructure spending is always a net negative.  Far from it -- much federally-supported infrastructure has greatly enhanced the wealth of this country.  But the key is maintaining the criteria that the idea is to fund only the most necessary and useful projects, and at the lowest possible cost.  When those criteria are discarded in favor of "we want to spend as much money as we can and as fast as possible," the outcome cannot be good.  

Examples are legion of federal infrastructure money incentivizing the construction of unjustifiable boondoggles.  Let's consider a notable example here in my own neck of the woods.  

Fifteen years ago, in the emotional aftermath of the 9/11 attacks, the federal government was in a poor position to resist demands from New York for a pile of "rebuilding" money much bigger than the World Trade Center had ever cost to construct in the first place.  The next thing you know, the feds had put up $20 billion.  Where should we spend all that free money?  One thing that had been destroyed in the attacks was the station for the subway trains that come into lower Manhattan from New Jersey.  Time to build a new station.  The old station at the surface was little more than a big bank of escalators leading down.  The ridership at this station has long averaged about 50,000 per weekday (and only about 10,000 on weekend days) -- substantial numbers, but plenty of the other major subway stations in New York have higher ridership.  At those other stations -- like Times Square, Grand Central, and Union Square -- the above-ground manifestation of the subway station also consists of nothing more than some stairways or escalators leading down.

Here is what the Union Square subway station looks like at the surface:

14th Street/Union Square subway station at the surface

But with all that free money lying around, the Port Authority went out and commissioned over-the-top Spanish architect Santiago Calatrava to design the subway station to beat all subway stations.  In the early 2000s, Calatrava came up with a design for a huge building, sometimes called the "stegasaurus," that has been under construction literally ever since.  It finally opened in August 2016, although small amounts of work continue on finishes.  Here are pictures outside and in:

World Trade Center Transportation Hub exterior view

World Trade Center Transportation Hub interior view

Annual ridership at this station is well less than half that at Union Square.  You can see how lonely those few passengers look in the midst of the vast space of the new station.  The cost of this station was originally projected to be about $2.3 billion, but of course soared during the near-decade-long process of construction.  The curbed website here puts the final cost of this station at about $4.4 billion.  Not a penny of it can or will be covered by the fares paid by the passengers.  No problem -- it all came from the vast pile of free federal "infrastructure" loot.

Now, if you are coming to New York from points south (like Philadelphia or Washington), and your destination is somewhere in lower Manhattan, I highly recommend this new station as an entry point to the city.  Get off the Amtrak train in Newark, walk across the platform, and take the PATH train to the World Trade Center station.  You will get an appropriate sense of the significance of entering our nation's business capital.  It's quite magnificent.  And, since the opening a few months ago, ridership does seem to have ticked up a little, to close to 60,000 per weekday, rather than the previous 50,000.

But really, $4.4 billion?  An expenditure like this could only happen when the decision process becomes completely unmoored from any concept of cost-effectiveness.  Unfortunately, that's where the "infrastructure" fetish seems to be leading us.        

Will President Trump End The War Against The Economy?

It's far and away the biggest unknown facing the country now that Donald Trump has won the presidency:  Will he end the war against the economy?

First, we should acknowledge that the economy is not what it should be.  Certainly, that is the perception of many if not most Trump voters.  But, you say, the unemployment rate has steadily declined under President Obama, from a peak around 10% in 2009, to where it is now down under 5% (actually, it's 4.9%) in the most recent report.  Isn't that a good measure of full employment?  Not really.  As many have noted, even though what the BLS reports as the unemployment rate is in what should be "full employment" territory, something else called the "labor force participation rate" (LFPR) is telling a different story.  The LFPR (number of employed plus those seeking work divided by all population age 16 and up) was over 66% prior to the recession, and today remains below 63%, a decline of about 3.5%.  Total population 16 and up is around 240 million, so that 3.5% represents around 8 million people, a number which actually exceeds the number reported as "unemployed."  If you were to add that additional 8 million working-age people into the labor force, suddenly the unemployment rate would be right back at 10%.  So there is every reason to think that there is serious sluggishness remaining in the economy, even after what is now over seven years of the Obama "recovery."  Those 8 million people, although reported as not seeking work, are still an overhang on the labor market, and probably are the big reason why we still don't see labor force tightness forcing wages up.  (Has the Obama Labor Department been reporting the unemployment rate honestly?  I seriously doubt it, but I have no way to check.)

So why is there this significant sluggishness after seven years of a recovery?  Many progressive commentators say they have discovered a so-called "new normal" in how the economy works.  Things are just so much more complex today than they were in the innocent past!  Automation! The internet!  Or, you could buy into the Trumpian narrative:  The Chinese and Mexicans have been stealing our jobs.  It's free trade and immigration that have undermined our economy!

The problem with both of those narratives is that increasing complexity, automation, free trade and immigration have all occurred in the past and never been inconsistent with a robust economy and full employment.  Nothing about any of those things should prevent a free economy from reaching full capacity at most times.  But there is something else that can keep an economy permanently sluggish, namely the active hindering of economic activity by a predatory government.  Which we have had in spades under Obama.

I have written several posts in the past about what I have called Obama's "War Against the Economy."  For example, here is a long post from 2013.  Any one of Obama's individual initiatives might be something that you actually support.  But if you look broadly at the full range of Obama's policies that have made doing business more difficult and more costly, it kind of takes your breath away.  No wonder the economy is sluggish!

• Energy.  They have stopped pipeline construction.  The EPA has attacked the coal industry on all fronts.  Development of fossil fuel resources on federal lands is obstructed with every device they can think of.  They hand out wealth-destroying subsidies to uneconomic "renewable energy" companies.  Multiple regulations seek to intentionally drive up the price of electricity.
• Obamacare.  Obama promised that his signature act would cut the cost of health insurance, while his critics said that economics can't work that way and the cost would shoot up.  The critics have been proved right.  The Act has vastly increased federal spending, while creating powerful incentives for small companies to stay under 50 full time employees to avoid cost-prohibitive mandates.
• Regulation.  An explosion of complex and expensive regulations has made "compliance" the biggest growth industry in the U.S. -- an industry that adds exactly zero to the wealth of the people.  As the most notable example, the multi-thousand-page Dodd-Frank law to regulate the financial industry has made it next to impossible for small banks that cannot afford hundred-lawyer compliance staffs to continue to exist.  For the first time in the history of the country, banks are not lending to their full lending capacity, and sit on massive "excess reserves."
• Labor Department.  Huge numbers of employees have been added to the ranks of those covered by inflexible strictures like wage, hour and overtime rules.  The NLRB has purported to outlaw the franchise business model and make franchisors the employers of all who work for the franchisees.
• Government spending and debt accumulation.  Spending went up by about $1 trillion per year in the early years of the Obama administration, as a supposed "stimulus," and then never went back down.  Was any of the added spending productive?  Not that I noticed.  Bonded debt about doubled, from about $9 trillion to $18 trillion.  There was no effort whatsoever to reform entitlements.
• Increasing handouts.  While traditional welfare (now going by the acronym TANF) has remained fairly steady under Obama, other handouts like food stamps (SNAP) and Social Security disability have exploded.  These things come with powerful incentives to the recipients to induce them to not work, or work less, or at least not report their income to the government.

This could go on, but you get the picture.  In the aggregate, these initiatives and many others like them constitute a very major drag on economic performance.  Getting rid of all these drags on the economy is what could get the extra 8 million people employed.  Starting a trade war won't accomplish the job, and indeed would almost certainly make things worse.

Professor Richard Epstein last week published an "Open Letter to President Trump" at the Hoover Institution web site.  After recommending in the strongest terms to avoid a trade war, here are the guts of Epstein's advice:

[T]he campaign to deregulation domestically has to take place through all the government agencies, whether they deal with environmental, securities, communications, trade, or any other issue. We do not need the clean power plan in its current form, or for that matter, the clean water plan; we do not have to get detailed information, world-wide, of the wages of the median worker; we do not need programs of net neutrality; we do not have to have the Consumer Financial Protection Bureau (whose head, Richard Cordray, you are now entitled to sack) to run roughshod over various credit markets. There is here a relatively simple prescription: whatever the Obama administration has done by regulation, undo.

There are, of course, many issues that cannot be done by executive order, and you should not try to imitate the worst Obama abuses in unlawfully expanding your authority. But it should be painfully obvious that the two major legislative mistakes of the Obama administration have to be [un]done by ending the various mandates under the Affordable Care Act—a horrible misnomer—for the individual and employer markets. There will clearly have to be something to put in the void, for which the Healthy Indiana Plan is a good place to start. And clearly something has to be done to remove most of the key provisions of the Dodd-Frank legislation that causes far more mischief than it prevents. And we must move to follow the world-wide practice of allowing the repatriation of profits earned abroad by American firms without a new round of corporate taxes.

Anyway, with Hillary as President, none of this would have been a possibility.  With Trump as President, at least we can have some hope.