Gas Mileage and EPA

I stopped by the tire shop today, and while I was waiting, I picked up a copy of Popular Mechanics.  I happened upon an interesting article about car mileage (the magazine was dated January 2006).  PM was testing the accuracy of the posted mileage.  As it turned out, the window sticker mileage, as reported by the benevolent EPA, fell well short of what the PM drivers actually got driving the car.  Imagine that!?

My first thought was “the EPA is duping consumers into buying a car with better gas mileage”.  After all, if you care about the environment, you’ll buy a hybrid, right?  The second thought in my head was “why is the EPA, or anyone else for that matter, legally obligated (federal law) to post mileage on the sticker of the car, especially since they cannot be relied upon for accuracy?”  If I want accurate mileage figures, I’ll do the research myself, thanks.

 

I also learned the EPA will be changing the way it reports gas mileage on the sticker of the car.  They are adding a lettering system to the normal skewed mileage figures.   As you can imagine, cars getting government-approved gas mileage will receive a letter of A or B, while cars getting non-government approved mpg will get a letter of D or F.  No, I’m not kidding.

This is nothing more than government attempting to guilt consumers into buying a more fuel-efficient vehicle, and it’s shameful.  Naturally, the EPA denies it is trying to influence consumers, but I give the EPA an F for honesty here.  If they truly wished to inform consumers about mileage, they’d leave it to some unbiased and more reliable third party to do the reporting. 

Land of the Free? Not so Much.

Heritage Foundation publishes, on a regular basis, its index of economic freedom.  This chart is for 2010.  You can find this graphic at http://www.heritage.org/index/ranking, and it’s worth visiting.  The website allows you to drill down into the data and discover much more about the rankings.

 

What’s very disheartening is the U.S. ranked 8^th overall, actually falling 2.7 points from the previous score.  That’s the wrong direction.  Not only is our overall score troubling, but so is our score in relation to other countries.  Some of these might surprise you.

On “Trade Freedom”, 37 countries bested the U.S.  Some of those countries were Israel, Romania, and Turkey.

On “Property Rights”, 19 countries fared better than the U.S.  Countries beating us were Chile, United Kingdom, and Hong Kong.

Our lowest score was a 58 for “Government Spending”.  Our highest score was “Labor Freedom” at 94.8.  In our quest to become “safe and sound”, we are actually becoming less free.  We are trading liberty for the appearance of safety.  We are allowing our government to take what’s most precious, all in the name of “safety” or “it’s good for you”.  

“Government big enough to supply everything you need is big enough to take everything you have ... The course of history shows that as a government grows, liberty decreases.” ~ Thomas Jefferson.

Now Hiring: Uncle Sam

Source: OMB

Here’s a graphic tale of the federal workforce over the last three administrations.  We only have about two years of data for the current administration, but it’s easy to see that Obama went on a drunken hiring binge over the past several months.  I wonder what these people are doing?  What could justify such a surge in federal hiring?

With unemployment at 9.8%, Uncle Sam has certainly picked up some of the slack in the private sector.  Of course, for every federal worker, we need several private workers to pay their salary.  Anyway, just an interesting picture of the federal workforce.  Enjoy.

The Rule of Law

I’m reading Road to Serfdom by Hayek and was struck by the chapter on Rule of Law.  While nearly every chapter could be applied to today, I found this chapter particularly applicable.

In a capitalist society, accurately predicting the future is necessary for firms and individuals to plan and deploy their capital and labor.  Uncertainty can easily become an impediment to growth (I think we’re seeing a lot of this happening now).  Of course, no one can predict the future with absolute precision, but in a free society, we have the Rule of Law as a guide.  The Rule of Law serves as a limit to the coercive actions of the state, denying it the authority to act arbitrarily against individuals or firms.  Without this limit, no firm or individual would risk resources fearing the state might act to defeat or confiscate their property.

I’m afraid, though, that over the past two years, the state (federal government) has marginalized this all important referee and encroached into dangerous territory.  The state has done this through a variety of avenues, including direct legislation and by federal rule making.

 

The several federal agencies, such as the EPA, DHS, and FCC, issue on a regular basis new rules affecting firms and individuals across major sections of the economy.  Think what you will of these new rules (which carry the effect of law), but they inject uncertainty into a once stable business model.  Just this week the FCC granted itself authority to enforce so-called “net neutrality”, despite calls from over 300 congressional representatives and a recent federal appeals court decision.  The action by the FCC will undoubtedly be challenged in court and most likely taken up in the next Congress, but it underscores the danger in allowing unaccountable and unelected bureaucrats to impose arbitrary regulation.

Additionally, this administration has expressed frustration in Congress for failing to adopt national “cap-and-trade” legislation (passed by the House, failed in Senate).  As a result, it has pledged to by-pass Congress and use the EPA to accomplish its climate-change agenda.  As firms sit idly by waiting for the EPA to act, consumers will face less choice, more unemployment, and higher prices.   This shouldn’t be.

As Congress and the administration continue to legislate and rule-make, they can expect firms and individuals to remain on the sideline, reluctant to make economic decisions for fear of state action.

How a Libertarian Rolls

I love Egg Nog. For me, it's the gastronomic pleasure of the season. I wait all year and enjoy it for just a few days around Christmas just to keep it special. Well, I went out this year to buy some 'Nog, but much to my chagrin, I could find only corn syrup-based 'Nog. I don't know what happened, here. Last year I was able to purchase egg-based 'Nog. Is this the corn lobby taking over the 'Nog industry? Not being in the mood to care, I had two choices. Go without 'Nog, or make my own. Actually, there's a third choice, but it would take awhile - lobby my local politicians to ban corn syrup from Egg Nog.

But I'm a libertarian, so I made my own. That's how I roll. If I can't find what I want, I find a way to make what I want, or I find somebody who can. I have yet to fail. Maybe I don't want complicated things. What I don't know, and would never do, is use political power to get my way. I know - I'm making a big deal over Egg Nog. Well, maybe Egg Nog is just that big of a deal. Or maybe metaphors are awesome.

Merry Christmas to all!

P.S. The 'Nog is awesome.

Government Debt as Private Savings

I've heard that Treasury debt (this is important) is akin to private savings. I'm pretty sure Greg (our most prolific commentator) has made this claim, but I've seen it elsewhere. If I'm not mistaken (and I hope Greg will clear up any misconceptions as I state the claim) this is the position of Modern Monetary Theorists, aka chartalists.

Note: I think they prefer MMT to chartalist since the latter easily translates to charlatanist. Hee hee!

So here is what I think the MMT position is: Treasury debt is private savings in the sense that, to place the debt people need to be willing to purchase the bonds. Thus Treasury debt is money owed to private individuals. This is 2/3rds true - of the 13.5 trillion debt outstanding (Sept. 2010, according to the Treasury bulletin), 9.1 trillion is held by "the public." The remainder is in "Securities held by Government Accounts," or inter-agency debts.

Let's focus on the debt to the public. For arguments' sake, I'm go to abstract away from the level of foreign holdings (e.g. China) of U.S. debt and assume that all debt is held by U.S. citizens. This avoids having to discuss trade issues, which are not part of the story.

So in this set up, every dollar of public debt issued by the Treasury is ultimately held by U.S. citizens. You can own Treasury debt directly, or through some agent (e.g. mutual fund). Thus Treasury debt is de facto private savings. So far, so good - I have no quarrel to this point.

One question that comes up is: why are people willing to hold Treasury debt? Well, it does promise a nominal return (or real, in the case of TIPS), so the interest induces people to hold the debt. Also, Treasury debt is default-free, so it is less risky than other similar types of debt (including municipal, corporate and foreign debt). So, as a finance guy, it makes sense to put some Treasury debt into your portfolio. This default-free feature becomes very important when people are more uncertain than usual about the future performance of other bond issuers in general.

Now bonds are debt, and so must be paid back eventually. Every bond issuer has two options to pay back existing debt: use cash on hand (from retained earnings in the case of corporations, or from taxes in the case of governments) or refinance the debt (issue new bonds and use the proceeds to pay off the old ones). Refis are pretty common - corporations for example like to target a certain cost of capital and also look to minimize cost of capital, so they may shorten or lengthen maturities using refis when the markets are favorable. Refis are also how the Treasury operates; it typically just rolls over the debt by issuing new bonds to pay off the old ones (in addition to new ones to pay for more spending).

But if you don't have cash, and can't refi, you're in default. The Treasury is default-free because of the third option: printing money (I've discussed this before). So as long as bonds are denominated in nominal terms, the Treasury can never default.

Well, enough with the institutional details. When the Treasury issues a new bond, some people decide to buy the bond. So in a realistic senses, Treasury debt is private savings.

But what if no one wants to buy the bond?