Fuel Costs: All Candidates Pander Except for Obama

Democrats Divided Over Gas Tax Break

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

While Mr. Obama’s view is shared by environmentalists and many independent energy analysts, his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks.

A gas tax holiday is blatant pandering. It encourages the very activity that is the problem: consuming fuel. If we want to offset people's increased energy costs, why not give people their $30 (estimated benefit to the average motorist) regardless of whether they use fuel?

I use a bicycle for my transportation. I can only get my $30 worth of benefit from this if I decide to go on a car trip. The more fuel you burn, the more you save.

McCain and Clinton both support a gas tax holiday, but Clinton takes it even a step further. She wants to increases taxes on oil company earnings. The problem in question is we're consuming more oil than we're extracting. Clinton's proposed solutions increase consumption and discourage oil extraction. Clinton's energy policy gimmicks couldn't be any stupider if she tried. I guess she's trying to exploit people's ambivalence in which they love the product but hate the people who provide it.

The only good thing about these pandering proposals is they won't really do much. The tax holiday wouldn't cost that much. Demand for gasoline is inelastic enough that consumption won't really increase significantly. Her proposal to tax oil companies' profits more than other companies', if somehow a significant tax increase passed, would cause oil prices to rise further and hasten the transition to other energy sources. I don't think that's the intention. She's probably proposing just a token tax, not enough really to affect after tax earnings and depress the share price.

Obama correctly identifies that we need a plan to reduce our oil use. The gimmicks are all about symbolism. Clinton and McCain using symbolism to show they're willing to pander, while Obama shows a willingness to talk about the larger problem. I do not support any candidate for president, but on this one non-issue, Obama is the only one showing the leadership I would expect from a president.

Local Moms Ask for a Play Area in the Mall

My wife and I are expecting a baby. This article caught my wife's eye.

Local Mom Petitions For East Towne Mall Play Area

What are local dads doing while their wives are petitioning for a play area in the mall? No dads were interviewed for the article.

We get commentary from mothers:

Moms like me feel it's very important for our kids to have a safe place to play and relax.

Madison is known for its parks. It's not like there aren't places you can take kids to play.

One of the biggest concerns I have regarding the safety of my baby is exposure to consumerism, especially before they're old enough to have think critically. There is no way I would consider it safe to have my child hanging out in a shopping center play area. I know my child will pick up some elements of his world view from the marketing of consumer products. It's important for me to minimize this.

Another comment from the article:

It would save me gas money because I drive to West Towne for this.

It would save even more money on gas and consumer products to visit the nearest public park instead of a shopping center.

It strikes me that one reason we created the commons, things owned by all members of society, is so we don't have to hope a private land owner creates the space we want. It's unfortunate that these petitioners feel like a private shopping center is their public commons.

The article also touched a nerve because having a baby has shown me that sexism isn't something that disappeared in the 70s. I can't imagine local dads petitioning the mall for a play area. (Info on the petition is at momsinmadison.com, not dadsinmadison.com.) People ask me how my career is going, but they don't ask me if I'm enjoying shopping for baby products. And if they did, I think it would acceptable, maybe even expected, for me to say I think most of the marketing surrounding baby products is rubbish. Expectations are different for my wife.

This is a tough issue because there's nothing inherently wrong with asking a shopping center to add a play area. There's nothing wrong with the petitioners being female. Sexism is not yet history, though, so we need to be careful what we imply in articles like this.

EISA Institutes Efficiency Requirements for AC Power Adapters

I just received an e-mail from a vendor about new efficiency requirements for adapter power supplies. The new requirements are part of Energy Independence and Security Act (EISA) of 2007.

Many consumer electronics products use a wall adapter to convert the high voltage AC that comes from a power outlet into something the product can use. These are almost always optimized for low cost and not for efficiency.

I am glad to see the government has made a good decision on a somewhat esoteric issue.

It's one of many tiny steps necessary to increase efficiency so that we can meet the difficult goal of increasing GDP while decreasing carbon emissions.

The Real Estate Bust Continues

From the Wall Street Journal: Yale’s Shiller: U.S. Housing Slump May Exceed Great Depression

Yale University economist Robert Shiller, pioneer of Standard & Poor’s/Case-Shiller home-price index, said there’s a good chance housing prices will fall further than the 30% drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15% since their peak in 2006, he said.

Some people think that because real estate prices have fallen it means that the bust is over. It certainly is not. For it to be over, prices have to return to parity with rents. We are moving in that direction but are not there yet. I suspect the value/rent ratio will overshoot below historical averages just as it overshoot above averages on the way up.

In addition to the value/rent ratio decreasing, rents are depressed by the increase in housing units without a corresponding increase in people needing housing.

Two other factors complicate the real estate market

• There are ghost neighborhoods of empty housing units all in the same area. Their existence may affect the market more than the same number of empty units mixed randomly with occupied housing.
• In some states the laws prevent banks from collecting the deficit balance if a foreclosed house does not cover the loan. There has been a lot of speculation, often self-serving speculation on the part of people who made the loans, that could cause large numbers of foreclosures among people who are fully capable of paying their bills.

My prediction continues to be that the Fed will pursue a loose monetary policy leading to inflation. Real (i.e. inflation adjusted) rents will decline slightly while real property values plummet. The inflation will mask this situation and make it seem (to people not considering inflation) like rents are going up and property values are stagnant. This situation will continue for several years until rent and property prices are at their historical parity.

Inflation hurts bondholders, but it won't hurt holders of mortgage backed bonds very much, because the value of their bonds decreased along with the value of the real estate collateralizing them.

But what about the Treasury? It's yield is low thanks to a flight to quality. If my inflation prediction holds true, however, we might see the Treasury yield rise significantly.

The politicians running for president are calling for new programs and no new taxes on the middle class. If borrowing becomes more expensive, that won't be an option.

Less Driving Is the Answer to Drunk Driving

According to The Capital Times, Wisconsin has the worst rate of drunk driving in the US. That's unfortunate, but not surprising for Wisconsin.

In the long-run, the best approach to this problem is less driving. We have designed our cities around cars. Many people feel the need to operate a car every day. There is bound to be a percentage of them who are tired, sick, eating, on drugs (such as alcohol), or talking on the phone.

We can and should attempt to stop people from engaging in this distracted driving. The more aggressive we get with enforcement, though, the harder it is to respect people's freedom.

The long-term solution is to give people other transportation options so they can eat, be tired, talk on the phone, take drugs, or whatever they want without it being anybody's business but their own.

Unitarian Universalist Values Are Becoming More Common

According to a the Capital Times, a controversial religious scholar, Marcus Borg, is coming to town this weekend.

For some, he represents the worst heresies of liberal Christianity, wrapped up in the notion that he questions rather than accepts traditional understandings of God and Jesus.

The article says he believes in "intellectual quests" instead of "creeds" and draws on Christianity as a source of inspiration without taking it literally. He sounds like he could belong to a Unitarian Universalist (UU) congregation.

UU values are becoming more common all the time.

Spring Is Here, and Life Is Good

This weekend was the warmest weather we've had all year in Madison. Walking through the neighborhood, there were lots of kids playing and people grilling out. I walked pasted someone chatting with her neighbor about vegetarian recipes.

The nice weather persisted this morning. I commute by bike to work every day, and today was the first morning I've worn a short sleeve shirt. My seven-mile commute takes me by a park and golf course, through Dunn's marsh, through one of Madison's poorest neighborhoods, and through one of the most expensive neighborhoods.

I see some of the same people each day. I travel about 15 miles per hour. That's slow enough to say hi to people along the way and to see details I'd miss in a car. But it's fast enough that I pass from one neighborhood to a nature preserve with deer and foxes and into another neighborhood all in six minutes time.

I spent 22 years away from here before moving back in 2004. A lot of that time was in a sprawling subtropical costal area of the US. It's a completely different world in an area with sprawl and few people with roots in the area. People are more cynical and materialistic. Whenever someone told me an idea was to idealistic or naïve, I would offer the cliché that "another world is possible." I took that on faith. I didn't know it for a fact, but I had to accept that human culture could be better. If people could think it up for the settings of utopian science fiction, maybe one day we would build it.

Now I would change the refrain to "another world exists, and you can get here without a passport in a few hours." It's not utopia. But most people live a happy life and try to make the world a better place for the future. They have hope that an even better world is possible.

Everything has thawed, and people are out enjoying it.

There are places where people know their neighborhood,
Where people live there and they think that life is good.
--Dave Rovics

Environmentalism Is Not at Odds with Individualism

This past week at church and on Wisconsin Public Radio I have heard criticism of excessive individualism as part of the discussion of Earth Day.

I understand where this is coming from, but we should be cautious about thinking of individualism as being at odds with environmentalism. Individualism is necessary, IMHO, for a pleasant life in a densely-populated, environmentally-friendly community.

We need to be aware of how our activities affect other individuals and not expect to be able to do things that cost other people without paying damages.

In the past damage to the environment was easy to see: Emission from your activities caused direct irritation to people nearby. Global climate change is much harder to see. We're not even sure how much of it is due to human activities. (We know human activities are a significant part of it.)

Global warming will be harder to address than previous environmental issues because the very foundation of the world economy, fossil fuels, is the main cause. It's a problem whose impact could be as serious as World War II, and the solution will require completely modifying the world economy, just like WWII.

I am optimistic, though, that people are becoming aware of the problem and willing to make big changes. No one technology or behavioral change will solve the problem. Many small steps, though, will solve the problem.

A Healthcare Plan Focused on the Needy

This morning NPR's Morning Edition did a piece on McCain on Healthcare.

McCain wants to encourage people to manage their own healthcare and "to rein in" spending on Medicare and Medicaid.

It's great to encourage people to manage their own healthcare. Having healthcare linked to people's jobs benefits no one. It gives businesses an extra task unrelated to its business. It creates complications for employees when changing jobs.

The case for reducing government health care programs is less clear. Having something like Medicaid, but not necessarily in its current form, is very important. It's unacceptable to have a segment of the population that is near or below the federal poverty line (around 20%) and therefore unable to afford medical care. Not only is it a moral issue, but it creates problems for the healthcare system when people unable to afford care turn up in the emergency room once their problem has become critical.

It's unfortunate that our choices in politics are

• Republicans who rightly talk about getting government out of healthcare but don't address what will be done for the poor
  
• Democrats who rightly want to help the poor but wrongly want to do it by expanding government involvement

No matter how you slice it politically, around 20% of the population will have a hard time affording basic healthcare. Another 20% can afford it, but can't afford to help other people. The remaining 60% has the ability to help others and absolutely must do it if we want a society where access to basic healthcare is universal.

Critics will say that fewer than 60% has the ability to buy their own healthcare and to subsidize others. If that's true, we're in trouble because that's the bulk of society. There simply aren't enough rich people to pay for everyone else's services.

It's in politicians' interest to convince people that if they jigger the system just right, somehow we can provide healthcare to the poor without paying additional money. It's similar to the dieting industry trying to convince people there are ways to lose weight that don't involve exercising away more calories than they consume.

It's so important, IMHO, to reduce the government's influence in the average person's life that I might prefer McCain's despites its lack of an aggressive plan to help the poor.

Masking the Real Estate Bust Using Inflation

The American Enterprise Institute in an editorial in yesterday's Wall Street Journal calls for expanding the money supply and ignoring the resulting inflation: The Inflation Solution to the Housing Mess

The least bad option is for the Federal Reserve to print money to help stabilize housing prices and financial markets. Yes, use reflation to soften the pain for Main Street and Wall Street. If instead we let housing prices fall another 25%-30% – as predicted by the Case-Shiller Home Price Index – it's almost certain that Washington will end up nationalizing the mortgage business.

I predicted over a year ago (unfortunately before this blog's existence) that this would happen. Lowering rates without regard to inflation has already been the Fed's policy since the housing bust started in earnest.

It's surprising to hear calls for loose monetary policy from a rightwing source. The article says they would rather accept inflation now, though, than deal with excessive action from Congress, which would be harder to undo than a monetary policy decision.

The Fed will allow inflation to happen, not because of rightwing fear of regulation, but because there are quite a few highly leveraged homedebtors who stand to benefit.

The article doesn't mention two other repercussions from the higher nominal interest rates that come with inflation:

• There will be increased pressure to balance the federal budget.
• Higher mortgage rates will intensify that effect of falling inflation-adjusted real estate prices.

These things aren't horrible. They're side effects of over-medication of the economy. This over-medication is a response to living on the economic edge, i.e. excessive risk taking and insufficient savings.

The right thing is for the Fed and Congress to act moderately. The economy is a problem primarily for people who took big risks. Risk takers getting hurt once in a while is supposed to be part of an economic system.

Balance between Freedom, Government Services, and Low Taxes

Here are some comments from me that the Wisconsin State Journal printed yesterday:

In a Thursday letter to the editor, a supporter of motorcycle helmet laws argues they are justified because they save taxpayer dollars by reducing Medicaid costs.

There are three competing goals that cannot all be achieved: freedom, subsidized health care for the poor and low taxes. Most people agree that those are all worthy goals.

By arguing for helmet laws on the basis that they help control Medicaid costs, the writer is saying that Medicaid and low taxes are more important than freedom. If we accept that position, government should attempt to control people's diets and exercise patterns and any risky behavior people wish to participate in.

Although I believe in helping the poor and keeping taxes as low as possible, the goal of personal freedom has to be of paramount importance.

I started thinking about this issue when a politician at a rally told the audience, in the context of discussing a national health plan, that people needed live healthy lifestyles to keep costs down. I am skeptical of a national health plan, but I think there is some merit to the idea of increasing the size of the risk pool and asking the people on the winning side of the genetic lottery for good health to subsidize care for the sick. Hearing a national politician enjoining us to live healthful lives made me think of a side-effect of spreading the risk of illness: The costs of risky behavior are now borne by all of society. It becomes society's business how I live my life. This is precisely contrary to the spirit of the US Constitution.

Predicing the Real Estate Bust and Transferring Risk

There is a good story on Calculate Risk on predicting how long it will take the housing bubble to deflate. If it follows that path of the LA housing bust in the early 90s, it will mostly deflate by 2010 and bottom out in 2013.

This is interesting, but market risk shouldn't matter too much to families buying a residence if the property costs less than the family's net worth.

Consider a family with a net worth of $300k in a $200k house. If real estate falls 15%, their house is worth $170k. They have lost 10% of their net worth. The costs of owning a home (insurance, taxes, maintenance, interest) predominate over movement in housing costs.

By contrast, if their net worth had started out at $30k, the change in housing prices would have wiped them out.

Both the $300k and $30k families should weigh the costs of ownership vs. the cost of renting and, all things being equal, should take the lower cost choice. The difference is the $300k family can afford to accept more risk. The $30k family might forgo owning a home even if it were the less expensive choice if they feel they cannot accept the risk of market fluctuations wiping them out. If they rent, their landlord is making a profit for taking the risk off of the family.

This payment for risk transfer is similar to insurance. Poor people pay for towing insurance on their auto policy until they save up enough money that they can easily handle the costs if their car should need to be towed. Similarly, people increase the deductibles on all their insurance policies as their reserves of emergency cash increase.

Poor people end up paying the rich to carry risk for them. Is this unfair? Should the economic system be changed to reward those who do work rather than those who take financial risk? These questions are way beyond the scope of this post.

The point is people should calculate how much risk their taking versus the benefit they're getting for taking the risk.

In my area this is a moot point when it comes to housing because the costs of renting a home are less than or equal to the cost of owning one. As the bubble deflates (probably in the form of nominal rents rising faster than nominal property values) and it becomes profitable again to be a landlord, people will have to ask if lower property costs are worth the market risk.

What Makes for "Hate-Filled" Rhetoric

The past Sunday guests on the Sunday morning talk shows were still talking about the controversial excerpts from Reverend Wright's sermons that I'm told have been playing on TV a lot recently.

A Clinton supporter, Philadelphia Mayor Mike Nutter, said American's reject "that kind of hate filled rhetoric" and the he would have left the church if the pastor gave a sermon like that.

Obama wasn't even present when these sermons were given. Do we really expect him to be responsible for everything the pastor says? If I worked in politics, would I have to get a copy of the sermons from Sundays when I slept in to make sure the pastor didn't say anything offensive? Would I have to be in 100% agreement with everything the minister said. I don't know how it works at other churches, but if Unitarians were required to agree with everything the minister said, the place would be empty.

An Obama supporter said that the publicizing of these excerpts "was big", yet it didn't affect is popularity. This shows, he said, that Obama can weather a scandal.

It doesn't show that at all, IMHO. The biggest scandal Obama has faced involves comments someone else made years ago while Obama was not present. That means Obama has not faced a scandal.

The comments themselves were not even very scandalous:
1. The Sept 11 attacks were blowback from US foreign policy mistakes in the past. People hope that good foreign policy will prevent future attacks, so it seems reasonable to ask whether bad foreign policy might have had a role in the Sept 11 attacks. I'm not saying the claim of blowback was right. I'm just saying it's a valid question, not hate-filled.
2. The US government mistreated indigenous peoples and African Americans.
Is there even any debate whether this is true?
3. The "drug war" has hurt African Americans disproportionably.
There is room for debate about whether a war-based approach is the best way to deal with drugs, but either way it seems reasonable that the war-based approach that started around 1970 affected African Americans more than other races.

I suppose the hate filled part is when he says, "God damn America" for its role in these problems. It wouldn't be appropriate for someone running for president of the United States to say this, but it seems very appropriate for a religious leader to criticize the US gov't vehemently. Part of the job of the president is to listen to critics of the US government, including vehement critics, and to try to improve it.

The motivation behind this story is probably that there is no other scandalous video available that you can play on TV and have its meaning understood in seconds. That's unfortunate because there's a racial element to the appeal of the Wright videos. Wright's style is not familiar to members of churches that are not predominately African American. Maybe the comments give some people a visceral reaction of: There's someone who doesn't look like me or talk like me condemning the US government. Maybe he would condemn me? If Obama is tied to him, maybe Obama would condemn me or at least not understand my interests.

If that visceral reaction is why this is still being mentioned on the Sunday morning political shows, it's shows the vestiges of racism are still alive and well.