Free Markets – Page 16 – artdiamondblog.com

Feds Give EnergyStar Label to Fake Products Like Feather Duster Space Heater

“A space heater with a feather duster qualified for Energy Star . . . as an air purifier.” Source of caption and photo: http://blogs.consumerreports.org/home/2010/03/gao-audit-energy-star-program-bogus-products-energy-use-consumer-reports-testing-best-appliances.html

Those who call for more government regulations to protect us, should deeply ponder the story quoted below.

(p. A16) WASHINGTON — Does a “gasoline-powered alarm clock” qualify for the EnergyStar label, the government stamp of approval for an energy-saving product?

Like more than a dozen other bogus products submitted for approval since last June by Congressional auditors posing as companies, it easily secured the label, according to a Congressional report to be issued Friday. So did an “air purifier” that was essentially an electric space heater with a feather duster pasted on top, the Government Accountability Office said.
In a nine-month study, four fictitious companies invented by the accountability office also sought EnergyStar status for some conventional devices like dehumidifiers and heat pump models that existed only on paper. The fake companies submitted data indicating that the models consumed 20 percent less energy than even the most efficient ones on the market. Yet those applications were mostly approved without a challenge or even questions, the report said.
Auditors concluded that the EnergyStar program was highly vulnerable to fraud.

For the full story, see:
MATTHEW L. WALD. “EnergyStar Program Audit Finds Fraud Vulnerability.” The New York Times (Fri., March 26, 2010): A16.
(Note: the online version of the article was dated March 25, 2010 and had the title “Audit Finds Vulnerability of EnergyStar Program.”)

In Whom Can You Trust?

“Russian President Medvedev, left, Czech Republic President Klaus, center, and U.S. President Obama, right, toast the treaty’s signing on Thursday.” Source of caption and photo: online version of the WSJ article cited below.

In the photo above, which of these three men would you want to sip champagne with? (Hint: the libertarian is in the middle.)

The photo accompanies this article:
JONATHAN WEISMAN. “Russia Sets Limits on Iran Sanctions.” The Wall Street Journal (Friday, APRIL 9, 2010): A8.
(Note: the online version of the article had the title “U.S., Russia Focus on Iran Sanctions.”)

After Health Care Plan, Are There Any Limits to What the Government Can Mandate?

(p. A10) As they constructed the requirement that Americans have health insurance, Democrats in Congress took pains to make their bill as constitutionally impregnable as possible.

But despite the health care law’s elaborate scaffolding, attorneys general and governors from 20 states, all but one of them Republicans, have now joined as confident litigants in a bid to topple its central pillar. In the process, they hope to present the Supreme Court with a landmark opportunity to define the limits of federal authority, perhaps for generations.
In the seven weeks since the legislation passed, at least a dozen lawsuits have been filed in federal courts to challenge it, according to the Justice Department. But the case that could carry the most weight, and may be on the fastest track in the most advantageous venue, is the one filed in Pensacola, Fla., by state officials, just minutes after President Obama signed the bill.
Some legal scholars, including some who normally lean to the left, believe the states have identified the law’s weak spot and devised a credible theory for eviscerating it.
The power of their argument lies in questioning whether Congress can regulate inactivity — in this case by levying a tax penalty on those who do not obtain health insurance. If so, they ask, what would theoretically prevent the government from mandating all manner of acts in the national interest, say regular exercise or buying an American car?
. . .
Jonathan Turley, who teaches at George Washington University Law School, said that if forced to bet, he would predict that the courts would uphold the health care law. But Mr. Turley said that the federal government’s case was far from open-and-shut, and that he found the arguments against the mandate compelling.
“There are few cases in the history of the court system that have a more significant assertion of authority by the government,” said Mr. Turley, a civil libertarian who acknowledged being strange bedfellows with the conservative theorists behind the lawsuit. “This case, more than any other, may give the court sticker shock in terms of its impact on federalism.”

For the full story, see:

KEVIN SACK. “Florida Suit Rated Best As Challenge to Care Law.” The New York Times (Tues., May 11, 2010): A10 & A11.
(Note: the online version of the article is dated May 10, 2010 and has the slightly different title “Florida Suit Poses a Challenge to Health Care Law.”)
(Note: ellipses added.)

Housing Crumbles Under Portugal’s Rent Control Laws

Stigler and Friedman’s only co-authored paper showed the flaws in rent controls. Although excellent, the paper apparently is seldom read in Portugal (or New York City).

(p. B3) LISBON — José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.

The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
. . .
The . . . rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.”
. . .
“Nobody has had the political courage to change something like these rental laws and I don’t see the situation changing in the short term, even if I don’t think the Portuguese tend to react as dramatically as the Greeks,” said Salvador Posser, who runs a family-owned company renting out construction equipment.
Besides distorting pricing in the housing market, the tenancy rules have left physical scars. Portugal’s historic city centers are dotted with abandoned and crumbling houses that are either subject to a court dispute or have rental income that cannot cover repair and maintenance costs.
“This economic crisis is clearly keeping our very slow courts even more occupied because of the amount of conflict that it is creating between landlords and tenants,” said Menezes Leitão, a law professor and president of PLA, a property owners association.
Mr. Posser cited a recent estimate that 8 percent of the buildings in central Lisbon were deserted, in large part because of rent-related obstacles. In Porto, the second-largest city, less than 10 percent of inner-city housing is available for rent, which has helped shrink the population by a third over three decades.
“We’re still losing about 30 inhabitants a day,” said Rui Moreira, president of the Porto Commercial Association.

For the full story, see:
RAPHAEL MINDER. “Like Spain, Portugal Hopes to Make Cuts, but It Is Mired in Structural Weakness.” The New York Times (Fri., May 14, 2010): B3.
(Note: the online version of the article is dated May 13, 2010 and has the title “Portugal Follows Spain on Austerity Cuts.”)
(Note: ellipses added.)

The original source of the Friedman and Stigler article (in pamphlet form) was:
Friedman, Milton, and George J. Stigler. Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.

Pear Growers Suffer From Unintended Consequences of Land-Use Law

“”We hit the wall,” the 63-year-old grower says. . . . , Mr. Naumes showed off a Bosc pear.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A3) MEDFORD, Ore.–Farmers say conditions in southern Oregon’s Rogue River Valley are among the best in the world for raising pears. Yet for the past decade, acreage planted in pears has been halved, as has the number of growers.

Land-use regulations designed to maintain open space and preserve farmland are to blame, pear growers here say.
It is a paradox few foresaw in 1973, when Oregon passed Senate Bill 100. That measure, considered a landmark of the budding environmental movement, put Oregon on the map as the “greenest” of U.S. states by placing zoning decisions with a central agency, outside the purview of local authorities.
The law had a huge impact in restricting suburban sprawl throughout the state, preserving environmentally critical habitats.
But since the mid-1990s, more than 3,500 acres planted in pears have gone out of production here. From 87 pear farms operating in 1992, only 48 remain.
. . .
The credit crunch and consumers unwilling to splurge for $30 boxes of pears are behind much of the pain, growers say. Yet they insist their real headache is their inability to raise capital by selling land at top value, which they say would let them buy farmland further from residential areas. That is because land-use laws say their orchards must remain in agriculture.
“It’s the worst case of unintended consequences you can imagine,” says David D. Lowry, chief executive of Associated Fruit Co., the smallest of Medford’s Big Three, who fears his business could be the next to close. Like others, he has plenty of land to sell, but no one willing to buy as long as it is zoned for farming only.

For the full story, see:
JOEL MILLMAN. “Oregon Pear Growers Sour on Land Law; Farmers Say Landmark 1970s Measure Aimed at Conserving Agricultural Areas Limits Their Ability to Nurture Investment.” The Wall Street Journal (Fri., APRIL 2, 2010): A3.
(Note: ellipses added.)

Source of graph: online version of the WSJ article quoted and cited above.

FDR’s NRA Price-Fixing Helped Big Firms “Ruin” Little Firms

(p. 50) Among those damaged was Carl Pharis, the general manager of Pharis Tire and Rubber Company in Newark, Ohio. Pharis employed over one thousand people, mainly in the Newark area. His company grew because, in Pharis’s words, “we would make the best possible rubber tire and sell it at the lowest price consistent with a modest but safe profit.” He and his employees had survived the grim Great Depression years because they had lower prices, a good tire, and solid support in central Ohio from buyers who knew the company because it was local and because it priced its tires lower than the larger firms. As Pharis said, “It is obvious that they cannot make as good a tire as we make and sell it at the price at which we can sell at a profit:”

Then came the NRA with its high fixed prices for tires. As Pharis said, “Since the industry began to formulate a Code under the N. R. A., in June, 1933, we have at all times opposed any form of price-fixing. We believe it to be illegal and we know it to be oppressive.” He added, “We quite understand that, if we were compelled to sell our tires at exactly the same price as they sell their tires, their great national consumer acceptance would soon capture our purchasers and ruin us. Since we have so little of this consumer publicity when compared with them, our only hope is in our ability (p. 51) to make as good or a better tire than they make and to sell it at a less[er] price. . . . ”
Since Pharis and other small companies were no longer allowed to sell tires at discounted rates, Goodyear and Firestone “could go out just as they have gone out,” Pharis noted, “and say to prospective customers that, since they had to pay the same price, it would be wiser if they bought the nationally advertised lines.”
In a nutshell, Pharis put it this way: “The Government deliberately raised our prices up towards the prices at which the big companies wanted to sell, at which they could make a profit, . . . where more easily, with much less loss, they could come down and ‘get us’ and where, bound by N. R. A. decrees, we could not use lower prices, although we could have lowered them and still made a decent profit.”
Pharis was on the verge of closing down and having to lay off all of his one thousand employees. His company, with its low prices and quality tires, could weather the Great Depression, but not the NRA. “If we were asking favors from the Government,” Pharis concluded, “there would be little justice in our complaints. . . . And so, if the big fellows, with their too-heavy investments and high costs of manufacturing and selling, cannot successfully compete with us little fellows without Government aid, they should quit.”

Source:
Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.
(Note: ellipses in original.)

Government Quotas Raise U.S. Sugar Price from 17 Cents a Pound to 31 Cents a Pound

Every semester in my principles of microeconomics course, I show the students a wonderful old 60 Minutes segment on the U.S. government’s sugar quotas program. I tell them, alas, that the policy is still the same. Below is recent evidence:

(p. C1) . . . , U.S. sugar farmers have successfully blocked efforts to significantly increase imports, assuring them of little price competition.

Restrictions on imports have caused American users to pay much more than the rest of the world for sugar. That gap recently blew out to its widest in a decade.
Mr. Vilsack’s comments raised the prospect of increased demand for global sugar and drove prices up 2.7%, or 0.44 cent, to 16.98 cents a pound on ICE Futures U.S. Prices for U.S. domestic sugar dropped 2.1%, to 30.8 cents a pound. That narrowed the gap between the two to 13.82 cents a pound.

For the full story, see:
CAROLYN CUI and BILL TOMSON , ILAN BRAT. “USDA Says It May Relax Sugar Quotas For This Year.” The Wall Street Journal (Weds., APRIL 14, 2010): C1 & C2.
(Note: ellipsis added.)
(Note: the title of the online version of the article is “USDA Says It May Relax Sugar Quotas.”)

Much of the Value of “Chinese” Imports is Added Outside of China

(p. A17) In a 2006 paper, Stanford University economist Lawrence Lau found that Chinese value-added accounted for about 37% of the total value of U.S. imports from China. In 2008, using a different methodology, U.S. International Trade Commission economist Robert Koopman, along with economists Zhi Wang and Shang-jin Wei, found the figure to be closer to 50%. In other words, despite all the hand-wringing about the value of imports from China, one-half to nearly two thirds of that value is not even Chinese. Instead, it reflects the efforts of workers and capital in other countries, including the U.S. In overstating Chinese value by 100% to 200%, the official U.S. import statistics are a poor proxy for job loss.

Seldom noted in the union-controlled discussion of trade on Capitol Hill is that the jobs of large numbers of American workers depend on imports from China. The proliferation of transnational production and supply chains has joined higher-value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China.
According to a widely cited 2007 study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick of the University of California, Irvine, each Apple iPod costs $150 to produce. But only about $4 of that cost is Chinese value-added. Most of the value comes from components made in other countries, including the U.S. Yet when those iPods are imported from China, where they are snapped together, the full $150 is counted as an import from China, adding to the trade deficit and inflating EPI’s job-loss figures.
In reality, those imported iPods support thousands of U.S. jobs up the value chain–in engineering, design, finance, manufacturing, marketing, distribution, retail and elsewhere. A 25% tariff on imports from China would penalize the non-Chinese companies and workers who create most of the iPod’s value.

For the full commentary, see:
DANIEL IKENSON. “China Trade and American Jobs; Studies suggest that one-half to two-thirds of the value of ‘Chinese’ imports is added in other countries, including the U.S.” The Wall Street Journal (Fri., APRIL 2, 2010): A17.

Liberal Democrat Hesburgh Condems Obama Administration’s Killing School Vouchers

My Chicago professor Milton Friedman proposed educational vouchers in Capitalism and Freedom, a great book based on lectures that Friedman delivered several decades ago at Wabash College at the invitation of my first economics professor, Ben Rogge.
Friedman’s belief was that parents generally care about their children, and will seek a good education for them, if provided the means to choose among credible alternatives.
Special interests are arrayed against this idea, but that does not mean that Friedman was wrong.
Another distinguished educator who supports vouchers (see below) is Father Hesburgh, who for many years was President of Notre Dame in my hometown of South Bend, Indiana.

(p. A19) If Martin Luther King Jr. told me once, he told me a hundred times that the key to solving our country’s race problem is plain as day: Find decent schools for our kids. So I was especially heartened to hear Education Secretary Arne Duncan repeatedly call education the “civil rights issue of our generation.” Millions of our children–disproportionately poor and minority–remain trapped in failing public schools that condemn them to lives on the fringe of the American Dream.

. . .
. . . , I was deeply disappointed when Sen. Richard Durbin (D., Ill.) successfully inserted a provision in last year’s omnibus spending bill that ended one of the best efforts to give these struggling children the chance to attend a safe and decent school.
That effort is called the Opportunity Scholarship program. Since 2004 it has allowed thousands of children in Washington, D.C., to escape one of the worst public school systems in the nation by providing them with scholarships of up to $7,500.
Despite its successes, it is now closing down. On Tuesday the Senate voted against a measure introduced by Sen. Joseph Lieberman (I., Conn.) that would have extended the program. Throughout this process Mr. Duncan’s Education Department and the White House raised no protest.
. . .
I know that some consider voucher programs such as the Opportunity Scholarships a right-wing affair. I do not accept that label. This program was passed with the bipartisan support of a Republican president and Democratic mayor. The children it serves are neither Republican nor Democrat, liberal or conservative. They are the future of our nation, and they deserve better from our nation’s leaders.
I have devoted my life to equal opportunity for all Americans, regardless of skin color. I don’t pretend that this one program is the answer to all the injustices in our education system. But it is hard to see why a program that has proved successful shouldn’t have the support of our lawmakers. The end of Opportunity Scholarships represents more than the demise of a relatively small federal program. It will help write the end of more than a half-century of quality education at Catholic schools serving some of the most at-risk African-American children in the District.
I cannot believe that a Democratic administration will let this injustice stand.

For the full commentary, see:
THEODORE M. HESBURGH. “A Setback for Educational Civil Rights; I cannot believe that a Democratic administration will let this injustice of killing D.C. vouchers stand.” The Wall Street Journal (Thurs., MARCH 18, 2010): A19.
(Note: ellipses added.)
(Note: the online version of the article was dated MARCH 17, 2010.)
Reference to the Friedman book mentioned above:
Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.

Underwater Power Cables Maximize Profits and Improve Environment

“Laying line in San Francisco for the Trans Bay Cable project, which submerged 33 miles of cable.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) Generating 20 percent of America’s electricity with wind, as recent studies proposed, would require building up to 22,000 miles of new high-voltage transmission lines. But the huge towers and unsightly tree-cutting that these projects require have provoked intense public opposition.

Recently, though, some companies are finding a remarkably simple answer to that political problem. They are putting power lines under water, in a string of projects that has so far provoked only token opposition from environmentalists and virtually no reaction from the larger public.
. . .
(p. B7) . . . , the underwater approach solves some intractable problems. In San Francisco, for example, old power plants that burn natural gas are about to be retired because a new transmission company has succeeded in running a line 33 miles across the San Francisco Bay.
Mr. Stern said his company’s Neptune Cable, which runs from Sayreville, N.J., to Levittown, N.Y., on Long Island, now carries 22 percent of Long Island’s electricity. His company is trying to complete a deal for a cable that would run from Ridgefield, N.J., to a Consolidated Edison substation on West 49th Street in Manhattan.
Those two cables were not motivated primarily by environmental goals — they are meant to connect cheap generation to areas where power prices are high. Mr. Stern’s company, PowerBridge, is now considering two renewable energy projects, however. One cable would connect proposed wind farms on the Hawaiian islands of Molokai and Lanai to the urban center on Oahu, and another would bring wind power from Maine along the Atlantic coast to Boston.

For the full story, see:
MATTHEW L. WALD. “A Power Line Runs Through It; Underwater Cable an Alternative to Electrical Towers.” The New York Times (Weds., March 17, 2010): B1 & B7.
(Note: ellipses added.)
(Note: the online version is dated March 16, 2010 and has the shorter title “Underwater Cable an Alternative to Electrical Towers.”)

New York Forces Entrepreneur to Subsidize His Competitor

(p. A24) Last year, the State Legislature levied a new tariff on most of the businesses in the New York City region. The metropolitan commuter transportation mobility tax requires employers to set aside 34 cents for every $100 in payroll costs, and hand the money over to a battered, barely breathing patient on the state’s fiscal operating table: the Metropolitan Transportation Authority.

The tax has not worked out so well. So far, its projected revenues are coming in about $400 million below the state’s estimates — which, in part, will mean reduced subway and bus service for New Yorkers starting this summer. It has also prompted a furious backlash from suburban officials who resent bankrolling an agency that, they say, benefits the city at the expense of its surrounding counties.
And then there is William Schoolman, 69, amateur activist, self-described ”prototypical entrepreneur,” and proprietor of the Hampton Luxury Liner bus fleet. In December, he filed a lawsuit in State Supreme Court claiming the tax is unconstitutional and demanding its repeal. The reason?
”Competition,” Mr. Schoolman said in a recent telephone interview, anger rising in his voice. ”This is the first time that I ever had to pay a subsidy directly to my competitor. That’s the thing that really bothers me.”

For the full story, see:
MICHAEL M. GRYNBAUM. “Suing Over a Transit Tax, in the Name of Competition.” The New York Times (Tues., February 16, 2010): A24.