Say it ain’t so…
By Dan | October 20, 2008 - 3:19 pm - Posted in Edukashun, Sports, Taxes

This is just pathetic.  Obama, speaking in Philly says he’s a Phanatic.  Now in Florida, he says he’s “showing the [Tampa Bay Devil] Rays some love.”

I don’t mean to single out Obama, many politicians, especially those running for president, have claimed a sudden, unexplainable rooting interest for teams then in the national spotlight, but come on-at least pick one team per championship.

Are we really that stupid?  I mean, I am a huge New York Giants fan.  Their Superbowl victory over the Patriots will live in my mind as long as I remember by own name.  Does that preclude me from running for office outside of New York/New Jersey and Connecticut?  It shouldn’t.  What’s wrong with saying, “Look, I’m a life-long Yankees fan, so I don’t have an interest in the outcome, but I hope it’s a good, well played game.?”  Or, even more ambitious, what about “I like the Phillies because the Devil Rays are a league rival?”

The point is, do politicians really believe voters are either (a) so stupid they won’t see through this or (b) so vain that they won’t vote for a politician that doesn’t kowtow to the local sports franchise?  I don’t know, if voters believe Obama won’t raise their taxes (yes, even those making less than $250,000 per year), maybe voters are that dumb.

(Comment)
Unscrambling the Eggs
By Dan | - 11:54 am - Posted in Business Section, Edukashun, Government, Politics & Policy

Some have asked why I think it’s alright to spend $700 billion bailing out banks, but it’s not okay to spend even one dime bailing out people who bought a house they could not afford.  The answer, surprisingly for some, is not that I’m a heartless capitalist with no compassion for the poor (or, if you’re Barney Frank, poor=minority).  It’s all about incentives and accountability.

There are actually three distinct crises going on right now.  They are connected, but each could stand alone without the other.  The first is the housing crisis, the second is the banking crisis and the third is the credit crunch crisis.  Taking them in order:

The Housing Crisis:
What is it? Housing prices are collapsing and (less than 5% of) homes are being foreclosed on.

Who does it effects? Anyone trying to sell a house.

What caused It?  Housing crisis was chiefly caused by Congress’s wanton desire to pander to people who otherwise could not afford housing.  The flood of cheap credit encouraged the market to oversupply the market with new housing.  When the credit began to run dry and some borrowers defaulted, the foreclosed properties added to an already flooded buyers market.  That created a vicious cycle where those who planned to buy a big house with a 2 and 28 ARM and sell it for a profit within 3-5 years found it impossible to sell and impossible to pay the jacked up payment.  They defaulted, and another foreclosed property hit the market.  This, combined with the baby boomers (it always comes back to them) all began to retire and sell the McMansion for a quiet bungalow, swamped a struggling buyers market.

Why money won’t help? As heartless as it may sound, spending money here will make the problem worse.  The best and most efficient way to clean up a buyers market is to let prices stabalize naturally.   If the government jumps in and buys houses, that may reduce supply, but how and when will the government offload them?  If you believe prices are still over-inflated today (they are at 80% above historic, inflation-adjusted levels), a government purchasing program will be “stabilizing” the price at an inflated level: in other words, supporting another bubble that will collapse.  What about McCain’s plan to buy the troubled mortgages and refinance them?  Same thing.  Your sticking people with a new mortgage at a still-inflated price.  You’re just delaying the inevitable.

The Banking Crisis:
What is it? Banks are failing.

Who does it effect? Anyone who loans money to banks.  (Don’t laugh, that includes you if you have a savings, checking or investment account at a bank.)

What caused it?  Three things; subprime lending, bad regulations and implicit government guarantees.  Some banks followed through on the government’s promise of “affordable housing”.  Others bought derivatives sponsored by those banks or Fannie Mae and Freddie Mac.  In the first case, banks are mostly on their own.  They made a bad business decision (listening to the government often is).  In the second case, here is where it gets sticky.  First, the government imposed a smart-sounding, dumbass rule called marked to market accounting.  This means that banks that are publicly held have to value their investments at the then current value for which they could be sold.  This is fine if there’s a market.  When the housing crisis started, however, the market for these derivatives collapsed.  No one wanted to buy an investment when they didn’t know if it was a good bet or not.  The investments, however, are not worthless.  They still generate revenue and they still have some nonzero value.  But banks cannot use that value thanks to this marked to market accounting rule.  (Remember, a bank fails when its assets (investments and loans) are less than its deposits.  When one huge portion of its investments are ruled to be worthless, a bank will probably fail).  Second, and this is where the government steps in it, securities issued by Fannie Mae and Freddie Mac had an implicit government guaranty.  Investors believed that, should Fannie or Freddie fail, the government would step in.  It did, but not to the extent necessary to revive the market for asset-backed securities.

Why more money won’t help?  The FDIC now guarantees most deposits up to $250,000.  This should prevent most runs on most banks.  Removing the marked to market rules will also help, as would the complete dismantling of Fannie Mae and Freddie Mac.

The Credit Crunch Crisis:
What is it? Banks are afraid to lend other banks money.

Who does it effect?  Anyone who gets money from banks.  Contrary to the cartoon world view, banks don’t keep gobs of cash in a vault so Scrooge McDuck can swim through it.  If you own a company and bank with your local bank, every Friday you need to make payroll.  You probably have a line of credit that allows you to draw down on each Friday to cut the checks to your employees.  You then pay off the line of credit as your customers pay you.  The bank (say Citizens), however, may not have enough cash on hand, so it will have to get an overnight loan from another bank (say Wells Fargo) .  If Wells Fargo doesn’t believe that Citizens is solvent, it will refuse to lend Citizens any money.  Citizens then cannot lend you the money.  Your employees don’t get paid.  How long will you stay in business with that going on?

What caused it? Two things: the Banking Crisis and Hank Paulson’s failure to save Lehman Brothers.  Had Lehman been saved as Bear Stearns and AIG were, banks would have had more faith in lending money overnight.  There would still be a tightening, but it would not be so severe.

Why more money will help?  Credit markets run on good faith and crave stability.  If the market knew that the government would not allow Lehman to fail, they might react more favorably to a lending request.  Having seen Lehman fail, most banks are being extremely conservative with capital (how much money they keep in the vault) and lending (to whom they lend) requirements.  Injecting more capital into the system will allow banks to take on more risk.  Moreover, unlike housing prices, stock prices are undervalued (just ask Warren Buffet).  The government, for once in history, is buying something at a discount.

(Comment)
The Rumors of Their Demise Have Been Greatly Exaggerated
By Dan | October 15, 2008 - 12:57 pm - Posted in Best Of, Edukashun, Foreign Affairs, Government, Op Ed, Politics & Policy, Taxes

Recently, many commentators in the mainstream media here in America and abroad have gleefully announced the death of Capitalism and Conservatism.  We are to believe that the Reagan Revolution has been routed like Ewoks without Luke, Leia and Han.

Conservatism and Capitalism, I can assure you, are both alive, though not so well.  These twin pillars saved America and the free world from feckless impotence of Jimmy Carter and the very feckled and potent ambitions of the Soviet Union; they will not crumble in the face of Barney Frank, Barack Obama, Nancy Pelosi or any other mental midget on the Left.

Conservatism, while not dead, is homeless.  It was run from its home by Republican greed, avarice and incompetence.  I don’t agree with John McCain on much, but we do agree that Republicans came to change Washington, but Washington changed Republicans.  Spending has run unchecked, earmarks and wasteful programs have run rampant.  These new toys have led Republicans to lose their way and compromise their principles.  Perhaps four years in exile will focus the party’s attention and lead to meaningful reform.  It will at least lead to new blood.

Capitalism is not dead, but it has been framed for murder.  Capitalism did not kill your 401(k), Barney Frank did.  Had he, Chris Dodd, Barack Obama and others not allowed (nay, encouraged) two government created behemoths to flood the mortgage market with billions in subprime loans, everyone would have been better off.  Housing prices would have stayed low, banks would have stayed solvent and retirement accounts would have stayed fat.

Laissez faire capitalism remains the most efficient economic theory.  Consider the following: whom would you trust to advise you and negotiate a transaction on your behalf: Warren Buffett or Nancy Pelosi?  Donald Trump or Barney Frank?  Michael Milken or Mark Foley?  Those who have the mental tools to understand the economy make money.  Those who don’t, run for office.  It is the nature of our world that some politicians will be among the dumbest, least informed, greediest, most incompetent of us.  Almost everyone else will do better things with their talents.  This is not to say every politician is completely out of their depth, but I would not bet on a majority of them being smarter than my dog.  The less the government interferes with your life, your business and your finances, the better.

Nonetheless, it is not yet time to “go John Galt.”  This is not the beginning of the end of our way of life, it is end of the beginning.  Together, we have destroyed slavery, fascism, communism and socialism.  Our task now is to destroy modern liberalism.  We must destroy political correctness and nihilism before it destroys us.  We will overcome the soft bigotry of lowered expectations and restore accountability and common sense to the economy, the legal system and the government.

Conservatism and Capitalism are wounded, but they will return stronger than ever.  Patience is a virtue; capitulation is a sacrilege.  In time, we will see the end of the Democratic majority and the Obama administration.  In time, we will see an end to the forced charity of “patriotic” taxes.  We will see the last welfare check cashed.  We will see an end to the tortured twisting of the words in the storied document that governs us.  We will see a government that knows its limits, recognizes its enemies and aids only its allies.  We will see a strong, proud America leading the world, the entire world, into a free, peaceful and democratic future.  We will once again be a shining city on a hill.

(Comment)
Of Mice and Men
By Dan | October 10, 2008 - 10:54 am - Posted in Business Section, Edukashun, Government, Politics & Policy

Below is a chart depicting the real and inflation-adjusted (median) average price of a home in the United States from 1975 through 2008.  You can clearly see the housing bubble developing, beginning in 1997.  The historical, inflation adjusted price of a home is about $150,000.  During the 10 year period starting in 1997, housing prices nearly doubled, peaking about two years ago at 183% over the norm.

So, what happened in the late 1990’s that could have caused such a bubble?  Some Democrats point to Gramm Leach Bliley, this is because these people are either idiots or naked opportunists.  As I pointed out earlier, GLB has cushioned the blow from this crisis as it allows healthy banks to bail out (i.e., buy) struggling investment banks and vice versa.  Some banks (Wells Fargo, Goldman Sachs) were not so incredibly stupid to invest in a bubble twice in one decade.  In addition, GLB was passed in 1999 when the bubble was clearly already underway.

In 1995, however, Democrats decided they wanted to encourage home ownership among people who, frankly, could not afford it.  We heard speaches about “everyone has a right to affordable housing.”  The government authorized and encouraged Fannie Mae and Freddie Mac to issue subprime loans.  Subprime loans are loans to borrowers with “subprime” credit, usually meaning a FICO score of less than 620 or 660, depending on the lender.  In order to have credit score that low, the borrower probably either (i) missed two or more payments in the last year; (ii) declared bankruptcy or been foreclosed on recently, (iii) really pissed of one of the credit rating agencies.  Put simply, a subprime loan is a loan to someone who probably cannot pay it back.  (I know, I’m being mean or racist, but frankly, if you’re going to ask that I pay for your mistakes, you can expect me to point them out.)

As an aside, note that the peak was in 2006, two years before the current crisis.  Why?  You can thank the 2 and 28 ARMs.  These are Adjustable Rate Mortgages where the borrower pays interest only for two years, then the payments jump (sometimes by 200-300%) for the remaining 28 years.  Why would anyone agree to that?  They expected housing prices to keep going up.  “Honey, we’ll pay interest only for two years, then sell the house at a profit!  What could go wrong.”  There’s a reason some people have a 620 credit rating.  The banks, on the other hand, reasoned that, “if they default on the mortgage, we’ll foreclose and sell the house at a profit.”  There’s a reason some banks fail.  The point is, if you bought a house two years ago and took a 2/28 ARM, the reaper came calling this year.  When you couldn’t pay, the bank foreclosed, adding tons of cheap housing to an already overcrowded market.  That, combined with the baby boomers retiring (and looking to sell that four bedroom colonial for a two bedroom bungalo) precipitated the bursting bubble two years ago.  Once the housing bubble burst, banks had two years of interest only payments until their problems started.  Now, not only are banks not receiving all of the mortgage payments, they also cannot offload the houses on which they foreclose.

The irony (and thus the title of the post) is that this behavior, forcing banks to make risky loans, is what made owning a home such an unattainable goal.  Congress decided that we need more home ownership, so what happened?  The price of homes went up.  (This is known to some as the Law of Supply and Demand.  To others it is a fact to be avoided at all costs.  I’m looking at you Barney Frank).  Had Congress left well enough alone, the prices may have peaked, as they did in the late 1980s, but certainly nothing like the spike we saw over the last 10 years.  Put simply (for the benefit of Congress, especially Mr. Frank), had they done nothing, more people would have owned homes at lower prices.

Lesson learned, right?  No.  Saturday Night Live may have gotten the message, but Congress is still struggling with reality.  No harm, though, right?  I mean, it’s not like they can make the same mistake again, right?  No.  Now they’re clammoring about how everyone needs affordable healthcare.

(Comment)

Barring a major collapse or a terrorist attack, Barack Obama will be the next president.  He will be aided by a Democrat-controlled Congress, and soon enough a Left-leaning supreme court.  For his ascention, we can blame John McCain; for Congress, we can blame Republican leadership who allowed corruption and greed to infect the Reagan Revolution.  But looking forward, here are some predictions for the coming four years:

Free Speech

The Fairness Doctrine will be re-enacted, driving radio, the last bastion of conservatism, Leftward and, ultimately, into bankruptcy.  President Obama will encourage prosecutors to investigate “unfair, biased and untruthful” comments about government policies.  Conservative bloggers and talk radio show hosts will quietly slip away, and Daily Kos and the Huffington Post will become “mainstream.”  Fox News ratings will initially climb, but President Obama will again deny them access and will continue to slander the network until it becomes marginalized.  If things get really bad, “Sedition” will rejoin the lexicon.

Financial Markets

Reeling from the recent subprime collapse, Wall Street will struggle for several years.  With their pay and benefits curtailed by Congress, Wall Street firms will be unable to hire or retain talented executives.  Those who do take the jobs will be tempted to make money in other, less ethical ways.  Goldman Sachs and Morgan Stanley will merge into the banking sector and the innovative products and ideas that put America at the forefront of finance will dry up.  Some firms will move out of New York, or significantly reduce their presence.  Without the tax revenue from these firms, New York City will begin to collapse as it did in the 1970’s.  The city may be nationalized.

The Broader Economy

Without risk taking on Wall Street, the credit crunch will tighten.  Firms will have little or no incentive to take large risks, and any rewards will be taxed mercilessly.  Several large corporations will fail.  If the government steps in, intervention will be used as an excuse to raise taxes again, just as Clinton did in the early 1990’s.  Layoffs and unemployment will become common place as American companies struggle to meet the demands of President Obama and his union-endorsed wish list.  Higher corporate taxes and increased labor demands will drive manufacturing jobs off-shore.

Taxes

Obama will raise your taxes.  At first, he will work with Congress to avoid a squeeze of the middle class.  Ultimately, we will be told that taxes are not being raised, we are merely returning to “pre-Bush” levels.  We will also be told that, most Americans will “pay the same as they did under President Reagan.”  This will be a lie, but it will be unchallenged by the press.

Energy & Environment

Offshore oil drilling will be blocked.  Obama has already said that he does not object to $4 per gallon gas, only that the increase occurred so rapidly.  Under the guise of “Global Warming”, oil and gasoline prices will steadily increase as windfall profits taxes and other taxes are passed on to the consumer.  Congress will pass stimulus bill after stimulus bill to offset the cost of heating oil in the winter, and gasoline prices in the summer.  Redistribution of wealth will become a reality.  Meanwhile, $7 per gallon will be the new normal.  What the government doesn’t spend in stimulus packages, it will use to distort the market for alternative energy sources.  These new projects will make Ethanol look like a brilliant idea.  (Incidentally, the next four years will set cold temperature records.  Crops will fail and the price of food will skyrocket.  We will be told that this “climate change” is due to human activity.)  If owning an SUV is not strictly illegal, only Hollywood elites and politicians will be able to afford them.

Terrorism & Foreign Affairs

We will suffer a major terror attack on U.S. soil within the first two years.  This would likely be the case in a McCain administration, but the response will be markedly different.  The Obama response, if there is one, will embolden al Qaeda, who will move from hiding in Aghanistan to ruling Pakistan.  Iran will continue to grow in strength and President Obama, will indeed meet with Ahmedinijad or his successor. Russia will invade Ukraine or Latvia and NATO will fail to react.  Obama will call on the UN to impose sanctions, which they will not.  Our image in Europe will at first grow, but the Obama bounce will be fleeting.  As America’s status as a superpower wanes, we will become West England: tolerable to much of Europe, but not included in their reindeer games.

Healthcare

Obama and Congress will enact comprehensive healthcare reform.  Premiums will first fall, then rise as health insurers begin to first compete with a government program, and then the government program becomes all consuming and yet irrelevant.  There will, indeed, be two Americas as there are two UK’s when it comes to healthcare.  The broader population will be covered by Obamacare, a form of Medicare and SCHIP on steriods.  The premiums will be next to nothing, but the covereage will make people long for HMOs.  Instead of arguing with your insurance company (who can be bullied by the market, Oprah, 60 Minutes and others), you will have to argue with a government bureacrat for whom accountability is as foreign a concept as quantum chromo dynamics.  The rest of America will continue to pay for health care through their employer or directly.  The coverage will be better, but the lack of competition and the government program will raise prices.  Good doctors will become harder to find as government mandates, malpractice claims and insurance headaches drive smart people out of the profession.  Without a profit motive, new drugs are fewer and further between.

Social Issues

Gay marriage will become the law in all 50 states, either by federal fiat or through the Full Faith and Credit Clause.  Whether you agree or disagree, the issue will inflame opinions just as Roe v. Wade has for over thirty years.  A new Supreme Court case will enter the public lexicon, just as Roe did.  Abortion will also continue to be a contentious issue.  Crime and unethical behavior will grow and a “malaise” will infect the country.

Before the Bailout
By Dan | September 26, 2008 - 2:23 pm - Posted in Business Section, Edukashun, Government, Politics & Policy, Taxes

Chris Dodd and Barney Frank need to resign in disgrace for their reality-blind protection of Fannie Mae and Freddie Mac, the root cause of the current financial crisis.  The fact that these two submorons are allowed to walk free is a textbook definition of abuse of the public trust.  As recently as two years ago, Dodd and Frank were claiming that their owners, Fannie and Freddie, posed no risk to the financial industry.  Before taxpayers are asked to pay one dime, these sanctimonious pricks need to go.

After that, I would prefer any bailout go to the housing industry, not to bailout the banks that decided to take risks without kicking the tires.  I can’t say I blame them completely as the government implicitly guaranteed the obligations of Fannie and Freddie.  The bill has come do, and Chris and Barney want you to pay while they “investigate” which Republican is responsible for their malfeasance.

(Comment)

Recently, Oprah, had an episode about healthcare.  Oprah, Michael Moore and other guests continued to refer to healthcare as a right.  Many people disagree with this fundamental issue, but have difficulty articulating why. So here is my best effort to explain to the five people who read this blog, why it is I believe that healthcare is not a “right.”

The classic response is that a right is not something someone gives you, but something that no one can take away.  This a good bumper sticker, but it is not terribly instructive if you’re not already convinced.  I don’t presume to solve the problem of escalating healthcare costs.  Due in part to rapid advances in medical treatments, ordinary people are being forced to choose between lifesaving treatments that didn’t exist only a few years ago and bankruptcy.  Rampant lawsuits, anti-healthcare provider forces and those evil profit seekers can be left for another time.  A more basic question, however, is whether you (and I) have a right to healthcare.

Rights are not unlimited.  Rights can be restricted or even taken away.  For example, you have the right to liberty (to walk freely wherever you please).  But others can restrict that right in certain circumstances.  You cannot, for example, walk freely through your neighbors bedroom at night.  That would violate their right to privacy.  If you commit a crime and are tried and convicted, your liberty can be revoked completely.

Rights really only make sense in the context of a lawful society.  Governments are instituted, as a basic matter, to determine where one person’s rights end and another’s begins. For example, you have a right to free speech, but others have a right against defamation.  If you say something untrue and defamatory about someone, the government can determine whose right trumps.

From the perspective of the government, a right is something that can be ensured to one citizen without taxing (in the broadest sense) another citizen.  For example, the government can ensure your right to free speech without any cost to anyone else.  No one has to listen (you do not, for example, have the right to be listened to).  Nor does anyone have to publish your work.  You do not, however, have the right to a full-page spread in the Wall Street Journal.  If, however, you can afford to, you can purchase one (or the Wall Street Journal) and say pretty much whatever you want.  (Subject, of course, to others’ rights to be free from defamation and other torts).

In a (mostly) free and (mostly) just society like ours, rights are plentiful.  You have, to name a few, the right to bear arms, the right to your life, your liberty, the pursuit of your happiness.  To be sure, however, this does not mean the government must buy you a gun.  Nor does it mean government must purchase the things that make you happy.  It only means that government cannot restrict these rights without due process of law.

This is the crux of the issue: there is a difference between a right and a need.  For example, you need food, clothing and shelter.  You have a right to pursue these needs; the government will not prevent you from buying a home, buying food or buying a new pair of jeans.  The government does not, however, owe you a house, food or clothing.  You have no right to housing, no right to food and no right to clothing.

Consider a small society of 100 people, with laws not too dissimilar to ours.  Let’s assume 2 of these people are unable, for whatever reason, to afford their own home.  Among the other people are a carpenter, a logger, a blacksmith, a painter and a plumber.  If the government is to provide those two people with housing, it has to either (i) tax everyone to pay the workmen to build the house or (ii) compel the workmen to build the house for free.  Either way, the government must take something of value to provide this need to those who cannot obtain it on their own.

So it is with healthcare.  You need healthcare.  Everyone does.  But in order to provide you with that need, the government has to take from someone else.  They either have to tax those who can afford it or compel the doctors, pharmacists and hospitals to provide it for free.  You may think, as clearly many do, that this is not such an evil thing.  Think back to that “free” house, though.  Think how hard those workmen would work if they knew that they either weren’t being paid for their efforts, or that some nebulous body called “taxpayers” were paying them.  Also, consider how many people would voluntarily buy their own house when they knew that others had gotten on for free.  Imagine the standard of construction and innovation that would develop if housing were treated as a right; as something the government needed to provide.

Of course, governments do this all the time.  They tax one citizen to pay for another’s welfare (literally and figuratively).  They tax me to pay for your social security.  They tax you to pay for my passport.  They tax all most of us to provide for our common defense.  The point, however, is that that does not make it a right.

Governments have many purposes.  The common defense is one that most people agree on as a valid rationale for taxes.  Saving the spotted owl, however, is debatable.  So too is providing healthcare.

UPDATE: You like me, you really, really like me.  Thanks to John Hawkins at Right Wing News and the David All Group for the acknowledgment!

Now who’s being ignorant?
By Dan | August 5, 2008 - 7:55 pm - Posted in Business Section, Edukashun, Government, Politics & Policy

At a town hall meeting in Berea , Ohio, today, Senator Obama (D-iva), called John McCain and his campaign ignorant for mocking Obama’s tire inflation plan.

You know the other day I was in a town hall meeting and I laid out my plans for investing $15 billion a year in energy efficient cars and a new electricity grid and somebody said, ‘well, what can I do? what can individuals do’

So I told them something simple, I said, ‘You know what? You can inflate your tires to the proper levels and that if everybody in America inflated their tires to the proper level, we would actually probably save more oil than all the oil we’d get from John McCain drilling right below his feet there, or wherever he was going to drill.’

So now the Republicans are going around - this is the kind of thing they do. I don’t understand it! They’re going around, they’re sending like little tire gauges, making fun of this idea as if this is ‘Barack Obama’s energy plan.’

Now two points, one, they know they’re lying about what my energy plan is, but the other thing is they’re making fun of a step that every expert says would absolutely reduce our oil consumption by 3 to 4 percent. It’s like these guys take pride in being ignorant.

You know, they think it is funny that they are making fun of something that is actually true. They need to do their homework. Because this is serious business. Instead of running ads about Paris Hilton and Britney Spears they should go talk to some energy experts and actually make a difference.

First, as Jake Tapper points out, this is not exactly what Obama said “the other day.”  In fact, he said, “we could save all the oil that they’re talking about getting off drilling if everybody was just inflating their tires.” (Note the background laughter in the audience after he says this.  Perhaps someone at the pep rally was also proud to be ignorant.)

There’s something more devious, however, than Obama’s merely recasting what it is he said to make him look less of an idiot.  By slight of hand, he also converts a 3-4% increase in fuel economy to a 3-4% decrease in demand, and puts words in the mouths of experts who never said any such thing.

So what would this air inflation savings really mean?

  1. Only about 1/3 to 1/4 of drivers have underinflated tires.  That means that the average fuel economy increase would only average out to 1-1.33%. (taking the pro-Obama number of 1/3).
  2. Fuel economy is inversely proportional to fuel demand.  Put another way, a 4% increase in fuel economy is not a 4% decrease in demand.  For example, let’s say your car has under-inflated tires and gets 20 mpg as is.   If you drive 1000 miles a month, you use 50 gallons.  You then inflate your tires to get a whopping additional .8 mpg (a 4% increase).   It now takes 48.08 gallons (a savings of 3.8%).  This effect is even high as your percent increase increases.  (For example a 10% increase is only a 9.1% reduction in fuel demand.  A ).  It may seem like a small difference, but .2% of total fuel consumed in the US is 14.6 million barrels per year.  In any event, this 3.8% reduction in demand only applies to 1 out of every 3 drivers (at most), meaning it’s really a 1.27% decrease in overall demand for gasoline.
  3. Finally, gasoline is not the only product made from crude oil.  Jet fuel, plastics, lubricants, waxes, asphalt and other products are made from crude oil.  Gasoline is only about 50% of a barrel of crude oil, so a 1.27% decrease in our gasoline demand may not, necessarily, result in a 1.27% decrease in overall demand for crude oil.  That would depend on what is driving demand for crude.  My guess is that gasoline and diesel are the drivers, but that may not be true year-round.

The point here is that no expert has ever said anything of the kind.  Just like Clinton’s ridiculous claim that “Russian missles are no longer pointed at our children,” this comment is made of thin air.

(Comment)
Windfall Taxes?
By Dan | August 1, 2008 - 4:31 pm - Posted in Business Section, Edukashun, Politics & Policy, Taxes

The media have been screaming bloody murder over Exxon’s recent quarterly results. Even the Anointed One has decreed that these profits are “excessive” and has announced a blatantly socialist plan to further tax Exxon so that he can buy votes with $1000 stimulus checks.

While it’s true that Exxon’s net profits of $11.7 billion is a record quarterly profit for any company, the numbers are far more interesting.  Mark Perry at iStockAnalyst points out that Exxon paid 3 times that amount in taxes already!

As I noted briefly in his comment section, if you simplify Exxon to be solely a gasoline vendor, here is how the average $4 per gallon price breaks down:

Amount Proceeds go to…
$0.186 Federal taxes paid (by you) at the pump
$0.208 (Average) state taxes paid (by you) at the pump
$2.46 Cost of drilling, shipping, refining, marketing.
$0.83 Income taxes, sales taxes and other taxes paid by Exxon.
$0.31 Exxon’s profit.

That means, all tolled, the government (federal, state and local) receives $1.23 per gallon and Exxon receives $0.31 per gallon.

So, who’s making the windfall profit?

By the way, the $2.46?  That mostly goes to foreign governments who own the only lands our Congress will allow us to drill.  I’m sure that will end well.

UPDATE: By the way, if Obama’s $50 billion stimulus plan were enacted, the taxes would (as they are now) merely be passed on to the consumer.  Meaning that, assuming for simplicity sake, everything else remained constant, Obama’s $50 billion would add $1.32 to the price of gasoline.  Even if you assume Exxon’s profits went to zero, the price of gas would instantly go up to about $5.00 per gallon.

$5/gallon gas in January?  Yes We Can!

UPDATE #2:  One reader pointed out that Obama’s plan would spread his “windfall profits tax” over 5 years (and presumably more oil companies than just Exxon).  That would only increase the price to about $4.30 or so.

2 Comments
Tire Inflation: More Hot Air
By Dan | July 30, 2008 - 3:59 pm - Posted in Business Section, Edukashun, Government, Liberals, Op Ed, Politics & Policy, Taxes, Weather

Jim Gereghty at the Campaign Spot points out Obama’s flimsy New Math on tire pressure.  I agree with Jim in general, but I think there’s an easier way to make the point.  First, Obama’s connecting this with offshore oil drilling is ridiculous.  That’s like a doctor telling a man with a cold, if you lay down part of the day, you’d cough less and you won’t need so much cough syrup.  Okay, but why don’t I do both, would that be better?

In any event, Obama is claiming that properly inflating tires would have a significant impact on gas prices.  Let’s take Jim’s assumptions and see:

Assuming:

  • The average commuter commutes 33 miles per day;
  • The average car gets 24 mpg (unlikely, but okay);
  • Improper tire pressure decreases efficiency by 2.5 mpg (average of 2-3 mpg);
  • And 1 out of 3 commuters has improper tire pressure.

Take three random commuters: two travel 33 miles each at 24 mpg (1.375 gallons per day) and the other at 21.5 mpg (1.53 gallons).  The evil, unAmerican commuter is wasting .16 gallons per day.

To put into perspective, this means that uninflated tires increase domestic demand by .16 gallons for every 4.125 gallons.  (All three commuters with properly inflated tires would use (1.375 * 3 = ) 4.125 gallons.)   Put another way, this is an effect of less than 4% (.16 / 4.125).

Assuming you believe in the law of supply and demand, a 4% decrease in demand should correspond to at most a 4% decrease in price.  This ignores effects like stockpiling and the cost of the federal beauracracy needed to ensure compliance.  If the average price of gas is now roughly $4.00 per gallon, a 4% decrease would make it $3.84, saving $.16 per gallon.

To sum up, forcing every motorist to properly inflate their tires would save, at most, $.16 per gallon.

In contrast, the federal tax on gasoline is $.184 per gallon.  Wasn’t there a candidate who said that eliminating this tax was a “typical Washington gimmick” that wouldn’t amount to any real savings?

(Comment)