From the Economist comes economic sense about gasoline prices. Excerpts:

…petrol prices in America depend, first and foremost, on the price
of crude oil. This is determined by global supply and demand, something over
which American politicians have only marginal influence. A gallon of petrol
at an American pump costs $2.85 on average, according to the American
Automobile Association (AAA), 75 cents more than it did a year ago.
Taxes account for a mere 18% of the price of filling an American car, compared with, say, 67% in Britain. So a surge in the price of oil leads toa proportionally bigger rise in the price of American petrol. Americans could reduce volatility by raising taxes, but not even Al Gore, who calls global warming “the most dangerous crisis we have ever faced”, is suggesting that Americans should pay just under $7 a gallon, as Brits do.
Although the global oil price is the main cause of American motorists’ woes, local factors also matter. Oil wells and refineries around the Gulf of Mexico have not yet fully recovered from last year’s hurricanes, and petrol stocks are low. Weathermen predict another busy hurricane season this year. And all this bad news comes at the start of the summer driving season, when holidaying families hit the road and prices traditionally rise to annual highs thanks to the increased demand.
However, prices were already at high levels in mid-May. In part that was due to the cost of crude oil. The hangover from last year’s hurricanes, which knocked out 10% of America’s refining capacity, also contributed, as facilities that had deferred maintenance work to compensate for (and profit from) the shortfall belatedly shut down. Furthermore, refiners around the world are struggling to adapt as crude supplies become more viscous and sulphurous, and so harder to turn into petrol.
Another crucial local problem arose from the removal of a chemical called methyl tertiary-butyl ether (MTBE) from petrol in Texas and several eastern states. The addition of MTBE helps to reduce smog from car engines. But researchers began to worry that it might be carcinogenic and was certainly seeping into groundwater, making it undrinkable. Retailers, fearing lawsuits, decided to switch to ethanol, which has similar properties. But petrol blended with ethanol, unlike MTBE, cannot be shipped by pipeline, since the two are prone to separate in transit. So distributors had to invest in new facilities to transport ethanol and mix it with petrol near the point of sale. Moreover, ethanol is in short supply, and therefore expensive.
At one point in late April, a handful of petrol stations actually ran out of fuel as a result of these accumulated woes. But by now, says John Felmy of the American Petroleum Institute (API), an industry group, distribution networks are up and running. The high price, meanwhile, has helped to attract imports of petrol, which have been running 36% above their normal level in recent months. Stocks are rising again, and prices have fallen on the futures markets as well as at the pump. The government now predicts that petrol will cost an average $2.71 a gallon over the summer-less than it does at the moment.
A similar story unfolded in the wake of last year’s hurricanes, when high prices attracted imports, which compensated for curtailed local supply. Members of the International Energy Agency, a club of oil-consuming countries, helped by releasing some petrol from their strategic reserves. Even if hurricanes wreak havoc in the Gulf of Mexico again this summer, Mr Felmy argues, America’s drivers should have no trouble refilling their tanks, as long as they can stomach the price.
Not all can, of course. According to most surveys, demand for petrol is atlast beginning to soften, as the poor or thrifty move about less or take the bus. The API reckons that America’s consumption fell by 0.7% in the first four months of the year. The Department of Energy calculates that it has risen, but at a fraction of the normal pace. Sales of the most gas-guzzling cars have also been falling for several years, which may have a more lasting effect.
In the long run, growth in America’s refining capacity (or the world’s) should also help to lower prices. But that will take time. Refining capacity in America rose by almost 300,000 barrels a day last year, a small fraction of 9m daily barrels of petrol consumed. It will take two or three years, according to Aaron Brady of Cambridge Energy Research Associates, a consultancy, to construct enough extra refining capacity for comfort.
For the most part, Americans are responding rationally to the high price of petrol. Suppliers supply more; consumers consume less. Politicians, however, take it as an opportunity to bluster. The House of Representatives has passed a bill barring “price-gouging”-that is, making it a criminal offence to charge more for petrol than some bureaucrat deems appropriate. This is popular; 69% of Americans even favour price controls. But in the long run, it would reduce the incentive for firms to invest in supplying petrol to Americans, and so would raise prices at the pump. With luck, the bill will die in the Senate.
Both parties tout their determination to free America of its dependence on jihad-fuelling foreign oil by some conveniently distant point in the future. Neither, however, proposes anything that might plausibly accomplish this. House Republicans passed a bill last week to allow oil drilling in Alaska’s Arctic National Wildlife Refuge, which would help a tiny amount at best, and in any case is highly unlikely to get through the Senate.
Both parties say they wish to promote ethanol, not just as an additive, but as a fuel in its own right. In practice, this means a futile attempt by government to pick promising new technologies, plus fat subsidies for midwestern corn farmers while cheaper Brazilian ethanol is kept out with tariffs. Lawmakers could free the ethanol market, but many would rather drive their SUVs to a petrol station a block away from their offices for a photo-op denouncing Mr Bush and Big Oil.

HT: Carroll Cagle

It’s in the Washington Post.
HT:Newmark’s Door

Paul’s New Mexico government “Spend-o-meter” is spinning away and will soon reach $11 billion dollars for the fiscal year ending June 30 (yes, that’s billion!). That is almost 23 thousand dollars per second or nearly 1.4 million per hour. How does this relate to us as individuals? The government spends your money at the rate of $115 per person per week.

How do you drive up the price of homes beyond reasonable reach? Try land use restrictions. I am not hopeful that ABQ city councilors will pay attention to this anytime soon.

This morning the NY Times has suddenly abandoned its usual advocacy of a living constitution. Instead it wants politicians in the legislative and executive branches to be constrained by what the Constitution actually says regarding separation of powers:

The constitutional claims made by the Congressional leadership on the Jefferson case seem overblown. House and Senate members are protected from arrest while going about their official business to shield them from intimidation and meddling by the executive branch in the affairs of state, not to deter law enforcement officials from doing their lawful duty to investigate possible felonies.
But members of Congress who have been politically comatose or complicit as the Bush administration built itself an imperial presidency, immune from the historical powers of the legislative branch, are up in arms. The House Judiciary Committee, which has been in the forefront of the long-running cave-in, has scheduled a hearing that the chairman has titled “Reckless Justice: Did the Saturday Night Raid of Congress Trample the Constitution?”

Too bad the Times is so selective in wanting to follow the rules laid out in the Constitution. They should pay attention to the scholarship of James M. Buchanan:

In 1987, the United States celebrates the bicentennial anniversary of the constitutional convention that provided the basic rules for the American political order. This convention was one of the very few historical examples in which political rules were deliberately chosen. The vision of politics that informed the thinking of James Madison was not dissimilar, in its essentials, from that which informed Knut Wicksell’s less comprehensive, but more focussed, analysis of taxation and spending. Both rejected any organic conception of the state as superior in wisdom, to the individuals who are its members. Both sought to bring all available scientific analysis to bear in helping to resolve the continuing question of social order: How can we live together in peace, prosperity, and harmony, while retaining our liberties as autonomous individuals who can, and must, create our own values?

Our polictically incorrect friends at the Independence Institute in Colorado are having their annual Alcohol, Tobacco, and Firearms party on Saturday June 24. Here is the scoop according to their president Jon Caldara:

You should join us. The day includes sporting clays at the posh Kiowa Creek Shooting Club. If you’ve never shot clay pigeons, this is an opportunity to learn. And if you do shoot sporting clays, this is a way to test your skills. More importantly, we follow it up with a terrific lunch, lots of libations, and cigars and cigarettes for those who choose. New for this year, we will be giving out very special politically incorrect awards for qualifying shooters. The competition is sure to be fierce.

A few weeks ago, the Rio Grande Foundation questioned some signs posted at stations that are now being constructed for the new commuter rail system known as RailRunner. The signs stated in part that the project was “Funded by Governor Bill Richardson and the New Mexico Legislature.” After calling the Governor’s office, talking to a few legislators, and raising the issue with the Mid-Region Council of Governments (the entity managing the project), I am pleased to announce that the signs have been changed and taxpayers are now being duly credited.
While we at the Rio Grande Foundation and at this blog frequently criticize governments at all levels, it is nice to see the Mid-Region Council of Governments clarify this issue by crediting the hard-working New Mexicans who provide the resources used by our elected officials for RailRunner and hundreds of other government activities.

We’ll have more on the economics of the Global Warming debate soon. In the meantime, these scientific questions are well worth the read.

Now it seems to be: “Vote for me and I’ll give you other people’s money.”
Count me among those Americans “struggling to return liberal ideas to our public discourse.”

This is hard to believe. Don Harris seems to suffer from the Fatal Conceit. One wonders what kind of takings our councilors will think of next?

1. Muslims do not recognize Jews as God’s chosen people.
2. Jews do not recognize Jesus as the Messiah.
3. Protestants do not recognize the Pope as the leader of the
Christian world.
4. Baptists do not recognize each other at Hooters.
HT: Wayne Unze

According to USA Today taxpayers nationwide “will soon get a surprise bill that could exceed $1 trillion for the cost of paying future medical benefits for state and local workers who retire.” I wonder what NM’s bill will be??? This will be fun to watch taxpayer reaction.
HT: Asymmetrical Information

Thomas Sowell asks the question.

As a result of the Wall Street Journal’s good editorial (sr) today on immigration, I have discovered this online record of President Reagan’s public papers. Liberty, opportunity, prosperity: check it out.

Greg Mankiw is one of the more interesting economists around. He is known in the field as one of the leading exponents of “new-Kenysianism.” These are folks who believe that the macroeconomy occasionally suffers from large-scale failure and that government intervention is occasionally necessary to put the economy back on track. Unlike old-Keynsians, however, new-Kenysians are not single-mindedly fixed on aggregate demand shortfalls. Many largely accept the lessons of the “new classical” and “real business cycle” schools of thought and believe that fluctuations in both aggregate demand and aggregate supply determine the economy’s path.
In my mind, the single most important contribution of new-Keynsian analysis was to provide microeconomic theoretical and empirical justification for the notion that occasionally prices and wages do not move as fluidly as might be ideal. This seems far more realistic than the mathematically-precise but unrealistic assumptions which dominated the profession for so long.
One of the most interesting things to note about the new-Keynsians, though, is their ideological diversity. As one might expect, their ranks include a number of old-style Kenysians who prefer that government take an active role in the economy. These are folks like David Romer and Joseph Stiglitz. They also include a number of relatively free-market economists, however. And in this camp, one must surely put Greg Mankiw and the new fed chair Ben Bernanke.
Mankiw, of course, recently served a stint as President Bush’s economic advisor. He has a new blog here which is very readable and very interesting. He also has a forthcoming article with Weinzierl in the Journal of Political Economy. In it, he finds empirical justification for “dynamic scoring,” the old supply-side notion that when you estimate the impact of a tax cut on treasury revenues, you should account for whatever boost the cut will provide the economy. While tax cuts hardly pay for themselves (sorry conservatives), they do find that 17 percent of the revenue loss from a reduction in labor taxes is recouped by the treasury because of greater economic activity. Moreover, fully 50 percent of the revenue loss form a cut in capital taxes is recouped. Personally, I think tax cuts are good for their own-sake, irrespective of their impact on the treasury. Still, this is a powerful refutation for those who say that tax cuts will bankrupt the government.

Here is a column by Doug Powers that is well worth the read.
HT: Newmark’s Door

Competition and freedom of choice are the institutions necessary to make us prosperous. They do so by compelling each of us to make decisions individually that result in coordination of our actions in a way that leads to improvements in our lives. In fact, the improvements resulting from the process of competition and choice are far superior to those resulting from the alternative institution of government control. We at RGF call it “liberty, opportunity, prosperity.”
Of course, this goes for education as well. The endless “reforms” that always manage to maintain government control of education will never result in improvement. Writing in today’s Pittsburgh Tribune-Review, Professor Boudreaux predicts that government run K-12 schools will continue to fail; and he explains why by contrast to the process of competition and choice:

Government K-12 schools, as now run everywhere in the U.S., will never excel at educating students. The reason is that each school gets its students and its budget without having to compete for them.
Imagine if, say, supermarkets were run the same way we run schools. Everyone in my county would pay taxes to fund the county supermarket system; each one of us would then be assigned one specific county supermarket at which we are allowed to shop.
Of course, once in our assigned store, all the groceries that each of us gets are “free” — meaning, we don’t have to pay for them on the spot. If the products and services supplied by the supermarket are of poor quality, we’re not allowed to switch to other county markets; we must, instead, complain to politicians.
The managers of the supermarkets will agree that their stores offer abysmal service and undesirable products; they will assert that this sad fact is caused by underfunding. We will be warned that only by paying higher taxes will we have any possibility of getting better supermarkets.
So our taxes will rise and funding for supermarkets will increase. But quality will remain poor — and the excuses offered by the government-employed managers of the supermarkets will remain that they need yet more funding.

Wake up, New Mexico!

Paul and I visited the construction site at Paseo-Journal Center station. Something seemed to stand out when we read the sign explaining the project:

Here you will find a good economic perspective on the prospects for oil and gasoline markets. The article has a supply emphasis:

Having oil is one thing. Delivering it to a growing market is another. World economies differ greatly in their capacity to organize enterprises, adopt new technologies, raise capital and supply what consumers want. When it comes to increasing oil production, economic systems matter quite a bit. More oil would flow onto world markets and prices would be lower if major oil resources were in countries where producers responded freely to market incentives. The extent of economic freedom in the countries with the world’s oil supplies will greatly affect how well that oil is delivered to consumers.

Even though the vast majority of current oil production comes from inefficient, socialist state control, the authors are optimistic:

To a great extent, rising oil prices are self-limiting. Higher oil prices encourage conservation and development of unconventional oil resources and alternative fuels. Higher oil prices should also help overcome at least some of the difficulties in developing the vast conventional reserves not fully connected to the market [for example, the tar sands located in Canada’s province of Alberta]. In the long history of natural resources, the prospect of scarcity and higher prices has provided ample incentive for innovation.

An excerpt:

The thing, the state itself, is inherently a threat to liberty. It may be a necessary threat, something we have to live with, but it is a threat nonetheless.
It is really a matter of nature. Think about it: you can’t blame a dog for eating out of the garbage. That is what dogs do. Can’t ask yourself, “Why? Why isn’t my dog a good dog? I can imagine a good dog, one that doesn’t eat out of the garbage. Can’t we just get a better dog?”
No, no you can’t. All dogs eat out of the garbage, and all states coerce unjustly. It’s what they do.

This is a speech that will make you think. Read the whole thing.

In this article, Walter Williams is once again on target in his discussion of the folly of minimum wage hikes.
New Mexico’s politicians should heed his sage advice.

Here is a particularly good article about the nonsense that passes for leadership in both major parties. Only a small minority have been willing to stand on principle: Congrats to Steve Pearce for standing tall and voting against the federal price gouging bill.

The lack of basic economic knowledge in this country is unbelievable. Politicians who should know better (they have easy access to top notch economists) are showing no principle at all as they purport to do something about high gasoline prices. New Mexico is right in there with the worst of them. Here is a great quote from Michael O’Hare describing the situation:

…politicians treat an election, or an office, as the worst thing one can lose, and promise to fix everything with a trick that won’t require any actual work by us; we vote for people who tell us fairy tales that would excuse us from any heavy lifting if they were true, and excuse us from confronting downers and grownup responsibilities if we pretend to believe. This game is being played at a really frenzied level around gas prices, and the mix of ignorance and plain mendacity both parties are wallowing in is–this is really amazing–neck and neck with the immigration performance in the theater next door.

HT: Asymmetrical Information
Update 5/5/06: Kudos to Steve Pearce who was one of the few who voted against the federal price gouging law sponsored by Heather Wilson.

If you have not done so already, check out our new website — nice work by Paul and Ovation Solutions (Pat Riley and Barry Epstein).