Archive for category Economics

The Eternal Tax Debate – Lessons from the 1920s

The President entered office determined to pursue tax reform.

Growth was too low, as the post-war economy struggled to recover from a recession.

The new president and his treasury secretary were convinced that a serious package of tax reform could unleash much-needed growth.
And they had a plan. The top marginal rate was too high; it should be in the 20s. The estate tax drove down the price of assets and should be eliminated. There were too many special carve-outs. Tax-free interest on municipal bonds was diverting capital from private enterprise.

To be sure, not all the proposals were for lowering tax rates. The secretary wanted a capital gains rate higher than the income tax rate.

But the political situation was working against them. Their own party was split, and they ran into opposition not just from the openly Progressive party, but from the Progressive wing of their own party, which included the Senate Majority Leader. Opponents of the administration’s plans pointed out that the bulk of the benefits would go to the wealthy, including the treasury secretary himself.

Opponents argued that federal revenue would plunge; the treasury secretary persuaded the president that unlocking capital would cause an economic boom and swell the tax take. They argued for a top tax rate around 40%.

Conservatives believed that nearly everyone should pay something. Progressives disagreed.

Scandals, distractions, and Congressional investigations also sapped the president’s attention and political capital.

The president and the treasury secretary also complained that the time it was taking to pass a bill was extending the experimentation of the previous Democratic administration, and the destructive uncertainty that accompanied it. Passing something, they argued, even if it didn’t meet their exact specifications, would be more important than dithering and passing nothing.

Eventually, the treasury secretary would get his tax reform package, mostly on his own terms, and he and the president would see federal revenue leap upward as a result. (He wouldn’t get everything; the secretary wanted a top marginal tax rate in the 20s; Congress seemed more inclined to something around 40%.)

The treasury secretary was Andrew Mellon, and it would take another round of elections, the death of President Harding and the accession of President Coolidge to make it happen.

Ironically, these tax reform plans weren’t originally even Mellon’s. Wilson Administration Treasury Department bureaucrats developed them after the war. They hoped to transform federal tax policy from an ad hoc patchwork into a permanent, systemic tax regime, the emphasis being on permanent.

Ninety years later, we are still having substantially the same discussions, on substantially the same terms. Does that mean that the Progressives were successful? Perhaps, and perhaps not.

Mellon dubbed his approach “scientific taxation,” designed to maximize revenue while minimizing the tax burden. But the fact that we’re still picking over many of the same details in 2017 suggests that the science is far from settled.

Analogies to past epochs in American history are not currently commonplace. Some see a darker replay of the late 60s and early 70s. Others, more alarmist, see a replay of the pre-Civil War 1850s divide. Those comparisons rely more on the social atmosphere than on specific issues.

It’s unusual to see a policy debate stagnating, with the same arguments, over roughly the same issues, for nearly a century.

To some degree, this is the peculiar result of its being both narrow and central. The income tax itself cuts across numerous persistent philosophical and political divides.
Superficially, the room for policy debate is narrow: after 100 years, the personal income tax’s basic structure – progressive rates with special-interest credits and deductions – remains essentially the same.

But the tax’s seeming simplicity masks endless room for mischief, and therein lie the complications.

The personal income tax contributes nearly half of the federal government’s annual revenue; combine it with the payroll tax, and just under 5/6 of federal tax revenue is based off of personal income.

Lowering or raising rates will affect not only an individual year’s deficit, but also the economy’s rate of growth and attendant opportunities for investment, entrepreneurship, and employment. The overall take calls into question the size of government as a whole.

The amount of progressiveness, both the top rate and the number of people who pay nothing, raise the ill-defined but politically potent question of “fairness.”

In policy terms, each deduction or credit raises the question of whether or not the government should be supporting or suppressing the industry or choice involved. What gets exempted raises the question of privileged institutions like university endowments or state and municipal debt and taxes.

In fact, the whole structure implicitly accepts the idea that it’s the federal government’s job to support or suppress certain economic decisions. That credits and deductions can only be taken under certain circumstances open the door to micromanaging those decisions.

And every one of these credits and deductions immediately acquires a non-partisan, which is to say bipartisan, constituency, either because it helps someone or hurts their competition. Thus are we treated to the spectacle of otherwise conservative Republicans in New York, California, and New Jersey defending national taxpayer subsidies for their expansive state and local governments.

That goes a long way toward explaining why we’re stuck in the same debate.

And unfortunately, why we probably will be for a long time.

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China Has a PLAN For TPP

This week, it’s all about the Trade Promotion Authority being sought by the administration in pursuit of the Trans Pacific Partnership, a massive and massively complex free trade agreement being negotiated among 12 nations, including Japan, Mexico, Canada, and the US, along with a variety of Pacific nations seeking freer trade with the US.

Free trade hasn’t been this hot a topic since NAFTA and the “giant sucking sound,” the phrase for which Ross Perot is probably best remembered.

Much of the objection has centered around the alleged secrecy of TPA.  Of course, there is exactly zero secrecy around the Trade Promotion Authority, something which has routinely been granted Presidents since Roosevelt.  It’s merely the authority to seek an up-or-down vote on the package once agreement is reached.

The TPP itself is still secret, and it needs to be.  While it’s amusing to see libertarians like Sen. Rand Paul argue for aggressively Wilsonian ideas like open negotiations, such an approach would almost certainly never lead to an actual trade agreement – there are simply too many competing interests to balance for such talks to be held in public.  If and when an agreement is reached, there will be plenty of time to examine it, and if, on balance, our interests are not served, Congress will get a chance to vote it down, and send our negotiators back for another try.

One element that isn’t being discussed is the silent role that China is playing in these negotiations, and the stake that it has in their failure.

China is becoming dangerously overconfident in its assertion of sovereignty over the international waters of the South China Sea.  It’s developing strategic weapons designed to prevent our navy from operating effectively anywhere in the Pacific.  And it will likely try to declare an Air Defense Identification Zone (ADIZ) over the South China Sea sometime this summer.

The US has an unstated, but increasingly clear, policy of pulling together bilateral and multilateral relationships in opposition to China’s hegemonic ambitions.  This includes even Vietnam, a country with which the US has not always enjoyed the closest relationship.  (How amusing would it be for the US Navy to obtain rights at Cam Ranh Bay?)

The TPP not only serves the purpose of strengthening economic ties, it also begins to establish the habit of working together with these countries, building trust, and improving on general diplomatic and working relationships.  Successfully pursuing TPP would help persuade these countries that the US was serious about doing business in Asia.  This would likely be true even if the agreement itself were to be rejected by Congress and sent back for renegotiation.

China is not included in the talks.  Naturally, it would like to see them fail, and then, citing their failure (especially on a procedural vote) as evidence of the US’s unreliability, walk in with its own proposed agreement.  Countries already nervous about Chinese encroachment might be inclined to listen, turn away from us out of fear, frustration, and disgust, and then cut a deal with the closer, more committed power.

The role that Chinese intelligence plays in this should not be underestimated.  Their new friends, the Russians, and their subsidiary, Wikileaks, probably published what are purported to be sensitive portions of the TPP specifically in order to ramp up opposition sow discontent in the US in advance of the vote.  Moreover, the catastrophic security breach at OPM, which now includes overseas contacts of US citizens, could be used to intimidate those operators in Asian countries who might not want the relationship with China to be exclusive.

One hesitates to freight any particular negotiations with too much importance, but it’s hard to see how walking away from the talks at this point could be anything but bad.

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Keystone XL 2015

Today, Harry Reid’s Senate committed one more act of legislative malpractice by failing to override a filibuster of the bill to move the Keystone XL pipeline forward.  The vote was taken for the sole purpose of giving political cover to nearly former Senator Mary Landrieu (D-La.), who’s in a runoff election.  Much of her campaign has been based on her effectiveness in representing Louisiana’s interests.  Louisianans overwhelmingly support the pipeline.  But Harry Reid has willingly run interference for a White House that doesn’t want to make a decision, and risk alienating either the blue-collar wing or the environmental wing of its coalition. So the trick was to get to 59 votes, but not 60.

Apparently the Democrats thought Landrieu might be able to make some use of it.  I’m not sure what failure was supposed to prove, but the fact that it was done at all proves that Harry Reid, like Dorothy, had the power to do so all the time.  The message that comes through loud and clear is, “We’ll do anything to hold onto a Senate seat.”

Republicans have solidly supported building the pipeline, and will have no such aversion to embarrassing the White House, so it’s a fair bet that it will come up for a vote in the new Congress.  How will it fare?

On the surface, things look pretty good.  Supporters only need to get one more vote to move it to the President’s desk.  Can they?

We can safely assume that all 54 Republicans will vote for the pipeline.  So they need to find six Democrats to go along. Here’s the list of today’s Democrat aye votes:

Carper (D-DE)
McCaskill (D-MO)
Warner (D-VA)
Bennet (D-CO)
Casey (D-PA)
Donnelly (D-IN)
Manchin (D-WV)
Heitkamp (D-ND)
Tester (D-MT)

Begich (D-AK)
Hagan (D-NC)
Landrieu (D-LA)
Pryor (D-AR)
Walsh (D-MT)

Of the 14 ayes, five won’t be around for the next session, because they were or will have been voted out of office:

Begich (D-AK)
Hagan (D-NC)
Landrieu (D-LA)
Pryor (D-AR)
Walsh (D-MT)

That leaves these six:

Carper (D-DE)
McCaskill (D-MO)
Warner (D-VA)
Bennet (D-CO)
Casey (D-PA)
Donnelly (D-IN)
Manchin (D-WV)
Heitkamp (D-ND)
Tester (D-MT)

Only one, Colorado’s own Michael Bennet, is up for re-election in 2016, so he’s probably a safe bet to stay in the Yes column.  Gov. Hickenlooper’s reticence to take a position notwithstanding, Keystone remains popular here in Colorado.  All the other Democrats up for re-election in 2016 voted No, which tells you that Dems either think those are safe seats, or that people in those states will have forgotten this vote by then.  In any event, there’s little reason for them to change their votes to yes between now and 2016.

Casey, Donnelly, and Manchin all come from states with substantial coal production.  These are fossil-fuel friendly states, these guys are up in 2018, and none of them won their seats by being economic suicidalists.  McCaskill has been a vocal supporter of the pipeline in the past, as well.  That gets us to five, and leaves us with:

Carper (D-DE)
Warner (D-VA)
Heitkamp (D-ND)
Tester (D-MT)

Warner also comes from a coal-producing state, and that part of Virginia almost delivered the election to Gillespie this year.  Almost, but not quite.  Warner doesn’t need to run again until 2020, and his colleague, Tim Kaine, voted No.  Carper voted yes, but issued a pretty weasily statement back in 2013.  I wouldn’t count on him.

Honestly, I think either Tester of Heitkamp could stay as Yes votes, and largely for the same reasons – they’re Democrat senators in increasingly Republican states.  Montana just elected its first Republican senator in 100 years; Tester must be paying attention.  Rob Port sees the vote as bad news for Heitkamp.

If Reid does decide to run for re-election, he could be facing a stiff challenge from jaw-droppingly popular Governor Sandoval, who would likely make much of whatever arm-twisting Reid needed to do to keep 41 members in line.  On the other hand, he only needs to hold on to one of these senators, 2016 could be a good year for Dems, and it’s always more fun to be on the good side of a petulant Majority Leader with a long memory than on his bad side.

Still, it looks as though Reid could have his work cut out for him.

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Staggering Improvement

Looking over a CoBank report on the state of rail capacity in the West, I came across this astonishing graph:

The Staggers Act effectively deregulated the rail industry in this country, after almost a century of increasingly heavy-handed rules set out by the Interstate Commerce Commission (RIP).  It took a few years for volume to rise, but contrary to the arguments of the regulators, rates fell, revenue fell, and productivity shot up almost overnight.  As effects rippled through the economy, volume began to take off.

In recent years, as the cost of fuel has risen, and capacity constraints have become more evident, rates and revenue have started to rise, which accounts for the turnaround in railroad stocks.

What’s really striking is the stasis that the railroad industry was held in before 1980.  The ICC set their rates, limited their service, and forced freight lines to continue to run unprofitable and largely unused passenger service, competing with bus lines that were getting significant federal help through the interstate highway system.  How much of the overall economy’s stagnation and deterioration through the 60s and 70s was a result of this misguided paternalism can only be guessed at.

Harley Staggers, the author and chief sponsor of the Staggers Act, was no economic or political libertarian.  He was a 16-term Democratic representative from West Virginia who tried to subpoena the footage from a CBS documentary on Watergate and filed an FCC complaint over the F-word in a song on a radio station.  But he had enough sense to see that Appalachia’s coal industry needed a healthy railroad system to grow.  He’s lucky that this act from his final term in office is what people remember him by.

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John Kerry – Raising the Bar for Wrongness

The Olympics are coming up, and in the judged sports, like figured skating, we’ll hear a lot about the judges deliberately grading skaters down in order to “leave room” for later competitors who might do better.  If we were to judge the Obama Administration on wrongness, we’d probably have given up and just awarded a perfect score a long time ago, but that wouldn’t have left room for the continuing improvements being demonstrated.

The latest comes via the Weekly Standard, which reports these remarks by Secretary of State John Kerry:

We talked about the common interest of Pope Francis and President Obama in addressing poverty and extreme poverty on a global basis. The United States of America is deeply involved in efforts in Africa and in other parts of the world – in Asia, South Central Asia – to address this poverty, as is the Catholic Church. And so we have a huge common interest in dealing with this issue of poverty, which in many cases is the root cause of terrorism or even the root cause of the disenfranchisement of millions of people on this planet.

The idea that poverty is the cause of terrorism has been so thoroughly debunked – most suicide bombers come from middle-class families, bin Laden was the wealthy son of a wealthy construction contractor, etc. – that his statement on the merits is hardly worth addressing.

That said, the second part of his statement, where he says that he and Theresa have therefore decided to set an example by donating their entire fortune to the Palestinian people, is really quite remarkable.

Ha, just kidding.  Of course, he didn’t say anything of the sort.  The solution, as always, will be to transfer billions of dollars of wealth from the middle-class and aspiring lower-class earners of the developed countries to the corrupt coffers of their “governments,” many of whom actively support terrorism, even as they pose as the most-reasonable-least-bad-alternative, in order to continue padding their Swiss bank accounts.  (Would that we pursued those half as assiduously as we went after law-abiding Americans with overseas money.)

In other words, Kerry wants to redistribute my future to people who want to kill me, enabling them to better do so, and feeding the contempt which is the real source of their murderousness.

Of course, Kerry himself won’t turn over his fortune to this good cause in defense of his countrymen.  He’ll pay some nominal increase in taxes, and continue to enjoy marvelous security at taxpayer expense (for a while) and then his own (for a while).

It’s really the foreign policy equivalent of Obama’s domestic policies.  Nobody thinks he or his rich backers from Silicon Valley are going to suffer from redistributionist policies.  It’s the middle-class and those just starting out who will see their futures bargained away, while the rest of us join the permanent renter class.

Foreign policy naivete combined with cronyism – the administration may finally have earned that Perfect 10.

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Blurring the Lines

Aaron Renn of the relentlessly engaging Urbanophile posts on the need for our legal structure to change to accommodate peer-to-peer, where people more efficiently share resources rather than owning a lot of unused or idle capacity:

But beyond the sheer efficiency gains, I think it’s under appreciated in developed countries how economic informality can create economic dynamism. Peruvian economist Hernando de Soto noted that lack of property titles and difficulties of the formal economy perpetuated poverty because people in developing countries couldn’t access the system for credit to fuel business, etc. In the developed world we’ve got a similar problem brewing. Our economy has been largely entirely formalized to the point where we are choking in red tape that has produced an economic system that has failed too many of its residents and leading to the creation of these informal economies as a safety valve. And our societies are very ill equipped to deal with that as we’ve become excessively formalized.

We don’t need to establish property titles as we already have them, but we do need regulatory systems that enable entrepreneurship and new business models like peer to peer to thrive. What’s more, I think enabling some level of an informal sector to flourish is actually a good thing, as it’s a de facto “incubator” for new ideas that can later be developed into a more officialized system. Without a toleration of informality, these would never get off the ground.

These innovations are getting stifled by incumbents, and it’s tying up a lot of the economy’s capital.  You can’t rent a room in your house through AirBnB because that supposedly turns you into a hotel, and you’re avoiding the hotel tax.  Uber can’t schedule limos because that somehow is unfair to Yellow Cab or Metro Cab.  The car-sharing stuff seems to have found favor, though, for some reason.  Lyft began service in Denver a couple of months ago.

I agree with some of the commenters that there’s a qualitative difference between creating new value – like nanotech and 3D printing – and wringing the most out of existing resources.  Living standards really rise because of the former, not so much the latter.  The big improvements in quality of life happen when productivity jumps, and that’s not going to happen through renting out that spare room on a regular basis, or sharing cars.

Bear in mind that not all restrictions are just naked rent-seeking.  There are externalities associated with many businesses, and making sure that infrastructure gets paid for, and that you’re not taking up your whole block’s available parking with your in-home B & B are perfectly reasonable concerns.  I think most of that is already recaptured by excise taxes and gas taxes and incorporation fees and oh, income taxes.   So tying up capital in inventory is something most US companies have been avoiding since the 1980s, and no fair keeping us from joining in on the fun.  But unless you’re turning that money into productive ideas, someone else is going to end up capturing the benefit of your thrift.

The wrong model will end up raising the cost of owning-your-own outright to the point where it becomes a luxury.  I’m not entirely sure that’s healthy, and given the way these things tend to work, it could end up reinforcing a socialist model where ownership itself becomes a blurry concept.

For that reason, among others, I tend to prefer the Lyft model to the Car2Go model, although I hasten to add that that shouldn’t be enforced through regulation.  (Neither, of course, should Car2Go get the benefit of a parking subsidy as they do now.)  I think it’s healthier when the individuals own their own cars, rather than surrender ownership of a large part of the available fleet to what will end up being a small number of owners.  Private ownership also ends up making it more likely that individuals will recognize an individual payment, rather than just avoiding an expense.  Not only is that likely more satisfying, it’s also likely to result in more of the experimentation that we’re trying to encourage.

The other reason that a company going into business as a clearinghouse might prefer the Lyft model to the Car2Go model is the capital expense.  Car2Go has to spend a lot of money to buy a fleet large enough to make the service worth using, to make sure that there will be cars available.  And right now, it seems to be all tiny SmartCars.  I suspect that the existing vehicle inventory out there on the road (or in the garage, as it were) pretty closely mirrors the overall composition of what people actually want to be driving.  Why try to guess at a fleet composition, when the country has already done that math for you?

As always, read the whole thing.

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Why Rhonda Fields Is Worse Than Wrong

In a committee hearing yesterday, State Senator Vicki Marble found herself on the wrong end of a Rep. Rhonda Fields race-baiting attack.  Marble – in a committee hearing devoted to race- and ethnicity-based sources of and effects of poverty – had the temerity to suggest that there might be some cultural and dietary contributors to poverty in certain groups.  In reality, this isn’t even a particularly controversial statement.  It was said without malice, and African American State Rep. Tony Exum, who spoke immediately after Marble, apparently didn’t even react.  It was only Fields who went nuts, supposedly taking offense, attacking Marble, posing as a victim of racism – in a meeting devoted to racial disparities in poverty rates.

Fields is the one who deserves to be condemned here.  Not because she’s effectively played the ever-popular race card for partisan political reasons, but because she’s hurting the very people whom we all agree need help the most, while pretending to defend and support them.

Let’s be clear – it is a dangerous and socially destabilizing situation when a group of people believes that it’s denied participation in the fruits of the American dream because of their race.  It is fundamentally unfair and indecent to the extent that it turns out to be true.  There is every reason for the state government to take an interest in the welfare of its citizens, especially the poorest and most vulnerable.  And there is every reason for a state to try to determine the extent to which actual, real, discrimination exists.

Which is why Rep. Fields’s outburst is so reprehensible.  Instead of identifying areas where Blacks and Hispanics might be able to take their destiny into their own hands, she actively encourages them to think of themselves as victims, nurse grievances, and tend to resentments.  Instead of looking for actual sources of discrimination, she invents reasons for outrage.  Instead of finding ways that people can lift themselves off the Safety Net, she is more interested in keeping them enmeshed in it.

In Detroit, in spectacular fashion, we’ve seen where this leads.

Rep. Fields has no business serving on such a committee.

And anyone who truly cares about the welfare of poor African Americans and Hispanics should stand up and say so.

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CFCs, not CO2?

Could CFCs, already known to be responsible for the ozone hole, also be responsible for global temperature change, rather than CO2?

That’s the conclusion from a new paper in Modern Physics B, a high-level peer-reviewed journal.  The paper found that while the correlation between recent temperature anomalies and  CO2 was close to 0 – as in, no correlation whatsoever – the correlation to CFCs was close to 1, almost a perfect fit:

Climate scientists have been hard-put to explain the fact that there’s been no net warming since 1998, despite increases in atmospheric CO2.  If this is true, it is extraordinarily good news.  CFC usage has been heavily reduced since their effects on the ozone layer were discovered, and are slowly being removed from the atmosphere.  The 15-year lull in warming would not, then, be a pause before further warming, but the top of the roller coaster before we headed back down.

But more important, even the publication of the piece pulls the rug out from underneath the climate alarmists, who have been telling us for well over a decade that The Science Is Settled, and that CO2 emissions are responsible for global warming – or, as they now prefer, “climate change.”  There has been plenty of reason to doubt these conclusions – historically, CO2 levels have closely led, rather than closely training, global temperatures.  Moreover, climate has been changing for millennia, long before the industrial revolution.  And recent papers have also cast doubt on the speed with which temperatures have actually been increasing.

CO2 emissions have become something of a totem in current policy debates, inserting themselves into just about every discussion, and they have been responsible for some of the most distortionist of recent economic policies.  The people who suffer from these policies most are, of course, the poorest. Globally, the poorest find themselves victimized by added costs for their countries to industrialize and modernize.  Locally, Americans find themselves with higher utility costs from green subsidies, higher food costs from diverting massive amounts of corn to ethanol, higher housing costs from mandatory efficiency requirements in building codes, and higher transportation costs from boondoggles like “cash-for-clunkers.”   And of course, such policies make jobs scarcer for college grads, and less remunerative for a middle class already finding it hard to save for their futures.

On a grander scale, “greenhouse gas emissions” end up being the justification for wasteful light-rail, high-speed rail, and streetcar projects, and the excuse for diverting ever-more tax dollars into losing efforts to force people out of suburbs an into higher-density city centers.  The Supreme Court’s ruling that CO2 is a pollutant has given the EPA carte-blanche to interfere in just about every industrial process in the country.  This despite the fact that natural gas use has allowed the US’s CO2 emissions to fall to 1992 levels, even as actual industrial production has risen, without massive government intervention.

As, the climate alarmists have been seeing the debate slip away from them, they have resorted to more anti-science, political hardball tactics.  The Climategate I and Climategate II emails laid bare the ruthlessness with which they treated those who questioned their orthodoxy.  Recently, it was revealed that the Texas A&M Atmospheric Sciences Department was requiring what amounted to a climate loyalty oath for its faculty – usually not a sign of security that one’s position is supported by the actual science.

Add this paper to the growing body of evidence undermining the need for massive reordering of the global economy in order to stave off a disaster that looks increasingly unlikely.

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Uber vs. PUC

This past Saturday’s Wall Street JournalWeekend Interview was with Uber founder Travis Kalanick (“Travis Kalanick: The Transportation Trustbuster“).  Uber allows a customer to summon an otherwise idle limo or SUV, on demand, through a smartphone app.  The prices are competitive with town car service, and don’t require pre-arrangement.  The article details, in part, Kalanick’s battles with various municipal regulatory authorities, who, often acting on behalf of established taxi interests, seek to keep his company from operating:

When I suggest to Mr. Kalanick that Uber, in the fine startup tradition, was using the “don’t ask for permission, beg for forgiveness” approach, he interrupts the question halfway through. “We don’t have to beg for forgiveness because we are legal,” he says. “But there’s been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask for permission upfront for something that’s already legal, you’ll never get it. There’s no upside to them.”

Then, last year, came the clash with regulators in the city where they order red tape by the truckload: Washington, D.C. A month after Uber launched there, the D.C. taxi commissioner asserted in a public forum that Uber was violating the law.

This time Uber was ready with what it called Operation Rolling Thunder. The company put out a news release, alerted Uber customers by email and created a Twitter hashtag #UberDCLove. The result: Supporters sent 50,000 emails and 37,000 tweets. Mr. Kalanick says that Washington “has the most liberal, innovation-friendly laws in the country” regarding transportation, but “that doesn’t mean the regulators are the most innovative.” The taxi commission complained that the company was charging based on time and distance, Mr. Kalanick says. “It’s like saying a hotel can’t charge by the night. But there is a law on the books, black and white, that a sedan, a six-passenger-or-under, for-hire vehicle can charge based on time and distance.”

In July, the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”

A determined PR campaign by Uber was able to derail DC’s efforts.  By coincidence, this week, Uber posted on its Denver blog that the Colorado PUC is up to the same tricks:

Unfortunately, the Colorado Public Utilities Commission proposed rule changes this month which, if enacted, would shut UberDenver down. We need your help to prevent these regulations from taking effect!  Sign the petition!!

Here’s a sampling of what’s being proposed (Proposed Rules Changes):

  • Uber’s pricing model will be made illegal: Sedan companies will no longer be able to charge by distance (section 6301)
    • This is akin to telling a hotel it is illegal to charge by the night.
  • Uber’s partner-drivers will effectively be banned from Downtown — by making it illegal for an Uber car to be within 200 feet of a restaurant, bar, or hotel.   (section 6309)
    • This is TAXI protectionism at its finest. The intent is to make sure that only a TAXI can provide a quick pickup in Denver’s city center.
  • Uber’s partner-drivers will be forced OUT OF BUSINESS — partnering with local sedan companies will be prohibited. (section 6001 (ff))

The PUC has run interference for the taxicab cartel here before, last year shutting down a popular airport ride sharing program.  In 2011, they denied additional permits to Yellow and a proposed start-up, Liberty Taxi.  And the Union Taxi Cooperative’s battle to begin service (eventually successful) was the stuff of legend.   Their actions to the detriment of electricity ratepayers have been well-documented by Amy Oliver and Michael Sandoval over at the Independence Institute.  But at least in those cases, they had the fig leaf of enforcing existing law.  Here, as in DC, they’re actually proposing to change the rules in order to run the company out of town.

As a living, breathing example of regulatory capture, Colorado’s PUC is in a league of its own.  Let’s hope that Uber’s supporters are able to persuade them to cease and desist their harassment of the company.

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Inflation – Bad for the Economy, Bad for Society

In The Great Wave, his history of price revolutions and inflation, David Hackett Fischer associates waves of inflation with social instability, and a pessimistic culture as reflected in the art and philosophy of that time.  If he’s correct, we could be in for much more than just a bout of price instability.  Indeed, it’s possible that the recent increases in gas prices and food prices may already be stirring some dark forces we’d probably rather leave along.

The FBI reports a continuing drop in both property and violent crime.  It’s important to remember that the BJS report and the FBI report draw from two difference sources, and that they are intended to complements each other, like the household and employer surveys of employment.  One might show changes sooner than the other, for instance, or simply be more volatile.

There’s plenty of evidence for this even in the last century.  Germany was primarily destabilized by inflation, not so much by the relatively quick Depression.  It was the brief but horrid inflation of 1923-24 that wrecked people’s faith in the institutions of Weimar.  In the meantime, the US was wracked by a long, deflationary Depression, which didn’t come close to tearing the country apart.  Compare that to crime rates in the 60s and 70s, which only began to subside once people recognized that inflation was dead and buried, at least for the time being.

Crime isn’t just the poor and lower middle-class losing faith in their futures, it also eats away at the social fabric generally, because the middle class ends up being the most victimized.  It results in frustration an anger.  Wages go up, masking price increases that always stay ahead of wage increases, and nobody knows what their savings or earnings are worth any more.

I’m obviously not the first one to propose this relationship.  It’s been observed in other countries, as well as the United States.  According to that study, macroeconomic factors don’t explain more than 15% of the changes in property crimes over time, but almost all of that explanatory power comes from inflation.

None of this is to say that you can’t have serious social upheaval in times of deflation or even price stability.  Gold standard enthusiasts point to the 19th Century as a sort of golden age of macroeconomics.  But the changes wrought by industrialization, along with the over-expansion and inevitable contraction of the railroads, led to serious social unrest and the first stirrings of mass unionization.  Walter Russell Mead has been sounding the alarm about a similar reconfiguration now, we just don’t yet know what the other side is going to look like.

But if we are going through a Great Recalculation, a metaphor preferred by Arnold Kling, it’ll be a lot easier to meet without the complicating destabilization of people not knowing what their dollar is worth.

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