Energy executives and other industry players gathered for the North American Prospect Expo (NAPE) in Houston shredded administration assertions that it is opening up areas for oil and gas exploration and that its policies are responsible for increased oil and gas production on President Obama’s watch.

“These have been the most difficult three years from a policy standpoint that I’ve ever seen in my career,” Bruce Vincent, president of Houston oil and natural gas producer Swift Energy, told the Houston Chronicle.

“They’ve done nothing but restrict access and delay permitting,” he added. “The Obama administration, unfortunately, has threatened this industry at every turn.”

Vincent led the voices exposing White House press secretary Jay Carney’s phony assertion Wednesday when asked about gas prices soaring above $4 per gallon.

Carney said President Obama had “put in place policies that will dramatically expand the amount of exploration in the Gulf of Mexico, will expand the amount of exploration in Alaska, will expand the amount of natural gas production here in the U.S.”

Really? “The administration has done everything BUT support drilling,” said NAPE attendee and former Shell executive John Hofmeister. “We are on the verge of slipping into an energy abyss.”

Shell has fought the administration to begin drilling in the Chukchi Sea off Alaska.

IBD Story:

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• By the EPA’s own estimation, the total cost of the regulation will be approximately $10 billion per year.
• MATS will require the installation of expensive equipment on over 700 power plants — an imposition that, in tandem with several other regulations, will shut down 10 percent of coal generating electricity in the country.
• This will hamper efforts to create cheaper energy — a key component to economic recovery.

The EPA justifies the regulation by stating that it will reduce mercury emissions in the air, which are linked to developmental disorders and respiratory illnesses.  However, in their economic assessment of the benefits of the rule, only a tiny fraction was due to reduced toxins in the air.

• The EPA estimates the economic benefits of MATS to be between $33 billion and $90 billion.
• However, the benefits due to the reduction of mercury are only estimated by the EPA to be between $500,000 and $6 million.
• EPA analysts do not rely on reductions in mercury and toxins (the stated purpose of the regulation) in order to achieve the $90 billion economic benefit, but rather claim that reductions in general soot will provide the net profit.

While reducing soot may be justifiable if it is actually dangerous, there remain several reasons why the EPA’s method does not make sense in this case.

• The EPA already regulates the creation of soot through other standards.
• By including reductions in soot through those other standards, the EPA is essentially double-counting the same benefit and using it to justify two separate regulatory actions.
• If the true goal is the reduction of soot, other industries should be targeted as well, but as it stand now the coal-firing industry is being singled out.

Source: Adam Peshek, “The Facts behind the EPA’s Latest Proposal,” Reason Foundation, February 16, 2012.

For text:

http://reason.org/news/show/the-facts-behind-the-epas-latest-pr

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In 2007 the Spanish government vowed to increase its share of energy consumption from renewable sources from 8.5 percent in 2005 to 20 percent by 2020 via generous subsidies.

• A 2009 study by researchers at the Universidad Rey Juan Carlos found that Spain spent €571,138 (about $748,555) to create each “green job.”
• The subsidies required 3.45 percent of all of Spain’s household income tax revenues.
• The resulting higher electricity costs from renewable sources led to the loss of nearly 110,500 jobs elsewhere in the economy.
• Last month, the new government of Mariano Rajoy ended all subsidies.

Italy’s remarkably similar experience suggests that the costs of these policies are not unique to Spain.

• Italy’s subsidy system effectively instituted a price floor for wind energy at three-times the level dictated by market forces.
• A study performed at Italy’s Instituto Bruno Leoni found that the capital necessary to create one green job could have created 6.9 jobs if invested in industry.
• The same study concluded that, though the subsidies for renewable energy would lead to a green sector employing between 50,000 and 112,000 people by 2020, at least 60 percent of these jobs would be temporary.
• Recent budget cuts have caused the government to cut back on its subsidies.

The United Kingdom also had a negative experience with renewable energy goals.

• The U.K. government set the goal of creating 10 percent of all energy from renewable sources by 2010, 15 percent by 2015 and 20 percent by 2020.
• A study by Verso Economics calculated the opportunity cost of the United Kingdom’s subsidy system to be 10,000 direct jobs between 2009 and 2010 alone.
• One estimate puts a £4,000-price tag (about $6,315) on each household to achieve only 15 percent by 2020.

Source: Josiah Neeley, “Learning from Others’ Mistakes: What Europe’s Experience with Renewable Mandates and Subsidies Can Teach Texas,” Texas Public Policy Foundation, February 2012.

For text:

http://www.texaspolicy.com/pdf/2012-02-PP03-LearningFromOthersMistakes-ACEE-JosiahNeeley.pdf

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• When UI benefits were extended to 99 weeks in November 2009, the unemployment rate had recently reached its recession peak of 10.0 percent.
• Since then, the labor market has steadily recovered, as the unemployment rate has now fallen to a three-year low, amounting to only 8.3 percent in January 2012.
• Additionally, new UI claims have fallen to a four year low of 366,000 new claims per week in January 2012, which is only slightly more than the 340,000 per week seen in early 2008.

Economists and researchers from both parties have agreed that there are significant consequences of long-term, highly generous UI benefits for the economy.

• Indeed, Alan Krueger, chairman of President Barack Obama’s Council of Economic Advisers, has acknowledged that receiving UI benefits tends to extend the amount of time that workers spend unemployed, as they are not fully incentivized to seek new work.
• Krueger points out that, as the expiration date for UI benefits approaches, workers approximately triple the amount of time they spend looking for new jobs.
• Partially, this is because recipients of UI benefits are not fully motivated to seek jobs, but these benefits also reduce the urgency with which workers seek jobs, encouraging them to hold out for high-paying positions.
• Researchers from many institutions, including Federal Reserve banks, have concluded that UI benefits lasting 99 weeks have increased the unemployment rate by approximately 0.5 percent.

While congressional negotiators have agreed to gradually reduce the maximum claim duration to 73 weeks by September, more significant actions should be taken to bring policies closer in line with their prerecession levels.

Source: James Sherk, “Improving Labor Market Calls for Reducing Unemployment Insurance Duration,” Heritage Foundation, February 16, 2012.

For text:

http://www.heritage.org/research/reports/2012/02/ui-benefits-reduce-unemployment-insurance-duration

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In the mid-1840s, a number of states defaulted on their obligations for a multitude of reasons.

• State lawmakers, inspired by the incredible success and profitability of New York state’s Eerie Canal, began a canal-building craze that brought 3,326 miles of largely unjustified canals at an expense to the states of $125 million.
• Many of the debts from the War of 1812 had not yet been repaid and payments constituted a large portion of contemporary budgets.
• The final straw was a pair of banking crises in 1837 and 1839, which caused a large fraction of banks to fail entirely, a 42-percent decline in prices, and nine states to hit major financial trouble.

In subsequent debate, the Whig Party under Henry Clay supported federal assumption of state debts and the Democrats under President Martin Van Buren opposed it.  Eventually, the latter party won out and states were allowed to default and suspend payments, thereby damaging their own credit-worthiness.  Nevertheless, this financial problem yielded several benefits.

• The crisis prompted state governments to make major fiscal reforms, with almost two-thirds of the states writing new constitutions over the next 10 years that focused on, among other policies, capping states’ capacity for accumulating debts.
• The costs associated with heavy involvement in canal-building encouraged states not to intervene when the railroading craze hit.
• Aggregate economic indicators, while registering substantial financial shock and monetary devaluation, showed little disruption to consumers — unemployment remained manageable and the country enjoyed exceptional growth soon after the crisis.

Perhaps most crucial in the experience with state defaults was that it encouraged states to restructure and reform to a degree that would likely not have been possible without the traumatic event of default.  This set the stage for years of prosperity soon after the crisis had abated.

Source: Jeffrey Rogers Hummel, “The Upside of Government Default,” The American, February 16, 2012.

For text:

http://www.american.com/archive/2012/february/the-upside-of-government-default

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• In 2010, the most recent fiscal year for which data is available, annual Medicaid spending totaled nearly $375 billion, constituting more than 15 percent of national health expenditures, and covered more than 51 million people.
• Though information for 2011 is not yet available, it is estimated that average monthly enrollment exceeded 55 million, with 70 million people having receiving benefits at some time.
• Combined federal and state Medicaid expenditures have grown from 2.0 percent of gross domestic product in 2000 to 2.7 percent in 2007.

Reforms to entitlement programs are exceedingly difficult to implement, as there are strong interests that support the continuance of the status quo.  Recent reforms by five states can be instructional in demonstrating effective ways to reorganize the program.  Rhode Island, Washington, Tennessee, Florida and Idaho each have attempted efforts to change the system, and their experiences may prove insightful:

• Attempts at reform cannot be rushed, and instead must be vetted of issues before they are put to a vote or implemented.
• All interested parties, including those in opposition, should be included in negotiations — this allows for movement in the right direction and reduces the risk of having reform killed entirely.
• Radical terminology must be avoided in such a crucial issue; activists in favor of reform must avoid an in-your-face approach to the opposition and instead mitigate their militant tendencies.

Following these principles, reform efforts in Rhode Island and Washington were largely successful while attempts in the other three states floundered.  Given these differing outcomes, federal reform-activists should take note.

Source: Scott Beaulier and Brandon Pizzola, “The Political Economy of Medicaid: Evidence from Five Reforming States,” Mercatus Center, February 2012.

For text:

http://mercatus.org/sites/default/files/publication/Politicaleconomyofmedicaid.pdf

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Generally speaking, lawmakers will be forced to choose between three broad courses of action:

• Continue the trend of increased federal involvement in public education (No Child Left Behind, Race to the Top, etc.).
• Decentralize control over public education back to the states and local governing boards, thereby harnessing the benefits of federalism.
• Opt for a fundamentally new approach to education, taking advantage of the benefits of federalism while engaging the market-oriented gains from choice.

This first option is not particularly attractive.  Many years of increased federal involvement in education, reaching their peak during the Clinton, Bush and Obama administrations, have yielded minimal returns.  Even those programs targeting specific populations such as low-income neighborhoods and underperforming schools have produced disappointing results.

The second option, which represents a return to pre-modern education policy in which the process was almost entirely guided by local governance, also has questionable benefits.  This sort of devolvement often leaves education at the mercy of self-interested institutions on the local level that, without federal oversight, distort incentives and take advantage of the system.

The inefficacy of these programs underlines the need for foundational change to education policy that incorporates the benefits of federalism with the advantages of choice.

• Twenty-five percent of parents report moving to a given neighborhood to gain access to a certain school, 11 percent pay for private school, 15 percent enroll their children in parent-selected schools, and 6 percent enroll them in charter schools/homeschooling.
• This means that more than half of all parents participate in some form of school choice.
• Long waitlists at parent-selected schools suggests that demand for school choice currently exceed supply.

This form of choice should be expanded so that parents can vote with their feet on good schools.  Federalism should augment this process by ensuring that federal/state funding follows the student — not the school.

Source: “Defining the Federal Role in Education,” Hoover Institution, February 2012.

For text:

http://media.hoover.org/sites/default/files/documents/Choice-and-Federalism.pdf

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• First, by favoring domestic companies over foreign, the president will slowly degrade the benefits that many foreign companies bring to American workers when they shift their operations to our shores (such as Toyota, BMW, Hyundai, Volkswagen, and Honda in the South).
• Second, as a result of the president’s goal to punish companies for shifting portions of their operations overseas, American companies will be unable to take advantage of nation-specific specialization in certain goods, driving up prices for consumers.
• Third, the stated objective of bringing manufacturing jobs back to the United States displays a misunderstanding about the resources necessary to do so and an overestimation of potential benefits of unlikely success.

This first point is crucial insofar as it shows that prejudice against foreign companies stands to harm as many as it would help.  While many emphasize the losses of American businesses that shift their operations overseas, they all-too-often ignore the foreign companies that have done the same by shifting their operations here.  This results in the employment of American workers — the stated goal of the Obama administration even if it is not through its preferred means.

The second point appeals to the economic theories of the 19th century economist David Ricardo.  He emphasized that every population around the world, as a function of its idiosyncrasies and natural resources, has a unique advantage in certain types of production.  President Obama’s policies seek to divert economic energy away from America’s specialties toward means of production for which we, theoretically, are ill-suited.

Finally, entire industries cannot be easily moved from one location to another.  Even if they are not catering to a nation-specific production advantage, companies are enticed to locate near like-companies to benefit from spillovers between businesses.  Thus, individual companies are unlikely to be moved — to be successful, the Obama administration would have to move entire industries.

Source: Matthew Jensen, “America’s Flawed, Outdated, Trade Policy,” Real Clear Markets, February 3, 2012.

For text:

http://www.realclearmarkets.com/articles/2012/02/03/americas_flawed_outdated_trade_policy_99499.html

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• The government has already mandated an average fuel economy of 35.5 miles per gallon by 2016.
• The latest proposal would raise this requirement to 54.5 miles per gallon by 2025.
• The Obama administration, in support of the new proposal, has stated that the average consumer by purchasing a more fuel-efficient vehicle would save between $5,200 and $6,600 on gas over the life of the vehicle.

However, the National Automobile Dealers Association (NADA) has responded that the administration’s projections as to the impact of its new policies underestimate its impacts on buyers.  They argue that the new policies will create a substantial burden on car companies in terms of compliance costs, and will in turn raise the prices faced by consumers.

• While the Obama administration has pegged the additional cost faced by the average consumer at $3,000, the NADA has stated that this estimate ignores certain fixed costs, and that the real figure is closer to $5,000.
• Nevertheless, using the conservative $3,000 estimate, the NADA has projected that by 2025, 6.8 million car buyers will be priced out of the market, unable to get a loan to make the purchase.
• Furthermore, the Alliance of Automobile Manufacturers has stated that compliance costs for the first phase of regulations will total $52 billion, while the second phase will cost between $133 billion and $157 billion.

The ultimate question, then, seems to be what the aggregate benefits of the policy will be.  While the Obama administration emphasizes the lower fuel costs that consumers will realize by more efficient fleets of vehicles, the question remains whether or not consumers will be able to afford the new makes.  Auto dealers’ estimates suggest that many will not.

Source: Judson Berger, “Auto Dealers Warn Fuel Efficiency Proposal Will Price out Millions of Buyers,” Fox News, February 15, 2012.

For text:

http://www.foxnews.com/politics/2012/02/15/auto-dealers-warn-fuel-efficiency-proposal-will-price-out-millions-buyers/

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• Health care spending increased continuously since the 1970s, consistently outstripping inflation and economic growth.
• This trend continued into the last decade, with the 7 percent rate of growth in 2000 rising to more than 9 percent by 2002.
• However, this trend has since turned negative with the rate dropping almost every year since 2002, reaching a low of less than 4 percent in 2009.

It is crucial, in reviewing this trend, to note that the downward pressure existed long before the recession began — this lends credence to the belief that the ingredients that drove down spending are independent from the economic situation as a whole.  Specifically, a number of developments in the early 2000s are largely responsible for the gradual reduction.

• A number of expensive medicines that were developed in the 1980s and 1990s, such as drugs for mental illness, HIV, cancer, heart disease and schizophrenia, have since become generic and are much cheaper.
• Greater information channels exist for communicating health care options and preventative measures.
• Market forces have slowly permeated the health care industry with higher deductibles, new copayments, and Health Savings Accounts allowing participants to have a hand in controlling their own health care spending.

This final development especially took off between 2000 and 2004 — the same period during which health care spending trends gradually reversed.  This is because the introduction of these options allowed market forces to play a greater role in the industry as consumers were given a greater number of choices.

Source: J.D. Kleinke, “The Myth of Runaway Health Spending,” Wall Street Journal, February 17, 2012.

For text:

http://online.wsj.com/article/SB10001424052970204792404577227050656680024.html?mod=WSJ_Opinion_LEFTTopOpinion

For more on Health Issues:

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