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Friday Fun: “RI’s Economic Development Shuffle”

So, it’s the beginning of another budget season, and with a new governor to boot — Gina Raimondo, of pension reform fame.  That must mean that it’s political season to make positive noises about economic development.

Of course, when it comes to Gina (or “gina,” as her campaign signage put it), we’re looking at an additional dimension of credulity.  Some among “the business community” assume she’s not just the typical tax-and-spend (on-somebody-other-than-the-business-community) progressive Democrat.  We’ll see.

But the flurry of media hits about whether the new governor can come up with a scheme to outshine all the schemes before suggests another offering from Justin Katz and His Out-of-Tune Piano.

RI’s Economic Development Shuffle

Well, Gina, she called me, just the other day
She’s our new Wall Street gov’nor, so I heard what she had to say
She said, “I need you to set Rhode Island right.”
So we made a few plans,
And shook a whole bunch of hands,
And the hors d’oevres were dynomite.

We’re good, y’see,
My friends and me,
We’ll develop the economy.

We all know Rhode Island should grow at a faster pace,
But we paid our dues, man, and we don’t want to have to race.
The good news is, there’s a central planning bus.
So we’ll call all our old schemes new,
And tilt the board more for just us few,
And pray the state will outlive us.

Don’t need everybody.
My friends and me,
We’ll develop the economy.

Each gear has to fit:
Government, business, welfare advocate.
It’s a fine machine; don’t mess with it.

Not just talking pride.
We’re all safe inside.
If we go opening doors, where will we hide?

They say that a mind’s a terrible thing to waste
I’m not one to argue, long as they’re molded to my taste.
My business model, see, it’s got specific needs.
Don’t care if they’re white or brown,
Long as they keep my expenses down,
And the K-12 grows them up like weeds.

When wages freeze,
My friends and me,
We’ll develop the economy.

We’re the leaders who lead,
My friends and me,
We’re developing the economy.

Possible Budgeting Illusions from Raimondo

Shortly after Governor Gina Raimondo gave her presentation on Rhode Island’s economy and its budget implications, somebody asked me what I expected in her budget.  Here’s a succinct summary of the presentation from the Cranston Herald editorial board:

Neither cuts nor tax increases, the presentation asserts, will solve the problem. The sales tax would need to be raised from its current 7 percent to 8.8 percent in fiscal 2017 to close the projected budget gap. Meanwhile, the $255.6 million shortfall foreseen for that year significantly exceeds the total budgets of 21 combined state agencies.

The governor’s presentation proposes instead a shifting of resources to focus on job growth, creating a “virtuous cycle” in which those investments in education, infrastructure and property tax relief expand employment opportunities and thus grow the state’s revenue base.

My expectation is that Raimondo will follow the playbook from pension reform, with these steps:

  1. Declare a dire problem, consisting of a short-term emergency and long-term doom.
  2. Propose some technocratic solution that will supposedly fix the long-term problem once and for all.
  3. Make sure that there are enough gimmicks in the solution to defuse the short-term emergency and expect attention to have drifted by the time it falls apart.

The short-term emergency, in this case, is a balanced budget for the  next fiscal year, starting this July, and the long-term doom is the unyielding projected deficits resulting, in large part, from Rhode Island’s continuing economic decline.  The expectation, then, is that Raimondo’s budget will include some sort of new revenue stream, perhaps justified by its use toward some economic development scheme, mixed with budget reductions of the “waste and fraud” variety.  Whether the elusive waste-and-fraud savings could be realized is actually immaterial, inasmuch as the budget would be balanced on paper, and adjustments could be made when the budget is reviewed in November and fixed sometime during the fiscal year, when the eyes of those few who pay attention are mainly focused on the next year’s budget.

That’s what I told the person who asked me.  It was notable, therefore, to see this in yesterday’s Providence Journal:

House Speaker Nicholas Mattiello on Tuesday disclosed that Gov. Gina Raimondo had asked him if she could include “$40 million to $50 million’’ in Medicaid cuts, as a “placeholder” in her first budget proposal, without spelling out how and where she intended to reduce spending in the $2.7 billion government subsidized health-care program.

Mattiello said the governor told him, “in very general terms that there would be some kind of a placeholder and a request for a task force to figure out the cuts.’’

You’re Borrowing from the Banks One Way or Another

Depending on your perspective, it’s either “getting your head around the finance industry” or “adopting a particular perspective on the finance industry,” but whichever it is, once you’ve accomplished it, standard news coverage seems to miss most of the critical observations.  Take this article by Liz Capo McCormick and Daniel Kruger:

Growth is on a tear, hiring is the strongest in decades, and households are the most upbeat since 2011. Yet banks such as Bank of America Corp. keep plowing their burgeoning deposits into U.S. government and related debt — pushing the industry’s holdings past $2 trillion — instead of lending it all out.

What is a government bond, really?  It’s the government borrowing cash now and promising to pay more for it later.  In other words, the banks are lending the money out, just to the government instead of to consumers.

So, who is the government?  Well, if we’re talking about the power that it wields, then we’re mainly talking about an aristocracy of politicians, special interests, and wealthy individuals, but if we’re talking about responsibility for the money that it spends, then the government is all of us.  It’d be more precise, in other words, to say that the banks are lending to us by way of the government, rather than directly.

Why would they do that? Lending to the government is almost risk free, so the banks don’t get a tremendous return on their investment.  Lending to consumers has some risk to it, because people can wind up unable to pay, so banks account for that by requiring larger returns on their investment.

Despite the efforts of the White House and the news media to insist otherwise, there’s still a lot of uncertainty in the economy, and with the Federal Reserve keeping interest rates so low, banks have incentive to accept the lower returns of government bonds.  With such emphasis on keeping inflation down, there’s less incentive to take some risks with money in the lower-risk parts of portfolios to try to keep the real value up.  And with so much in guaranteed returns on government bonds, banks and other investors can gamble those future earnings on stocks for the higher-risk parts of their portfolios.  (After all, much of the cash is simply money “printed” by the Federal Reserve.)

There are a number of vicious circles interlocking, here.  For one, if banks increase their consumer lending, consumers will increase their spending, and general demand will increase in the economy, which will translate into inflation, meaning those government bonds will be worth even less in real dollars.  Meanwhile, the more government debt there is, the less likely rate increases will be, because it would blow up the federal budget if it had to pay more on what it has borrowed in our name.

But hey, maybe the geniuses in government and the finance industry who brought us the mortgage-backed securities crash have really got this whole economy thing figured out and really do want what’s good for everybody, not just their own ever-divergent incomes.

Talking About Rhode Island’s 1%

The interesting part of PolitiFact RI’s review of an income-inequality statement by labor heavyweight George Nee isn’t that the reporters gave him a Mostly False (or couldn’t bring themselves to give him a full-on False), but the line that it draws for the 1% in Rhode Island (emphasis added):

Nee also directed us to a Jan. 26, 2015, report and data compiled by the Economic Policy Institute, another Washington, D.C.-based liberal economic think tank. It compared each state’s highest earners — the top 1 percent — with everyone else.

The institute reports in Table 2 that in 2012, the average income of Rhode Island’s top 1 percent was $966,071 . That’s less than the $1.3 million U.S. average. …

(That report, by the way, concludes that your income needs to be at least $314,647 in Rhode Island to be in the top 1 percent.)

One wonders what sort of people make up this group of roughly 10,000 Rhode Islanders.  Investment types, successful business owners, lawyers, doctors, and so on, probably.  According to the RI Center for Freedom & Prosperity’s RIOpenGov payroll application, it also includes the University of Rhode Island’s basketball coach and university president.  One surprising member of the 1%, apparently, is Neil Steinberg, the President of the Rhode Island Foundation.

Most folks think of the RI Foundation as a mainly charitable organization, but it’s also been investing in socialistic enterprises, like RhodeMap RI, and other political manipulations of the state’s economy.  It’s odd to find that effort headed by somebody with (in the Economic Policy Institute’s words) “outsized” income.

It isn’t clear from the liberal think tank’s report whether it’s measuring household income or individual income.  If it’s the former, of course, Rhode Island’s government and its satellites would account for many, many more members of the 1%.  I mean, even some retired state workers have pensions that would suffice as half of a 1% income level.

Evaluating Tax Incentive Programs: Matching Practice or Kill Order?

When one reads that Rhode Island is engaged in something that might be seen as a “public policy best practice,” cynicism is usually the appropriate response. Such is the case with a Pew Charitable Trusts brief that cites Rhode Island as one of a handful of states implementing good-government reviews of economic development tax incentives.

Ten states and Washington, D.C., according to Pew, have taken steps to ensure “that tax incentives are evaluated regularly and rigorously.”

The legislation in question is a 2013 bill originating in the Rhode Island Senate, number S0734, which evaluates tax incentives and other government activities. The first section of the bill tasks the still-new Office of Management and Budget with “a comprehensive review and inventory of all reports filed by the executive office and agencies of the state with the general assembly.”

So rigorously have Rhode Island’s policymakers been reviewing all of the reports that state government pays itself to create for them that they now require a report on all of the reports that they receive.

Continue reading on

Spending and Addiction to Debt

A chart that the Wall Street Journal tweeted a few weeks ago is worth revisiting.  It shows inflation-adjusted cumulative growth in household consumer spending from 1989 through 2012, contrasting the top 5% of households with the lower 95%:

Remind you of anything?  Both lines strike me as echoes from a chart I made a while ago showing different trends in the economy.  The top 5% line looks a lot like the total stock market value, and the lower 95% looks a lot like credit & debt, doesn’t it? (Click here for some of my theories related to this graph.)

I won’t go into how the Clinton administration worked to dislodge the stock market from the safe risk-mitigation of national debt, and how the Obama administration has worked to ensure that the folks in the top 5% made back all of their housing-bubble losses by letting them absorb all of the borrowed money.  The larger, more-nonpartisan point is the critical one, here.

We’ve let our economy become dependent on the national debt. After the Great Depression and World War II, debt became the main driver of growth.  During the Reagan years, the United States made a fair attempt at boosting productivity enough to chart a new course, but we never dislodged from debt.  This can’t go on, not the least because of the plain facts shown in the Wall Street Journal chart.

The wealthy are taking much of that imaginary money and cashing it in as tangible items and temporal lifestyle enjoyment.  As periodic stock market crashes prove, imaginary money isn’t very stable, and the Obama “recovery” has strongly suggested that all big losses will quickly be socialized, now, so that we all must take reductions to keep the rich in their glory.

Am I sounding somewhat progressive, here?  Not at all.  Progressive centralization and tyranny have gradually exacerbated this problem.  The solutions are to privilege individual initiative and work, again.  That means real cuts in taxes and elimination of vast swaths of regulation.

Progressives just can’t get their head around the reality that government is not how everybody gets an equal voice in policy.  It’s how powerful forces consolidate their power.  Everybody gets an equal voice when we come to the table as individuals able to interact in ways that privilege our value as human beings, not our ability to jump through the insiders’ obstacle course of hoops.

Selective Worries of Environmentalists

So, I was poking around on ecoRI and came across this article by Tim Faulkner:

Left out of the talking points that support expanding pipelines in New England are the efforts by energy companies to deliver that natural gas to Canada for export overseas.

Documents show that developers are already moving forward with this concept. Last October, Pieridae Energy filed a federal application to send domestic natural gas from Massachusetts to Nova Scotia, where it would be converted to liquefied natural gas (LNG) and exported. According to Peiridae, a company in Germany has already agreed to buy the exported LNG.

I’m no expert on this topic, but it seems to me that Faulkner uses a whole bunch of plural nouns when he appears to be talking about one company that may have a single prospect with another company.  It’s clear, moreover, that the concern of the activists quoted later in the article is not that the export business will pull increased supplies of natural gas out from under the New England consumer, but that it will encourage continued development of the natural gas industry in America, which would soften demand for very expensive renewable energy.

According to the application at the link, Pieridae is requesting a two-decade window during which it can explore these options, which would start either on the date of the first sale or seven years after its request is approved.  As the article makes clear, environmental activists have already applied to prolong the application process.  In other words, this is pretty long-term planning.

But what’s the concern?  The company won’t sell gas overseas unless it is more profitable to do so.  In other words, unless people in these other countries are willing to pay so much that the profit margin is better if Pieridae chooses to ship the gas additional hundreds of miles, then liquefy it, then ship it, and then unliquefy it, rather than simply direct it to energy plants and consumers closer-by on the pipeline.  And then there are other possibilities, like the flow being reversed to ship the natural gas from Canada or elsewhere to domestic consumers.  What’s scary in this mix… other than the very existence of a fossil fuel industry?

Then we turn to another article, by the ecoRI News staff:

A common algae commercially grown to make fish food holds promise as a source for both biodiesel and jet fuel, according to a new study published in the journal Energy & Fuels.

Why, in contrast to the pipeline story, is this not scary?  Similar to ethanol’s effects on food prices, wouldn’t increasing the demand for this algae increase its price, thus driving up the cost of farm-grown fish, thus pricing out lower-income consumers and making the depletion of wild fish stock that much more attractive?

There’s a wave of specifics to consider before worrying about such a thing, but it doesn’t strike me as much less plausible than the dark insinuations made in the pipeline case.

Should Rhode Islanders Join In with Insider Optimism

I wish I could be as optimistic as this Ted Nesi article makes it sound like I should be.  Apparently, political leaders and “business leaders” (defined, it appears, as being in attendance at the Greater Providence Chamber of Commerce annual legislative luncheon) think this could be the year that the annual promise to focus on the economy actually turns into something, what with a new, more-business-friendly Speaker of the House and Mrs. Big Investment in the governor’s office.

Maybe my cynicism meter just hasn’t gone back down since the commission to study elimination of the sales tax meeting at which a Greater Providence Chamber of Commerce representative said it would be “a crime to threaten” a government revenue stream.  To be sure, the high reading on the cynicism meter was reinforced when RI Hospitality stepped forward to defend a government expenditure of which it gets a healthy chunk and a Greater Cranston Chamber of Commerce leader proclaimed himself in favor of a move toward socialized healthcare in Rhode Island.

Something about “business leaders” who speak out against the free market produces a red flag, for me.

Put simply, it would be reasonable to suggest that workaday Rhode Islanders should be highly pessimistic about a political environment that makes the people in that room feel optimistic.  House Minority Leader Brian Newberry (R, North Smithfield, Burrillville) provides the beginnings of the proper attitude when he suggests merely a “note of caution” that we might see “rent seeking” (i.e., insiders manipulating the system to benefit themselves).

As I’ve spent a good part of this week arguing (start reading from here), Rhode Island’s already built to consolidate the economy and preserve the lifestyles of insiders for as long as possible, no matter how many opportunities that solution allows to pass by.

And so, we’ve got the Speaker of the House wanting to give a tax break to people who are on their way out of the workforce (or already out) while the Senate President takes a more directly labor-union-friendly approach of emphasizing apprenticeship programs and shoveling more money to government-run schools, and the governor wants to make it even more explicit that state policy is to make economic decisions from the top down, even if it means giving away land to preferred organizations.

Please tell me there was somebody in that room who felt like screaming, “Oh, come on now!”



The apprenticeship and education emphasis is especially telling, given my review of business openings and closings in the state.  If motivated self-starters are finding it difficult to build their dreams in Rhode Island, then most of the government’s investment in training and education either is preparing us to be cogs in somebody else’s machine or will go out out the window when our young go-getters go get it where it actually exists to be gotten — somewhere other than Rhode Island

Prices Are Just Signals That Create Incentives

Here’s a good video explaining a point that I make again and again.

Policies that attempt to fix prices (whether the price of labor known as wages or the prices of goods and services) are sort of like ancient medical practices based on superstition.  Sometimes they cover the symptom while the illness heals; sometimes they don’t really do anything; sometimes they make things worse; and most of the time, they fail to do anything, of themselves, to fix the underlying problem.

Whistling While You Work… in Construction

I’m not surprised by this news:

According to TINYpulse’s 2015 Best Industry Ranking report, gathered from its anonymous one-question feedback surveys from over 30,000 employees across more than 500 organizations, among 12 distinct industries, construction and facility service workers are the happiest employees.

Although, the big factor that isn’t even mentioned suggests that the survey creators and the reporter, Lydia Dishman, don’t have any experience, themselves, with that sort of work.

They talk about the fact that construction’s on the upswing, economically.  They list things like supportive managers, having the necessary tools, and having “opportunity for professional growth.”  They also mention the advantages of an industry in which employees kick back after work for the proverbial few beers.  (The construction company with which I spent most of my time in the industry did this on Fridays.)

Readers might wonder, though, why any of these factors, other than the economic upswing part, don’t apply to every industry.  Why should construction companies be more likely to have supportive managers?  (That certainly wasn’t my experience.)

The biggest source of satisfaction in the industry, from what I observed, isn’t to be found in a management textbook.  Rather, it’s the nature of the work.  At the end of the day (most days), you’ve got something tangible that you’ve done.  You can step back and look at the house frame that wasn’t there in the morning, the pattern of newly laid tiles, or the color contrasts of new paint.  The electrician turns on the breaker and then watches light appear thanks to wires that he strung along the framing.  The plumber watches the pipes he connected, like a connect-it building game for adults, hold water as it flows up the structure and then down the drains.  Even landscapers (who are included) see the grass go from unruly to ordered with each pass.

It’s about the satisfaction of producing.  If managers and workers in other industries want to learn something from the construction field, it should be the value of finding ways to make it appear that employees have something to show for their work at the end of the day.

The Real Estate Fruits of Progressive Governance

This is one predictable result when progressives capture both state and federal governments:

The median house price in Rhode Island for 2014 as a whole was $215,000, the highest in six years, yet the number of sales was nearly unchanged — up only 0.25 percent compared with 2013, according to statistics from the state Realtors’ association. 

For Rhode Island’s luxury market, however, 2014 was a very good year. For homes priced at $2 million or above, sales volume was up by more than 20 percent, according to John Hodnett, principal broker/owner of Lila Delman Real Estate. This small segment of the market is largely fueled by buyers from out of state.

The policies pursued by the likes of Barack Obama and Lincoln Chafee — whether regulatory, fiscal, monetary, or social — although sold as helping “the working people” wind up helping the very rich (sometimes making a whole new sort of person very rich).  It’s an obvious consequence of the incentives and restrictions that they impose on the economy, so it seems likely to be deliberate… for any of them who aren’t intoxicated on the rhetoric that they peddle or of, let’s say, insufficient intellectual capacity.

Note, for emphasis, this line farther down the article:

“As property values build, it’s getting better,” McCarthy said. But another problem holding back the Rhode Island market “is the tax structure [high property and income taxes],” he added. “That’s the killer.”

Rhode Island’s Like the Sweeney Todd of Regulators

As the snow closes in on you, this morning, take a moment to read Steven Frias’s article about barber protectionism in Rhode Island:

Some government regulations are excessive because they are designed to protect special interest groups rather than the public. Free-market economist Milton Friedman once explained that “the pressure on the legislature to license an occupation rarely comes from the members of the public” — rather, “the pressure invariably comes from members of the occupation itself.” The history of Rhode Island’s regulation of barbers exemplifies this.

More than a century ago, lobbying efforts were made by a barbers’ trade association to pass legislation to regulate and license barbers. Although the legislation was justified as necessary to protect the public health, The Providence Journal reported that it was also based on some barbers’ “desire to make more money than in the past by driving” lower-cost barber shops “out of business.” In 1903, the legislation was passed. Soon thereafter, some barbershops were shut down.

The example is not only an excellent one for Milton Friedman’s lesson, but also as an illustration of how Rhode Island government is killing the local economy and why the U.S. economy continues to experience an anemic recovery that can only be hidden for a time by easy money and massive amounts of government debt.

For whatever reasons of their own, some barbers are able and willing to ply their trade for a lower cost than their competitors, and some customers are comfortable with the arrangement.  In other words, the market for haircuts has a space for low prices and minimal frills.  Barbers who prefer higher margins push government to interfere, erecting barriers and passing regulations that make it impossible to play in that space.

Now substitute “barber” for any other profession.  During times of economic hardship or readjustment, these lower-end markets would naturally grow.  People have less money to spend on things like haircuts, and others need the work that such things can provide.  Moreover, this doesn’t have to simply be the case for established professions; a similar dynamic can come into play for creative new directions for the economy.

But the protectionists and progressives don’t like this much freedom.  They’d rather you struggle and suffer (and require the junky-hit of public assistance) than that you have the space to make your own, free decisions.  So, we get heavy licensing requirements, workplace regulations, minimum wages, and on and on, until it’s nearly impossible to attempt something new. That’s especially true if you’re not the sort of person with access to big investment dollars and existing business connections.  (One might say that we’ve reached the point, even, of protectionism for entrepreneurs.)

P.S. — If you don’t get the Sweeney Todd reference, see this old grainy clip of the original Broadly cast for a sense of the plot.

The Bookends of RI’s Library of Decline

A pair of articles in yesterday’s Providence Journal give an excellent indication of why Rhode Island is the way it is.  The first is about the receiver’s plan for firefighters’ new employment deal with the Central Coventry Fire District.  The details of the plan are definitely interesting, but the key part, in my view, comes at the end:

The union will contest the new terms in bankruptcy court.

“We’ll out-lawyer them and outspend them and out-fight them,” Gorman said.

Think of the structural conditions — political and legal — that underlie that threat.  A financially struggling fire district must balance legal fees against the employment packages that the union is protecting.  Meanwhile, the union is fighting with money absorbed, at the point of the taxman’s gun, from local residents.  Can we agree that the union’s ability to “outspend” the employer (if true) is a pretty good indication that maybe the union has gone a bit beyond fixing a supposed imbalance between employer and employee?

The second article is about some hires by the new general treasurer of Rhode Island, Seth Magaziner:

Treasurer-elect Seth Magaziner has announced another round of staff picks, including Tom Sgouros as his senior policy adviser.

Sgouros, who waged a short-lived 2010 campaign for treasurer, describes himself as an engineer at Brown University and a freelance writer and public policy consultant who has consulted in Rhode Island, Pennsylvania, California and Vermont “on public finance, banking, tax policy, and sustainable economic development.”

Reporter Kathy Gregg leaves out the important background that Sgouros is one of the central spokesmen for Rhode Island’s far-left progressives.  (For fun, rewrite Gregg’s second sentence as it would appear if some conservative treasurer had appointed me as senior policy adviser.”)

In fact, we’re watching a whole generation of far-left progressives work their way into state government positions.  In 2013, then-Governor Chafee hired progressive activist Kate Brock, for example, and  even the supposedly conservative Speaker of the House Nicholas Mattiello (D, Cranston) hired RIFuture founder Matt Jerzyk to his legal staff.  That hiring produced this statement, which can’t help but resonate oddly for long-time followers of Rhode Island’s Left and Right:

“Matt’s experience in city and state government will be a valuable addition as we continue to focus on growing the economy and creating jobs,” Mattiello said in a statement.

How exactly are our leading elected officials planning to “grow the economy and create jobs” with staffs full of progressives?  Whatever the answer to that question might be, the two articles from yesterday’s paper  illustrate the left-right punches by which progressives implement policies and insiders, like public-sector labor unions, benefit from the unfair rules of the game.

The next round of RI’s political history has only just dawned, but it’s a safe bet that we’re entering four more years of what the last four brought, more or less.

Where the Jobs Go (What Jobs There Are)

Mark Krikorian points to a study by Steve Camarota and Karen Zeigler, of the Steve Camarota and Karen Zeigler, showing that all net employment growth since 2007 has gone to immigrants, nationwide.  Krikorian emphasizes that immigrants aren’t to blame for seeking opportunity, but policymakers are, for failing to match immigration to national economic needs.

A quick Monday morning search didn’t turn up sufficient data to repeat the research easily for Rhode Island, but a couple of sources give an indication that the story is much the same, here.  The table at the end of this Tennessee iteration of the report shows that Rhode Island’s labor force participation rate for U.S. natives fell from 80.1% in 2000 to 75.6% in 2014, a 5.6% drop, while the native employment rate fell from 76% to 68%, a 10.5% drop.

Historical data for all Rhode Island employment puts those rates at:

  • Participation: 66.7% to 65.1%, a drop of 2.4%
  • Employment: 64.0% to 60.0%, a drop of 6.3%

We’d have to know the percentage of native versus foreign-born people in Rhode Island to figure out the actual numbers.  Rhode Island’s terrible employment situation for the past seven years also makes the numbers a little more muddled than the national scene.  Be that as it may, it’s clear that foreign-born Rhode Island workers are making gains versus U.S. natives in Rhode Island — at least when it comes to having a job.  Otherwise, the native-born population would be doing as well as or better than the overall population.

It makes intuitive sense that Rhode Island would share the nation’s problems, and that they’d probably be worse, here.  After all, the economic policies pursued by the Obama Administration — including loose money and loose immigration — have fostered economic disparity, with the upper crust prospering and everybody else on the decline, including the working and middle classes.  Rhode Island’s ruling class likes to amplify all of the bad decisions made by its national counterparts, so we can be expected to be doing even worse.

Energy the Day After Christmas

Thanks to John Loughlin for having me on his special-edition, day-after-Christmas WPRO radio show, this morning.  Between a late night of wrapping, a baby coming down with a cold, and older children who began trying to sneak downstairs at 2:00 a.m. on Christmas Eve, the past few nights have been light on sleep, so my mind was not prepared to continue making a subtle point on energy policy at the same time that it occurred to me that a tuxedo-wearing doll sitting on the host’s microphone looked a bit like Cool Keith, the producer.

Apart from that one lost train of thought, though, and with a huge assist from well-informed callers, the hour and a half passed enjoyably and brought us to three core points about the cost of energy in New England:

  • If you let the market create energy to supply our massive demand, people may do it in ways that progressives, environmentalists, and politicians don’t like, so those groups insist that the market demand be filtered through the government.
  • The only way to drive down costs, reliably, is competition.  When government attempts to do it — whether through too-clever schemes or simple brute force of law — the money has to come from somewhere.  The industry has the clear incentive to game the political system so that it isn’t the one with no chair when the economic music stops, so the entire regulatory system becomes a means of hiding costs.  (If the product ceases to be profitable, then the companies will let infrastructure wane or simply stop providing the service.)
  • By contrast, with competition in a free-market environment, businesses and consumers have incentive to find ways to innovate or restructure for real savings in the system.

To address a couple of loose ends, I didn’t have the information ready at hand when one caller asked, but according to the RI Center for Freedom & Prosperity’s Competitiveness Report Card, Rhode Island’s cost of energy is generally in line with its neighbors in New England.  It depends what how the comparison is made whether we’re toward the front or the back in the region, but New England tends to be toward the back of the nationwide pack when it comes to energy.  As I told the caller, the area simply needs a greater supply of energy.

I also didn’t manage to put the final touch on a point about the relative costs of different energy sources.  The interest groups ultimately don’t mind driving up the cost of energy, because the higher traditional sources become, the less outrageous “green” “renewable” energy seems.  But that isn’t the whole story.  It may one day become preferable for a business to put in solar panels and wind turbines, versus gas or other energy sources, but it may also become economically preferable for the business just to locate elsewhere — in or out of the United States.

A lot of these sorts of conversations about policy in Rhode Island come back to that option.