The Administration That Makes the Broken Window Fallacy the Foundation of Its Energy Policy
So Obama has rejected–at least for now, for heaven forfend he make a firm decision–the Keystone XL Pipeline. He claims that the rejection was not on the merits, but due to the fact that the Republicans had given him too little time–a mere 60 days–to determine whether the pipeline was in the national interest. This after 3 plus years of the pipeline application began wending its way through the labyrinthine pipeline of the Federal approval process. So it’s not like this just landed on his desk with no prior analysis. It’s more like: get on with it, Mr. Vote Present.
This from the guy who on every other day berates the same Republicans for foot-dragging obstructionism. The guy who says he is going to do something every day to create jobs even if Congress doesn’t go along because it is just too slow.
I guess Obama is just President Goldilocks. This is toooo fast. This is toooo slow. But he hasn’t found just right yet.
And the guy who is supposedly sooooo smart that he is bored because his mind is racing ahead of everyone (just ask Valerie Jarrett!) apparently needs a little extra time on this exam.
Please. This was just another political dodge, wrapped up in a whinging excuse about being hustled along by meanie Republicans.
The administration’s cavils about the pipeline are economically inane:
The truth is that just two of the Administration’s programs – the DOE Loan Guarantee Program and the EPA’s Mercury and Air Toxics Standards – will create more than 10 times the amount of jobs generated by the Keystone XL pipeline, which will only generate a few thousand temporary jobs. In terms of reducing America’s dependence on oil, the Administration’s fuel economy standards alone will save more than twice the amount of oil the Keystone pipeline would deliver.
That is just moronic. As I’ve noted before, these people cannot tell a cost from a benefit. It doesn’t get any dumber than that.
Keystone will likely create economic value, as indicated by the fact that private capital is willing to invest. In contrast, the DOE loan guarantee program–“Chu Capital,” as my colleague Paul Gregory calls it–exists because the green elephants it funds cannot attract private capital: a very strong indication that they do not generate value, and in fact destroy it. Hell, these companies cannot survive even with lavish subsidies.
The EPA programs–what to say? These will impose huge costs. Huge. The people employed to implement the program are just part of the cost. The distortions in the power market–less efficient generation, lower reliability–represent a far larger cost: indeed, those employed are expending effort to create distortions, so costs are incurred to incur more costs–who could object to that? All in exchange for a risibly small health benefit. This is carbon-tax-by-stealth. The EPA’s cost-benefit analysis is arguably the worst in the federal government–which is saying something.
This administration would apparently believe that hiring ten times as many people who would be employed on Keystone to blow up oil wells and power plants would count as a huge boost to employment, and would be a far better policy than approving Keystone.* Something to brag about on the WH website.
I better shut up. They might take that seriously. I wouldn’t put it past them.
Is there not one economist of rank in this administration with enough self-respect to call bullshit? After all, such economic stupidity reflects very badly on them, especially inasmuch as their silence connotes assent.
* Not to mention that it is completely illogical to imply that these things are mutually exclusive.
Not all economists think in purely economic terms.
There is far more to life and progress than just money and profits.
Comment by Sublime Oblivion — January 19, 2012 @ 1:32 am
Not all economists think in purely economic terms.
True. But you can be sure politicians only think in political terms.
Comment by Tim Newman — January 19, 2012 @ 4:58 am
@S/O–your suggestion that economics is coterminous with “money and profits” indicates you know nothing about economics.
Professor, I think there is very little that Sublime Oblivion actually knows about…..
Comment by Andrew — January 19, 2012 @ 9:26 am
Apparently economists nowadays think only in political terms as well. How many economists would be so unsophisticated as to think of the Broken Window Fallacy, which is sooooo Real World?
Comment by DrD — January 19, 2012 @ 9:55 am
[…] Craig Pirrong at Streetwise reacts to the Keystone Pipeline decision. Our country presently has 2,300,000 miles of pipeline carrying natural gas and hazardous liquids. The president doesn’t think we can safely add 1,700 miles. He thinks we’re stupid. So Obama has rejected–at least for now, for heaven forfend he make a firm decision–the Keystone XL Pipeline. He claims that the rejection was not on the merits, but due to the fact that the Republicans had given him too little time–a mere 60 days–to determine whether the pipeline was in the national interest. This after 3 plus years of the pipeline application began wending its way through the labyrinthine pipeline of the Federal approval process. So it’s not like this just landed on his desk with no prior analysis. It’s more like: get on with it, Mr. Vote Present. […]
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@DrD–Depends on the economist. Second nature to non-Keynesians.
A little off topic:
http://www.youtube.com/watch?v=J7nGM42IKzU
Enjoy!
Comment by Gordon — January 19, 2012 @ 10:34 am
Saw that, Gordo–thanks for sharing with the class. Definitely enjoyable.
For once (or twice), I agree. S/O, you should spend more time in Canuckistan. It’s quite nice.
Comment by Mr. X — January 19, 2012 @ 5:41 pm
To put it bluntly, without money and profits, there is no life or progress.
Comment by NC Lyle — January 20, 2012 @ 8:27 am
The crux of the problem is that we have no national energy policy. Without a policy to guide decision making, each decision is left to the whims and political calculations of individuals, such as Obama, who put partisan politics ahead of national interests. The more oil we get from areas outside the Middle East, the less strategic the Middle East becomes. Pipelines moving onshore oil spill FAR less oil than tankers and offshore drilling. The reasons for not building the pipeline have nothing to do with environmental or security considerations. Its just amazing that we can’t get this thing built.
Comment by Charles — January 20, 2012 @ 8:55 am
This video sums up the situation pretty accurately:
http://www.youtube.com/watch?v=_NEu98L7_2c
Ezra has a way with words.
Enjoy!
Comment by Gordon — January 20, 2012 @ 10:28 am
Ah, but if Gazpromneft bought a refinery in Louisiana I suspect the Professor would join Senator McCain in urging that it be shut down immediately for environmental reasons.
Comment by Mr. X — January 20, 2012 @ 7:07 pm
And for a contrarian view delving into SWP’s area of expertise (commodity markets and how commodities get manipulated) check this out.
http://oilprice.com/Energy/Oil-Prices/Why-Oil-Prices-Are-About-To-Collapse.html
Comment by Mr. X — January 20, 2012 @ 10:50 pm
Moron-Murka X – Your link do not give a contrarian view , it explain how the market works . The Keystone XL Pipeline sounds like smart move to hedge hedge against dependens on Putin and Castros protesjé Chavez .
Comment by Anders — January 22, 2012 @ 7:04 am
Professor,
I would URGE you as an American to watch this interview with Warren E. Pollack about the real world consequences for farmers and oil producers who rely on futures contracts to hedge their risks, and whether MF Global was a ‘dry run’ for looting millions of ordinary peoples bank and brokerage accounts with impunity in a ‘global bank holiday’.
http://rt.com/programs/keiser-report/episode-238-keiser-report/
Keiser Report episode 238
Comment by Mr. X — January 22, 2012 @ 11:57 pm
the Pollack interview starts at 15:30. And trust me, way more people watch or read this guy’s musings or those of the lady who quit the futures industry due to the epic lawlessness MF Global represents than your own little blog. There’s a storm coming SWP.
Comment by Mr. X — January 22, 2012 @ 11:58 pm
Thank you for the Keiser Report Goebbels X .
Dear, oh dear. What is it about the off-spring of the super rich? Some really do believe they exist beyond the normal forces and controls of society. According to reports, a guy called Max Keiser, described as an “anti-capitalist former stockbroker”, has teamed up with Zak Goldsmith, son of Sir James Goldsmith, to pursue a fantastical scheme for making money by shorting Coca-Cola stock and distributing the proceeds to “victims of Coke’s business model in places like India and Cambodia”.
Seemingly, Zak, who edits the Ecologist magazine, will write beastly things about Coke, so consumers the world over will then stop buying the drink, and shares in Coke will subsequently tank.
Meanwhile, Max will have already built up a huge short position (selling shares he does not own) through a hedge fund, with a view to buying back Coke stock to fill his trading position once the financial markets have cottoned on to what a nasty company Coke really is.
We can see why Max is a “former” stockbroker. The financial markets already know all about the challenges faced by Coke in selling its pop in a world increasingly obsessed with the issue of obesity. That’s why the shares have fallen by a third since April.
And we can only scoff at the firepower being employed: Max says he has “several hundred thousand dollars” in his hedge fund, which is going to last all of five minutes in the market for Coke stock – which runs to $95bn.
We can also see why Max is going to remain a “former” stockbroker, since he and Zak have come up with a plan that is illegal on both sides of the Atlantic. It’s called market manipulation – and these boys can expect trial without a jury, no right to silence and an unlimited fine at the end of it.
Still, it was kind of them to tip off the SEC and the FSA in advance. Financial regulation would be a breeze if all market criminals were so considerate.
Come the revolution …
Comment by Anders — January 23, 2012 @ 6:27 am
SWP you hit the nail on the head! Now if we could only get you to see the light as far as the military industrial complex is concerned Bastiat would be proud. “If goods do not cross borders, soldiers will” When you attack Dr. Ron Paul you are attacking Bastiat, Mises, Hayek and many other freedom and liberty loving individuals and you are siding with crony capitalists.
Comment by Bob — January 23, 2012 @ 2:48 pm
[…] you don’t understand the broken window fallacy of economics, read this […]
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