Tennessee’s Fracking Controversy



Shale gas deposits underlie about a third of the State of Tennessee. Tapping that low-carbon resource is essential if electric utilities there and across the nation have any hope of complying with the Environmental Protection Agency’s Clean Energy Plan, which mandates a 30 percent reduction in carbon dioxide emissions by 2030.

Yet environmental groups are fighting furiously against proposals to recover Tennessee’s abundant natural gas supplies because doing so requires expanding hydraulic fracturing (“fracking”) of the state’s shale formations. That opposition is both perverse and disingenuous of people demanding action against climate change, not by shifting from coal to natural gas, but instead by relying more heavily on solar and wind power to meet the nation’s energy needs.

“Perfect” energy options have become the enemy of “good” and practical ones.

Generating electricity from renewables hinges on the availability of other energy sources on days when the weather isn’t cooperating. Without natural gas as a backup, the sun and the wind are not reliable enough to supply today’s energy demands. Solar and wind combined contribute less than 5 percent of the nation’s electricity requirements – and that share would be much smaller but for tax credits and state mandates requiring greater reliance on renewable energy sources.

Wind turbines, on average, generate electricity 25 percent of the time and solar arrays are online even less regularly. The nation’s base-load natural gas and nuclear-powered plants, in contrast, produce electricity over roughly 90 percent of the day and the year.

Although energy companies have been buying mineral rights to the Chattanooga Shale in the eastern part of the state, fracking has yet to take hold in a big way because it hasn’t been profitable at today’s low natural gas prices. But if and when those prices rise or new drilling innovations reduce the cost of fracking, gas production will take off.

Even now, though, TVA needs the state’s natural gas – and additional nuclear power – to reduce its reliance on coal-fired electricity generators. And Tennessee needs the jobs and other huge economic benefits that will come with more natural gas production.

There’s a lot at stake. The University of Tennessee wants an energy company to frack on about 8,000 woodland acres maintained as an outdoor laboratory on the Cumberland Plateau. The lease revenues potentially total hundreds of millions of dollars. The university has proposed using some of that revenue to support research on fracking’s environmental risks. But corporate funding of public institutions of higher learning is anathema to Greens and some faculty members, who contend that such a pact with the “Devil” creates a conflict between the public’s interest and that of external sponsors.

The reality is that universities nationwide face mounting pressures to increase corporate funding to offset ongoing reductions in government spending on teaching and research. There’s nothing wrong with this. To the contrary, private financial support for universities has led to breakthroughs in everything from biotechnology and computing to public health. Why not use oil and gas money to support good science at Tennessee’s flagship school on fracking or to endow a chair in petroleum engineering?

Fracking is underway nowadays in a dozen states around the country. Shale formations underlie a wide swath of Appalachia, and the oil and gas industry is eager to expand its fracking operations into New York, North Carolina, and Maryland. No one can deny the huge economic potential of the Chattanooga Shale, which is an extension of the giant Marcellus Shale to the northeast.

Fracking ordinarily involves injecting large amounts of water underground under high pressure, but the Chattanooga Shale is too fragile for that, so nitrogen gas is injected instead. That process reduces the quantity of water needed for drilling, leaving more available for irrigation and other uses. Hence, there is little or no need for wastewater injection wells in Tennessee, a recovery technique that has been linked to incidents of groundwater contamination – but only a few of them – since fracking began in the 1940s.

The growth of shale-gas production has produced unquestionable environmental benefits. Natural gas has less than half the carbon content of coal. Owing largely to a switch from coal to gas in electricity generation, U.S. greenhouse-gas emissions have fallen to 1990 levels. Fifteen years ago, gas accounted for 16 percent of national electricity production; its share has increased to 27 percent today. Coal use has gone in the opposite direction, plummeting from 51.3 percent of the total in 2000 to 39 percent today.

Neither Tennessee nor any other state can meet the EPA’s carbon-dioxide reduction goal without natural gas and nuclear power. If fracking is banned, electricity prices will go up, heating prices will rise, and the jobs created by the resurgence of U.S. manufacturing, all of which can be attributed to falling energy prices, will go by the wayside.

Still Won’t Stand with Rand



Last week I published a piece on Rand Paul. In particular, I argued that Paul or any other “libertarian” political figure would not generate the changes desired by those who value liberty.

The responses to this post have been numerous. Many people agree with me. For others, it’s as though I backhanded their mothers in suggesting that Rand Paul isn’t the savior of America or its politics.

I’d like to offer some additional reflections on a possible “President Paul” or any other libertarian or free market candidate and address some of the more frequent comments and questions regarding the piece.

Some have said that I am too critical of Paul and his political activities in my original piece. “He has to introduce bills to encourage freedom,” “He’s voted against military activity, etc. etc.” I think Paul’s voting record and the content of the bills he’s introduced speak for themselves. What constitutes a “freedom-friendly” policy is at least somewhat subjective, so I’ll leave that issue alone and discuss what is more substantive.

People claimed I advised libertarians abstain from all political participation. Further, they read my article as suggesting that the optimal amount of resources to devote to political activities is zero.

However, nowhere does my argument imply that those who are inclined to political activity should stop. If one feels a desire to work in the political arena, or has a notion of civic duty when it comes to voting, etc., by all means continue.

Moreover, the piece does not say that all political actions are moot. Indeed, they are not. The policies enacted by government absolutely have an impact on citizens. Just look at rent controls, minimum wage laws, and any U.S. foreign policy. There is no doubt that political actions influence on our daily lives. Sometimes, good policies lead to good outcomes—but I’d argue this has little to nothing to do with the personal convictions of the political actors making these decisions and everything to do with the incentives they face.

What I am saying is that a theoretical President Paul would not be a champion of liberty. In fact, I will make the stronger claim that no politician in the American political system will be a true champion of personal freedom.

Why? The reasons I argue this point are those I mentioned in the original post—the ideas brought forth by Nobel laureates F.A. Hayek and James M. Buchanan. As Hayek pointed out, the “right politicians” elected by populace won’t actually be good. In “Why the Worst Get on Top” Hayek discusses how an “American socialism” would not be meaningfully different than Russian socialism. His core argument is still relevant when discussing the American political system. Add to this Buchanan’s point that political actors respond to incentives based on their personal preferences and the constraints they face.

What Hayek and Buchanan are pointing to, and what I hope to convey here, is that there is a bigger problem when it comes to trying to achieve change through politics. That is, it’s the institutional structure of the political system that’s the problem and not the people involved. One of the comments I came across on several occasions stated something to the effect of, “we [those who value liberty] have to play with the hand we’re dealt,” “you come to the table or you’re served for dinner,” or, “we have to play the game.” What all of these comments suggest is that, even though we might not like it, it is necessary to support libertarian(ish) political candidates in order to achieve meaningful reforms.

What I am saying, drawing from Hayek and Buchanan is that a public actor’s political stripes doesn’t mean much at all. It’s not the players that are the problem; it’s the game they are playing. Without changes in the rules governing the political process, swapping out democrats for republicans, republicans for libertarians, or any other party makes no substantive difference. Look at the trends in government policy over the past several decades. Regardless of who was in power, we’ve experienced continuous growth in the scale and scope of government and the further erosion of our freedoms.

Not all, but many Paul supporters seem to neglect or downplay this idea. They will use the rhetoric of freedom and say that the system is broken, but don’t seem to realize that Paul is a political actor just like all the rest. As I tried to point out, he’s a public official making decisions based on his own self-interest. The fervor displayed by many Paul supporters is the same type of political tunnel vision we see in supporters of Obama, Clinton, and Donald Trump. They are quick to criticize the political process, but trust it to be solution to the problem. These positions are in direct conflict.

So what do we do? If I claim that politics isn’t a fruitful avenue, can I suggest anything productive? First, I’d say that our battleground is one of ideas, not politics. As I’ve written elsewhere, ideas matter. I would also suggest one of the most important things we can do is recognize and point out that it’s government that’s the problem. There are other ways for individuals to coordinate their behavior than relying on an inherently flawed political system. How else do we bring about change? If the rules of the game are the problem, how to do we change the rules? For that, I cannot claim to have an answer (if I did, I’d collect my Nobel prize and retire.) In fact, the entire field of Constitutional Political Economy has been wrestling with this question of rules for decades. How we change these rules is unclear. What is clear, however, is that we cannot rely on the current system to be the genesis of these changes.

Health Spending Growth Moderate in Second Quarter (Maybe)



A recent report by actuaries working for the Centers for Medicare & Medicaid Services estimates that the rate of growth of health spending, subdued for many years, is picking up again: “The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.”

Readers of this blog’s discussion of regular releases of GDP estimates by the Bureau of Economic Analysis knew this was coming. Yesterday’s release of the advance estimate of second quarter GDP confirms that health spending is chewing up more and more of a slow-growing economy.

Comparing Q2 2015 to Q2 2014, GDP increased by $570.5 billion, of which $106.7 billion was health services. That’s about one dollar in every five.

Comparing Q2 2015 to Q1 2015, health spending growth looks a lot tamer: $21.6 billion of $191.2 billion GDP growth. That is only one dollar in ten, about half of what it has been running at. However, the advance estimate is subject to significant revision. Last quarter’s slow growth of health spending may be idiosyncratic and/or inaccurate.

Technical note: When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex.

(See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)

Janet Napolitano Makes History as University of California Pension Reformer



Portrait_Napolitano_hires_crop

University of California President Janet Napolitano

In an effort to control skyrocketing retirement costs in the massive University of California system, U.C. employees hired after July 1, 2016, will be able to choose a 401(k)-style pension plan, the first time this has been offered. Governor Jerry Brown and U.C. president Janet Napolitano negotiated the agreement, which was enshrined in the state budget approved recently by the California legislature.

Perhaps even more historic, however, are the arguments made by Napolitano in favor of 401(k) pensions.

Napolitano told the Sacramento Bee that, regarding 401(k)s: “This is where the pension world is moving, and for public institutions, it makes a lot of sense. It’s much more portable, so for many people that will be an attraction.”

Napolitano is correct on both points. The private sector largely abandoned old-fashioned defined-benefit pensions decades ago. Less than 15 percent of the “Fortune 100″—America’s largest companies—offer a defined-benefit pension anymore. Percentages are even lower for smaller companies. And more state and local governments across America offer 401(k)s than ever before.

Also, as I show in my new book California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, 401(k)s are often a better approach to retirement security for modern workers who do not stay with the same employer for 20, 30, or 40 years as was common in the past. Defined-benefit pension plans, which are “backloaded,” made more sense under the old “hire and retire” model when workers stayed with the same employer for decades. Modern workers in the private sector and public sector want more job flexibility, and 401(k)s are generally superior under these conditions.

The details of U.C.’s new 401(k) pension plan must be worked out by July 2016, but as Napolitano said: “Pension reform needs to happen. It’s the responsible thing to do.” I strongly agree, and I welcome Janet Napolitano to the populist cause of people across the political spectrum in California who correctly recognize that the current public pension system is unsustainable. Switching to 401(k)s going forward is a better approach to retirement security that will help spare our children and grandchildren from being crushed by future pension costs.

Medicaid’s Poverty Trap Illustrated



The tragic story of a disabled woman trapped in poverty by the hodge-podge of ways the U.S. finances health care illustrates why we need to sweep the whole thing away and give everyone a universal, refundable tax credit:

On a crisp California morning in February 2012, my sister-in-law, Marcella Wagner, was driving down the interstate toward Chico State University, where she had just entered the nursing program.

To avoid a collision, she jerked the wheel hard, and her car veered off the freeway. It rolled over, crushing the roof. The other driver sped off, never to be found.

But Marcella was left a quadriplegic, paralyzed from the chest down and with little use of her hands. She will need a wheelchair and round-the-clock personal care assistance indefinitely.

Marcella qualified for Medi-Cal because she is disabled, but because Medi-Cal is for poor people, Dave and Marcella have to be poor to receive it.

As a family of three with one disabled member, they are allowed to keep $2,100 of Dave’s $3,250 monthly earnings to live on. The rest of Dave’s earnings, $1,150, would go to Medi-Cal as the family’s share of cost. That is, any month in which Marcella incurred medical expenses, she and Dave must pay the first $1,150. To our surprise, if Dave earned more money, the extra amount would also go to Medi-Cal: The cost sharing is a 100 percent tax on Dave’s earnings.

Essentially, the way they meet the income test is for Medi-Cal to skim off Dave’s income until they are in fact poor.

(Andrea Louise Campbell, “How Medicaid forces families like mine to stay poor,” Vox.com, July 28, 2015)

This is the “poverty trap” imposed by means-tested welfare programs that I have discussed before. The best way to fix it is through a fixed sum, universal tax credit, as described by Senior Fellow John C. Goodman in his new book, A Better Choice.

Remembering Alexis de Tocqueville—and Civil Society in Early America



Today marks the 210th birthday of Alexis de Tocqueville, and so it’s appropriate that we reflect on his experiences and observations through the lens of modern American society.

Alexis de Tocqueville brought a unique perspective to his observations of nineteenth-century America. The French aristocrat and historian staunchly opposed the authoritarian French government and advocated for voluntary associations and local institutions as a way to solve problems and provide services. In America he saw how these ideals operated in practice.

In Democracy in America, Tocqueville wrote extensively about New England’s distinctive system of townships. He believed that smaller villages and towns were the most natural and organic form of civil governance, and that federal and state governments should be strictly limited in their size and scope so that they would not interfere in local affairs. He criticized centralized government, writing, “even the State is only a second-rate community, whose tranquil and obscure administration offers no inducement sufficient to draw men away from the circle of their interests into the turmoil of public affairs.” Tocqueville recognized that strong local institutions were necessary to promote a functioning society with active involvement from the citizens.

Recognizing the importance of public cooperation, Tocqueville advocated for the New England system because it fostered greater local freedom. Its civil society differed greatly from that of Europe. “The New Englander is attached to his township,” Tocqueville wrote, “because it constitutes a social body of which he is a member. . . . In Europe the absence of local public spirit is a frequent subject of regret to those who are in power.” He recognized that government interference into everyday life often crowds out voluntary cooperation and makes citizens dependent on larger government.

The “public spirit” of cooperation that Tocqueville witnessed profoundly impressed him. He observed how it translated in to practical problem solving, commenting that Americans “constantly form associations.” He contrasted this with European institutions: “Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.” The formation of private associations allowed local residents to solve their own problems, rather than turn to the state and federal governments. The prevalence of voluntary associations allowed early Americans to retain liberties while effectively solving local problems.

Alexis de Tocqueville’s insights into early American institutions are extremely relevant today. As the government has grown, political entrepreneurship and rent seeking have run rampant over our political system. Citizens attempt to use government force to solve their problems, on issues ranging from poverty to infrastructure, rather than looking to voluntary and community-based solutions. By making government the solution to our problems, the public spirit of cooperation that once characterized the United States is now gone. In order to move forward, we should learn a lesson from the past. The best way to make America, and ultimately the world, a freer and more prosperous place is to replace government intervention with community-based, voluntary solutions.

[Jonathan Matt is a 2015 summer intern at Independent Institute and a junior at Grove City College studying economics. For more on privately provided social services, infrastructure, and governance, please see the Independent Institute book, The Voluntary City: Choice, Community, and Civil Society, edited by David Beito, Peter Gordon, and Alexander Tabarrok.]

Love Gov: “Too Real”?



LoveGov_YouBankruptedMeAs part of our recent exhibit at the FreedomFest conference, we continuously screened our new online video series Love Gov.

If you haven’t had a chance to watch it yet, each of the approximately 5-minute episodes deals with one of the five key issues that the Harvard Institute of Politics, Pew Research, and other polls have revealed as of greatest concern to Millennials: tuition loan debt (Episode 1), employment/unemployment (Episode 2), the cost of health insurance (Episode 3), the cost of housing (Episode 4), and government spying/surveillance (Episode 5).

The series attracted a lot of attention from the FreedomFest attendees, who praised its high quality, and were generally laughing in the aisles.

All except one young woman, whom I’ll call Jane. I listened at length as Jane told me how her life parallels that of “Alexis,” in Love Gov.

Jane owns her own condo, out of which she operates a small business with one employee, her best friend. Contrary to Obama’s promises, her health plan was cancelled, and her insurance agent referred her to the state exchange. The best plan she could afford is a Bronze plan, with a $6,000 deductible, at a cost $50 per month higher than her previous plan that had no such deductible. Meanwhile, her employee, whose income is slightly below Jane’s, qualifies for a subsidy and has a Silver plan, with a lower cost and lower deductible.

Jane’s business, which provides marketing services, utilizes independent contractors to provide graphic design and other services. She’s currently under investigation by her state’s Labor Board to determine whether it will rule these contractors “employees,” with overtime and benefit obligations accruing to Jane. If the ruling goes against her, she’s out of business.

Jane drives a 10 year-old car, and has some health issues—which leaves her worrying that she’s one major car repair or one out-of-pocket health expense from losing her mortgaged condo. She keeps her expenses to a minimum, and just hopes for good fortune.

In summary, Jane told me, “I’m 39 years old and I’m living like a college student. It seems like there’s always another barrier.”

Yes, Jane, as Alexis discovered almost too late: that barrier is Gov.

I can understand that Jane doesn’t find Love Gov funny. But it’s also true that satire only “works” to the extent that it accurately reflects truth.

Sounds as if Love Gov hits its mark.

Watch Love Gov and see if you agree that it’s all too true. If so, please let us know how Gov is affecting your life, Share the videos, and encourage everyone to download and use the MyGovCost App in becoming better informed and getting engaged.

Let’s put an end to Gov’s abusive ways.

Patent Reform Is Not a Left Wing Thing



Over at R Street, Zach Graves has a good piece up looking at the American Conservative Union’s opposition to patent reform pending in the Congress. He points out that the sponsors of the much maligned legislation are not looney leftists, but solid leaders on the Right.

The American Conservative Union’s own scorecard ranks members sponsoring patent reform legislation among the most conservative in the nation. This includes members such as Sens. Mike Lee (R-Utah – 100 percent), Chuck Grassley (R-Iowa – 84 percent), John Cornyn (R-Texas – 93 percent) and Orrin Hatch (R-Utah – 89 percent); and Reps. Bob Goodlatte (R-Va. – 94 percent), Darrell Issa (R-Calif. – 89 percent), Jason Chaffetz (R-Utah – 92 percent), and Blake Farenthold (R-Texas – 80 percent), among others.

The article is a good read. Graves concludes by noting that “Patent reform has loud detractors of all stripes, but it also enjoys overwhelming support on both the left and right. And if we’re going to be honest, its support has always been stronger on the right.”

We’ll see what happens. Right now, it looks like patent reform might be put off again. This is not good timing considering that recent statistics show that patent trolls are working harder than ever to undermine American innovation.

Is Denial a Good Basis for Abortion Policy?



17 Weeks

17 Weeks

Once again, a political sideshow is likely to be the sole outcome from the revelations in the recent Planned Parenthood videos, drowning out what could have been an important conversation around another perennially politicized issue.

As could have been a good starting point, the videos show definitely that abortion involves far more than the suctioning of a formless glob of cells. The procedure discussed in detail throughout the videos is the forceable, fatal extraction of human bodies from their protective environment.

Bodies with lungs, livers, hearts, heads, and “lower extremities”—all clearly identifiable, differentiable—with abortions performed systematically to avoid crushing the body parts to be “supplied.”

The “17 weeker” whose body parts are at the center of part of the conversation is a baby who “can move her joints, and her sweat glands are starting to develop.” At 18 weeks, a girl’s uterus and fallopian tubes are formed and in place, and boys’ genitals have been formed, “but he may hide them from you during an ultrasound.”

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Harassment Ruled a Protected Union Activity



What do you mean you don't want to join the union?

What do you mean you don’t want to join the union?

In an advisory to employers, the California Chamber of Commerce provides this not-very-useful recap of a recent National Labor Relations Board decision:

Employers have an obligation to investigate and take appropriate corrective action for employee misconduct; at the same time, employees have a protected right to discuss union activities. In a 2012 decision, the National Labor Relations Board (NLRB) put employers between a rock and a hard place when these two issues intersected: If one employee harassed another in the course of discussing union activities, the employer could not discipline the harasser. However, the employer was then open to a lawsuit from the harassment victim for failing to act.

Recently, the NLRB issued a new decision opening the door slightly for employers to take corrective action against this type of harassment. An employer may terminate an employee for lying about misconduct, even if the underlying behavior constituted a protected union activity (Fresenius USA Manufacturing, Inc. and International Brotherhood of Teamsters, Local 445. Case 02– CA–039518 June 24, 2015).

So, in other words, the employer remains in a Catch-22: subject to a lawsuit for failing to protect an employee from the harassment of another who can work “discussing union activities” into his or her harassment.

Apparently the only possible protection the employer has is to ask the harasser if he or she in fact harassed another employee, and if Harasser says “No,” then the employer can discipline the harasser for lying.

Of course, these He said/She said cases are themselves a bag of worms no employer can hope to win.

Bottom line: Harassment is legal when practised by union sympathizers; employers and employees who aren’t interested in unionization can lump it.

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