Midgrade Gasoline: Worst Deal on the NJ Turnpike February 24, 2017Posted by federalist in Energy, Government Regulation, Markets, Transportation.
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The New Jersey Turnpike is an interesting study in government price regulation. In order to avoid price gouging by the gas vendors at Turnpike rest stops, the NJTA requires prices to be set competitively with regional gas retailers.
Furthermore, the NJTA contract allows only one price change per week. A familiar consequence of this has been that during spikes in gas prices people flood the Turnpike to fill up at the old prices during the few days before the Turnpike vendors are allowed to raise their prices to the market level.
Another strange pricing quirk has persisted for years: Sunoco, which has the contract for most of the rest stops, offers four grades of gasoline. A recent offering was:
- 93 octane: $2.83 (“Ultra”)
- 91 octane: $2.81 (“Premium”)
- 89 octane: $2.70 (“Plus”)
- 87 octane: $2.37 (“Regular”)
The weird thing is that 91 octane is always priced 2 cents per gallon lower than 93 octane. It turns out that this 93-91 price spread is specified in the NJTA contract, because most competitors used in the survey to set prices only sell three grades of gas.
This makes 91 octane the worst deal on the NJ Turnpike. Why? Gasoline octane is a linear function of blending. I.e., you can get a tank of 91 octane gas by mixing two parts 93 octane with one part 87 octane. (In fact, most gas stations only store two grades, and the pumps blend them to produce the mid grades.) At these prices, one could buy a tank of 91 octane by blending 93 and 87 at a cost of just $2.68/gallon – that’s lower even than the listed price for 89 octane!
I suspect Sunoco is exploiting this in two ways. First, NJ still does not allow customers to pump their own fuel. So blending a tank requires explaining the process to the attendant, who rarely seems that attentive. Second is the fact that Sunoco labels the overpriced 91 octane blend as “Premium.” The manuals and stickers in cars designed for high-octane gas typically specify “premium” fuel. Depending on the season and location the highest grade available might be 91, 92, or 93 octane, so drivers are likewise accustomed to asking for “premium.” On the Turnpike, “premium” gets you a tank of 91 octane. You have to explicitly request “Ultra” or “93” to get the highest grade.
Californians strain at a gnat… December 14, 2016Posted by federalist in Government Regulation.
Tags: California Proposition 67
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Two years ago the California government enacted a 4000-word law to essentially ban retail stores from providing single-use plastic bags, and requiring them to charge customers at least $.10/bag should they desire recycled paper bags to carry purchased goods.
Last month this law was sustained in a referendum (Proposition 67).
California is a peculiar state, but in reviewing the background of this law I found essentially three arguments:
- Plastic bags produce unsightly litter. (Never mind that littering is already a crime in California.)
- Plastic bags “harm or kill wildlife.” Lots of things, natural and artificial, harm and kill wildlife. I’ve never seen a wild animal killed by a plastic bag, and I don’t know how that would happen; nevertheless, I’ll concede it as a possibility. But anecdotal photos of animals with litter don’t make this argument. Where do wildlife management scientists rank plastic bags on the list of threats to animals? E.g., above or below lightning strikes?
- Plastic bags are produced from “petroleum” (actually, mostly natural gas) and hence are not “environmentally sustainable.” First of all, bag-grade plastics can be produced from all sorts of “renewable” plant-sourced polymers. Second of all, even if they are all produced from “fossil fuels,” they could still be the most efficient use of those resources. Presumably, people have to carry their groceries in something. What do they use, and what do those things cost to produce and maintain? (Or what are the sanitary costs if they aren’t maintained?)
California is straining at a gnat while swallowing camels on all these matters. If the concern is “wasting” petroleum and creating trash, why not step up enforcement of existing litter laws and build waste-to-energy plants? That would recover vastly larger quantities of litter and energy than this disproportionate focus on one consumer item.
Every American Should Celebrate These Federal Election Results November 9, 2016Posted by federalist in Federalism, Government, Government Regulation, Judiciary.
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I haven’t made as much time for current events in recent years as I used to. My news on the campaign concluded with yesterday’s election was mostly limited to whatever people would mention during conversation.
I learned this morning that the used car salesman was elected President, and that vociferous supporters of his leading opponent, a politician who should have gone to jail long ago, are in mourning.
When our federal government was smaller, and when it hewed more closely to its Constitutionally proscribed role, the person who held the office of President didn’t matter as much. Good leadership and good ideas can bubble up from anywhere, and the guy behind the desk in the oval office doesn’t want to go down in history as a monster. Recent years have shown us that as government has grown the President has acquired the power to inflict extensive damage through often subtle administrative actions that are quite difficult to check. On that score, the losing candidate, with her long history and proven expertise in abusing such power, seemed to me far more dangerous than the blustery winner. Trump seems more inclined to work in broad strokes in the light of day than in dark rooms through a thousand cuts.
This election was, however, absolutely critical in one regard: The future composition of the U.S. Supreme Court (SCOTUS). SCOTUS is presently evenly split between (liberal) activists and (conservative) constructionists. If a liberal had won control of the presidency the current SCOTUS vacancy would have been filled by a liberal, and that least-accountable branch of the federal government would have resumed its activist practice of “legislating from the bench:” establishing laws by judicial fiat that are nearly impossible to reverse.
Instead, we have a conservative majority in the executive and legislative branches that will allow SCOTUS to be repopulated with judges who respect the role proscribed by the Constitution.1 America may not appreciate how close it came to a long reign of judicial tyranny. But for that everyone should today breathe a sigh of relief.
1Trump has said his nominee will come from the list compiled with the help of the Heritage Foundation, a conservative think tank, and the legal group, the Federalist Society.
This is what government agent accountability looks like April 16, 2015Posted by federalist in Government, Government Regulation, Natural Rights.
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Three months after an employee alerts the TSA to sexual abuse of citizens by two “security” screeners they get around to checking into it and, sure enough, it’s going on as described. And the penalty for the perverts hiding behind government agency and paychecks? They (we are told to believe) lose their jobs. Nothing more. Not even their names have been released.
Gambling: Legality and Morality December 18, 2014Posted by federalist in Economic Policy, Government Regulation.
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My general attitude towards legal gambling has been libertarian melancholy: I don’t consider it a positive means of recreation, but as long as everything is above-board who am I to tell people how to spend their money? The expected losses from gambling are well known. The fact that it is addictive and can financially ruin people is also fairly evident.
But after reading this story I don’t think the way it’s done in America is fair: Yes, the industry and its regulators go to great lengths to ensure that games yield their expected negative outcomes to players — no more, no less. But when a player finds a bug or advantage and exploits it he is treated as a criminal. This takes the industry’s built-in “heads-I-win tails-you-lose” bias one level too far.
Casinos can already eject and ban players they think are playing at an advantage. They have virtually limitless resources to detect what they would term fraud, and are not even legally required to pay out “fraudulent” winnings. The law has no place buttressing the house’s enormous advantages just because the house actually determines the mechanism by which a player manages to “cheat.” After all, when an addict loses his fortune there are no legal repercussions or claims on the casino for having exploited the addict’s mental defect. Why should the law bear on a player who, despite the unlimited scrutiny and safeguards of the house, manages to find and exploit a defect to his advantage?
Government Competition Update May 18, 2014Posted by federalist in Government, Government Regulation, Markets.
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What remains of state sovereignty in this country is both entertaining and heartening.
Of course state competition for business has a long history. Before government became a distinguishing factor businesses would often establish themselves based on access to needed natural resources, labor, and markets. Gradually each state’s tax and regulatory burden became a significant part of that equation. Now the political environment itself is becoming an explicit factor.
For example, the last round of gun control hysteria had quite disparate results. States that enacted draconian new gun laws have found themselves losing firearm businesses to more friendly states.
More recently the CEO of a California company complained publicly that its government is becoming reminiscent of the communist Vietnam he fled 35 years ago. Texas is one of the states that has been reaching out to companies with this compelling invitation from its governor:
Texas’ low taxes, predictable regulations, fair courts and world-class workforce make our state the ideal place for any business looking to relocate or expand….
Government Shakedowns May 4, 2014Posted by federalist in Government Regulation, Markets.
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He knows that it’s cheaper to settle than it is to fight this investigation.
Most government shakedowns don’t get coverage like this in the Wall Street Journal. But then, as the FERC lawyers paraphrased above noted, most people realize it’s cheaper and easier to just settle.
In its legitimate role the government enforces clear laws and applies well-defined penalties to lawbreakers. In practice the government has promulgated so many laws that they are uncountable. Executive agencies ostensibly ordained to enforce these laws then compound them with rules and regulations so extensive and opaque that even expert enforcers often cannot say with certainty what is or is not permitted.
I have previously noted that the greatest peril of this situation is selective enforcement. I have since observed a more nefarious phenomenon: the government shakedown.
What motivates regulators in a system in which one can argue that virtually anyone is doing something wrong? Criminal convictions for clear violations of the law are great, certainly. But evidently when it’s too hard to find or convict criminals the next best thing for a regulator is a settlement. And, like all gangsters, the government goes after people with money.
I’ve seen this from traffic courts to tax assessors to market regulators: Pick an amount that is low enough that the target will decide it’s cheaper to settle than to fight. When you run out of criminals start with the wealthy, or just pull people over at random. Threaten them with laws and rules that may not even exist. Find the highest number they’ll pay to avoid further hassle, and if they turn out to be fighters just close the case and move on to the next target. There are no penalties for government enforcement agents who engage in such harassment. On the contrary, it seems, they are rewarded for “settlements” even if no wrongdoing was admitted or even committed. And since shakedowns are easier than full-scale prosecutions that could be lost under the judicial scrutiny of the courts and juries it often appears that enforcers would rather accumulate these token settlements than pursue the hard criminals they were created to take down.
We need more public scrutiny of the everyday government shakedown. And we need more people like the Gates brothers to stand up and say, “Even though it’s cheaper for me to pay you to leave me alone, I’m going to fight you because what you are doing is wrong.”
Lazy Law Update June 26, 2013Posted by federalist in Government Regulation.
We already knew that there are so many laws that it is impossible to determine whether an individual is completely law-abiding. I was alarmed to learn that even if we restrict ourselves to criminal statutes, and only those promulgated by the federal government, we still can’t say who is not a criminal. Paul Rosenzweig dives into the subject after noting:
Even the Congressional Research Service can’t count the federal criminal laws.
We Need a Government of Laws, Not Regulations December 10, 2012Posted by federalist in Government Regulation.
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[L]aws are different [from] regulations. Laws are passed by elected (and thus accountable) representatives, they cover everybody equally, and we can all participate in their enforcement because they are easy to understand. Not one of those three things is true of the regulations imposed by independent boards such as those established under Obamacare and Dodd-Frank.
Unfortunately, our government has devolved into a bureaucratic state:
This form of government proceeds by rules, and rules upon rules, and compliance with those rules becomes a key activity of the entire nation. That results in bureaucracy, and in the inefficiencies of bureaucracy. Constitutional government, on the other hand, proceeds by clearly stated laws.
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Well almost. Until 2005 distillers even needed to pay a Special Occupational Tax (SOT) — just like manufacturers and dealers of NFA items like machineguns.
However the government, through the ATF, is still very serious about regulating and taxing the distillation of alcohol. Their FAQ effectively says, “Don’t try this at home:”
You may not produce spirits for beverage purposes without paying taxes and without prior approval of paperwork to operate a distilled spirits plant. [See 26 U.S.C. 5601 & 5602 for some of the criminal penalties.] There are numerous requirements that must be met that also make it impractical to produce spirits for personal or beverage use. Some of these requirements are paying special tax, filing an extensive application, filing a bond, providing adequate equipment to measure spirits, providing suitable tanks and pipelines, providing a separate building (other than a dwelling) and maintaining detailed records, and filing reports. All of these requirements are listed in 27 CFR Part 19. Spirits may be produced for non-beverage purposes for fuel use only without payment of tax, but you also must file an application, receive TTB’s approval, and follow requirements, such as construction, use, records and reports.
The Truth About Food and Drug Expiration Dates July 25, 2012Posted by federalist in Government Regulation, Healthcare, Markets.
Tags: shelf life
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The FDA colludes with food and drug manufacturers to maintain a twisted myth about food and drug longevity. For example, here’s an FDA “Consumer Update” in which a pharmacist emphatically warns people not to use drugs after their expiration dates.
But how are expiration dates set, and what happens when drugs “expire”? A great article by Laurie Cohen in the 2000-03-29 WSJ investigated these questions. Key discoveries:
- Manufacturers can set expirations as short as they want. It appears that they mostly choose dates to optimize the turnover of inventory. I.e., they don’t want their products sitting in stores or medicine cabinets for 10 years, even if they’re good for that long. They’d rather stamp a date a year or two out, forcing retailers and encouraging consumers to buy “fresh” replacements.
- Pharmacies typically mark dispensed drugs with a 1-year date of expiration, without regard to the expiration date of their supply.
- Military tests have determined that most drugs are safe and potent for years after their marked expiration dates.
- Storage conditions have a dramatic effect on food and drug longevity. In general, the lower the exposure to heat, moisture, oxygen, and light, the longer they last.
- Most drugs begin to “decay” from the moment they are manufactured. The risk of consuming old drugs is not that they will be dangerous, but rather that they will be less effective than fresh drugs. E.g., an old 100mg pill might be only as therapeutic as 90mg of a new pill.
For a lot of drugs “reduced potency” is not a reason to discard them. Perhaps the most outrageous piece of this conspiracy:
[P]oor countries — under urging from the World Health Organization — often reject drug-company donations of much-needed medicines if they are within a year of their expiration dates.
Lazy Law: BATFE edition January 4, 2012Posted by federalist in Government Regulation, RKBA.
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It is unfair for ATF to hold individuals to a standard that they cannot articulate themselves.
In a prime example of Lazy Law, the Washington Times describes how the ATF hurts the firearms industry with capricious, secret, and at times contradictory bureaucratic rulings on what manufacturers can build. The Bureau issues approvals for products that it can arbitrarily revoke at any time without compensation to those who lose money as a result.
Lazy Law Update December 12, 2011Posted by federalist in Government Regulation.
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During a long story on one example, the WSJ offers this update on the proliferation of laws, rules, and prosecutorial power I call Lazy Law:
Today, there are an estimated 4,500 federal crimes on the books, a significant increase from the three in the Constitution (treason, piracy and counterfeiting). There is an additional, and much larger, number of regulations written to enforce the laws. …
Many of these federal infractions are now easier to prosecute than in the past because of a weakening in a bedrock doctrine of Anglo-American jurisprudence: the principle of mens rea, or “guilty mind,” which holds that a person shouldn’t be convicted if he hasn’t shown an intent to do something wrong.
How to Pick the Regulators January 22, 2011Posted by federalist in Government Regulation.
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The permanent staffs of the agencies were always interested in more regulation, either because of self-selection or because promotions and power increase in a larger agency. It also helped that we deregulators (generally economists) were not usually interested in permanent government positions, because reducing the power of the agency is a sure way to make enemies.
(For an excellent book on this problem pick up James Wilson’s Bureaucracy.)
It sounds like the executive branch needs something analogous to jury duty, where top regulators are pulled from industry. To the degree that their industry affiliations present a conflict of interest in deregulation, at least they will counterbalance the permanent regulatory staffs’ asymmetric interest in increased regulation.
One particular example recently brought to mind is Richard Bookstaber: A veteran of the finance industry who more than a year ago accepted a role as Senior Policy Advisor in the SEC’s Division of Risk, Strategy and Financial Innovation. (I was reminded of him because the uncannily prescient book he published four years ago is apparently still being plagiarized.)
Government’s New Standards for Regulation January 18, 2011Posted by federalist in Government Regulation.
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WSJ today printed a promising essay by President Obama outlining his administration’s new approach to regulation. Granted, in government it’s a long way from good principles to good practice. And it’s hard even to draw coherent principles from the meandering examples in his essay. The strongest theme seems to be ‘balancing the costs and benefits of regulation,’ which works well when those costs and benefits are objectively assessed, but poorly when the Precautionary Principle takes over.
Nevertheless, we’re in for a treat if government regulation “… means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices.”
The Overreactions of Crowds June 22, 2010Posted by federalist in Government Regulation.
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Speaking recently of the regulatory reaction to the Flash Crash I observed, “In the aftermath of a crisis or accident crowds have an unfortunate tendency to build momentum behind overwrought and foolish responses.”
The WSJ, in discussing regulatory reactions to the Gulf oil spill, notes that this problem has been generally referred to as the “precautionary principle.”
This principle holds that government should attempt to prevent any risk—regardless of the costs involved, however minor the benefits and even without understanding what those risks really are.
In practice such irrational “precautionary” behavior tends to accompany public panics, which themselves seem to be a product of the mass media’s success in fomenting mass hysteria. In any case, the WSJ cites Cass Sunstein as an expert on the problem:
Formerly of the University of Chicago and Harvard, and now the regulatory czar in the White House budget office, Mr. Sunstein calls the precautionary principle “incoherent” and “paralyzing,” as he put it in an essay in the journal Daedalus two years ago.
“Precautions cannot be taken against all risks,” Mr. Sunstein elaborated in his 2005 monograph Laws of Fear, “not for the important but less interesting reason that resources are limited, but simply because efforts to redress any set of risks might produce risks of their own.”
Mr. Sunstein’s insight is that there are risks on all sides of a question—doing nothing can be dangerous, but acting might be more dangerous—so the only rational way to judge regulation is to quantify the costs and benefits. If the Food and Drug Administration took a harder line in approving new medicines, it might protect the public from a future thalidomide disaster. But it could also deprive the public of cures for disease or expose it to serious peril, like having no recourse in a pandemic.
Skipping the Simple Fix December 21, 2009Posted by federalist in Government Regulation, Healthcare.
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Everyone likes his doctor but hardly anyone likes his health insurer. So what thoroughly puzzles the logical mind is why Congress and the administration have focused on taking over the country’s health-care delivery system when what everyone really wants is health-insurance reform.
Plans can be standardized for easy price comparisons. Paperwork can be standardized for easy processing. The 50 separate state departments of insurance can be replaced with one set of national regulations to allow insurers to compete nationwide. The chronically uninsured can be provided with catastrophic health insurance by the federal government—all without adding the trillion dollars of deficit spending the Congress and administration now want to spend to take over the health-care delivery system.
Health-care providers can be required to post their prices, as well as their rates of mortality and morbidity, on the Internet so informed consumers can comparison shop based on both the price and quality of care.
Reforming how health-insurance plans are designed, whom they cover, and who pays for the uninsured is faster, easier and cheaper than the congressional bills, and it would reduce bureaucracy and minimize the interference of government agents in the patient/doctor relationship. The power of the Internet can be unleashed to pull back the curtain that currently conceals what providers are charging for health care just as the Internet revolutionized the way consumers now shop for automobiles.
Granted, Obama & Company recently let the cat out of the bag, admitting that nationalization of the medical industry has long been of paramount importance to the left-wing agenda. On Saturday Obama explained, “After a nearly century-long struggle we are on the cusp of making health-care reform a reality in the United States of America.”
At least now we know what this is really about….
When Will the FTC Investigate the FDA? November 16, 2009Posted by federalist in Government Regulation, Healthcare.
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The massive healthcare lobby can’t break the FDA’s stranglehold on medical innovation. Can a bureaucratic turf war do it? Consider the following statement by the Federal Trade Commission Chairman, Jon Leibowitz:
We’re going to be very concerned about any practice that could increase prescription-drug costs to American consumers. You can’t let drug safety be used as a tool to delay … competition.
Of course, the ellipses conceal the qualifier that will dash our hopes: The FTC is only interested in ensuring competition of “generics” for drugs coming off patent. If a useful drug never makes it to the market in the first place because of the excessive regulation by the FDA he probably doesn’t care.
Standardization Enhances Market Efficiency July 5, 2009Posted by federalist in Finance, Government Regulation, Markets.
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Standardization is a public good. So do we need government to promote it?
Standardization of products and specifications is invaluable to market efficiency. For example, a standard “letter”-sized sheet of paper will fit in a standard envelope, or binder. It is sold in “reams” of 500, making it easy to compare prices. It can be used in almost any printer or scanner. Imagine if each paper company manufactured proprietary paper dimensions to increase the likelihood that only their file cabinets and folders could keep their products organized?
Mechanical fasteners tend to be standardized. Only a handful of screwdrivers are sufficient to adjust almost any screw. What if you had to go to the manufacturer to buy a special set of tools for every individual product you wanted to repair?
Common languages, formats, and specifications are the backbone of the information markets, just as standardized shipping containers, roads, and vehicles are the backbone of our physical markets.
Unfortunately there are incentives for producers to secure rents by avoiding standards. Inkjet printer manufacturers have proliferated proprietary ink cartridges in order to inhibit competition for replacements. Most beverages are sold in standardized containers, but odd-sized bottles are an occasional ploy to make a product literally stand out from its competitors that can be tucked away in standard shelves.
Whenever the market wouldn’t overly penalize it, a manufacturer would prefer to create a specialized component that only it can economically manufacture instead of a standardized component that performs the same function but that is broadly and competitively produced. I.e., unjustified specialization is an attempt to extract monopolistic rents from the market by avoiding competition. However, unlike true monopoly, specialization is always suboptimal because it also avoids the economies of scale (in both production and use) that result from standardization.
What market forces resist specialization? Only the ability of consumers to detect and properly incorporate the cost of specialization into their behavior. But in the real world there is information and behavioral inertia that will always prevent markets from reaching optimal levels of standardization. No consumer is equipped to analyze a product for specialized components, and determine where specialization was justified, or what the added cost of specialization will be over the life of the product.
What market forces promote standardization? There is an upfront cost to be born in defining standards, and no individual consumer or producer has an incentive to make that investment. Standardization is something of a public good. Therefore, do we need the coercive hand of government to promote standardization to ensure the good functioning of markets? I have wondered before whether we can rely on the gentle hand of non-governmental organizations to nudge markets to more optimal behavior.