Unintended Consequence

Just wanted to point out that the quote beginning the article seems a little mangled (or it has been updated on the NY Times site). The actual quote is

"For decades, pulp companies have burned a wood byproduct called black liquor to fuel their plants. Four years ago, Congress passed a tax credit meant to encourage companies to blend some biofuels into fossil fuels like diesel. The paper companies realized they might be able to claim the tax credit by going the other way, blending a little diesel into their black liquor."

"From the perspective of some of the members of Congress quoted in the report, paper mills are 'cheating' on their taxes; paper mills are now able to pay fewer taxes without having changed their behavior in ways that (ostensibly) help society."

Congress railing about tax cheats? Now that's rich.

This is funny but oh so typical.

The scum in congress can't write clear law and when people see the openings and take advantage of them, congresscritters call foul!

Watching congress at work is like watching a drunk court jester doing a juggling routine with a loaded M16, it can be funny but can turn deadly in a heartbeat.

If it wasn't our money I'd cheer.

Congress used the wrong tool.

They rewarded method rather than result.

When a method is not new - such as mixing some biofuel with another fuel - then favoring method is the wrong approach. Reward results.

When a method is promising but needs development or subsidy then reward the method until its potential, or lack of same, is clear.

At the extreme would be wording like this:

Law sez: Companies using biofuels can claim a tax credit for their fuel costs.

Tax Planner sez: "Gee, we can run out and buy a quart of alcohol - made from grain - and pour it on the hundred thousand tons of coal we burn. Then we get a tax credit for all the coal costs."

Kind of like government bailouts....

Thanks. Yes, it will be interesting to analyze the bailouts three or four years from now with respect to unintended consequences. It's indicative of the motives -- paying off supporters, building a power base, appearing to be actively moving toward a solution -- that they do this knowing the history of consequences -- we may even have to say the consequences were intended, since they know what can happen when they intervene like this.

Don't worry world! Team Pelosi, Reid & Obama are thinking up some new "solutions' to our problems that they created. They will no doubt have some answers as to why the unintended consequences of their prior actions are not their fault!

Is there something wrong with black liquor that we're not being told? They should get a tax break if they're using a renewable biofuel, and they should be thinking up ways to sell black liquor to other manufacturers if the stuff works just as well as diesel, with the exception that it literally grows on trees.

I don't understand why Congress is so angry about this. A renewable, domestic fuel source (so it's probably not clean, but that's still two out of three). What isn't to like about it?

At this rate how will I ever get rid of my hiccups when Jim Beam puts gasoline into my bottle. And will my state trooper be wrong when he says that booze and diesel don't mix?

U B Judge

Doesn't especially have to do with this post, but I saw this today and immediately thought of my Cafe Hayek associates. It's an interesting read.

Daniel, they don't get a tax credit for using biofuels. They get a tax break for using blended biofuels. So it becomes net cheaper for them to purchase diesel, blend, burn, and claim credit rather than burn what they have, which is presumably cleaner than the blend.

The really funny part of this is that this is the same kind of legislation that drove the market price of corn through the roof by diverting corn crop to ethanol (while continuing to restrict import of sugar cane ethanol). Congress has its panties in a bunch over pulp companies rather than, for example, starving Mexicans. That President you admire is a strong supporter of corn ethanol. So was his predecessor. Both are morons on energy policy. Both would do much better to not presume to know anything about it and keep government away from it.

Daniel, that articles doesn't seem to make much sense. Some historical perspective is lacking, and the authors seems to have no grip on individualism vs socialism, which are the two variants manifested by traditional and modern liberalism values. Most would fully be head on head on the kind of society they would like to see emerge and the values they personally hold dear, more than with any other political persuasion; the crucial difference is on the means used. Individualists believe on individual determination and free association, while socialists want a central authority to bring the future about.

Classical liberalism is compatible with modern liberalism. Modern liberalism isn't compatible with classical liberalism. That sounds like more than a disagreement on labels.

"Rather, the problem is that paper mills are getting a tax credit for doing something that they've been doing for quite some time"

------------------------------------

Isn't that kind of like what some people do with carbon offsets?

Pat themselves on the back for saving the earth, getting their "Green" energy from a source that isn't doing anything different than what they were already doing anyway?

Aren't people like this "cheating" the environment?

The political class doesn't understand the basics and thinks of fuel as gallons not Joules . The volume of black liquor used is huge because it is 95% water or inorganic chemicals and only 5% really provides energy. If the credits were heating value adjusted, I can't see how it would be anywhere near the amounts of money discussed in the article.

The stupidity of our ruling political/legal class is unbounded.

However, using and energy adjustment would show that the energy density of ethanol is a lot less than gasoline. We pay by the gallon but our engine puts out energy according to the Joules/gal.

Rather, the problem is that paper mills are getting a tax credit for doing something that they've been doing for quite some time -- namely, relying significantly on biofuels.

So they care more about CHANGING BEHAVIOR rather than producing results they supposedly care about? Of course.

BoscoH -

I understand that they get the credit for the blend, although I'm not sure it's particularly cleaner. My understanding is that a lot of biofuels are just as dirty as fossil fuels. What Congress seems angry about is that they're getting credit for something they were doing all along. So what? Congress should be glad the pulp industry thought of this and look forward to the pulp industry selling it's black liquor to others as a biofuel with a proven track record. Isn't that the point of the tax credit - to promote use of renewable biofuels?

BoscoH -

After reading through, Dallas makes my same point on pollution - so tweak the credit as he suggests and it will probably de-incentivize this black liquor, but it may spur the industry to refine the liquor into something more plausible.

Black Sheep -

Well I'm not sure what the author would think of socialism - I imagine he would not file that under "liberalism" (I certainly wouldn't), but I'm not sure. I think what liberalism did for human society was decouple the individual from the collective - acknowledge that the interests of the two don't always coincide, and that for most of human history the individual has been sacrified for the benefit of the collective, and that the individual has more dignity and value than it has previously been recognized as having. The way I've always read this... and I liked the author because I think he agrees... is that many modern incarnations that believe themselves to be "classical liberals" have somehow adopted the idea that the collective doesn't exist or if it does exist it has nothing of value to offer. Liberalism certainly priveleges the individual (that was liberalism's gift to human thought) - but it has never decisively closed the question of "when does the individual have an obligation to the collective". Many modern "classical liberals" assume that question has been closed, and that the answer to it is "never", or "very rarely". Part of the problem, I think, is the mathematical economists that are so berated on this blog. When you sketch out simple supply and demand curves, it's very easy to dismiss the significance of the collective completely. In the decades since the dawn of mathematical economics, further work on these models has pointed to numerous instances where the question of the role of the collective is once again relevant - and I think that's a good thing that we're considering the question again. But to get back to your original point, I think the author doesn't seem to make much sense to you because of your tendancy to frame it in an "individualist vs. socialist" way. Socialists completely overturn the liberal view of the value of the individual and individual progress. The author (and I) suggest that all liberals are individualists, and that the question of the appropriate role for the collective is very much an open one for individualists and liberals. Eschewing the questions about collectives that liberals have always grappled with doesn't make the libertarian idea the sole heir of classical liberalism.

Anyway - I just liked the blog post, but it was very short, so I'm still a little sketchy on exactly what he thinks of these things - I'll need to pick up the book.

The "unintended" consequences of the minimum wage include reducing availability of entry jobs (increasing dependence on government programs from AFDC to TANF); decreasing employer provided on-the-job training and health care insurance (increasing the number of uninsured, fueling claims of "market failure" regarding health care access); decreasing the elasticity of demand for unionized labor (causing capital mal-allocation--see Hayek interview).

But you have to wonder how really innocent politicians are of understanding these "unintended" consequences. Isn't the party that is to the greatest extent supported by unions and advocating nationalized health care and increased benefits for the unemployed the same party that leads the charge for increases in the minimum wage? Perhaps these politicians are lead by an invisible fist that destroys economic efficiency and by inevitable extension human liberty. But just because they may be ignorant does not make them less culpable for the consequences.

Speaking of Unintended Consequences and harm done to natural species/environment, I read in the Parade Magazine (Ask Marilyn) that comes with the Sunday paper I buy off the rack that games laws in the USA and Canada have turned out to be wrong headed and have caused/are still causing significant harm to mainly fish, but also some animals such as Big Horn sheep.

Seems that laws requiring release of the smaller younger fish, and game, are circumventing Nature's laws about survival of the fittest. Man has been forced by law to take the fittest as game, which leaves the smaller weaker to breed. This has resulted in species deteoration in numbers, health, and strength.

Here is my own observation in the form of a question. Even discovering this, how long do you think it will take for the government to overturn the laws and allow hunters to assist nature in survival of the fittest? Think it will ever happen?

I am skeptical.

It's an interesting read.

Nothing interesting. A wolf in sheep's clothing: A fascist trying to justify his ideology and actions. Any one with a common sense can see the deception in the writing.

Dear Congress:

You can't have it both ways. You either believe that incentives matter, or that people should just do the "right thing," i.e., what you want them to do, without incentives.

If you provide tax breaks, your playing as if incentives matter. If you are complaining that people are behaving in accordance with your incentives, but not doing what you want them to do, that is just code for: "We f*cked up, but want to blame someone else for the waste we created."

In the private market, a management team that wastes scarce resources on ineffective programs goes bankrupt, which undermines their ability to get more resources to waste. In the U.S. government, the 'management team' that wastes scarce resources on ineffective programs gets to (a) blame someone else for the waste, (b) pretend that the wasted resources aren't scarce by simply grabbing more from their producers, and (c) use the wasted resources to buy re-election.

But then, I'm not really telling you something you don't already know, am I?

M

Quote from Daniel Kuehn: "I don't understand why Congress is so angry about this."

Because Congress doesn't give a rat's ass about biofuels or energy conservation (unless it benefits them and their cronies directly).

They care about taxes and power. We can probably expect a new law to specifically forbid the pulp industry from using this tax loophole (unless of course the paper industry comes up with some lobbying money to convince our public servants that they don't need to).

It's an interesting read.

This line...




...libertarians ... seek to straighten out the crooked timber of humanity by forcing everyone into a mold established by the market.





...is absolutely hysterical in its absolute reversal of reality.

Do people really believe such nonsense?

yet another Dave wrote:

"Do people really believe such nonsense [that libertarians ... seek to straighten out the crooked timber of humanity by forcing everyone into a mold established by the market]?"

Yes, unfortunately they do. The most recent issue of Business Week has a story about the disdain lots of folks apparently have for economists generally for in the words of the article modeling man as "homo economicus".

Of course SOME economists do have inappropriate perspectives on human nature (especially true believers in mathematical models as capital T truth). There is an art in economics to choosing the appropriate assumptions; the really great economists find these often and on matters that matter much. There is a lot of thrashing about though for the work-a-day economists because the world is not a clean test-tube, and data and insight are scarce resources.