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New John Stossel Special: No They Can't! Why Government Fails But Individuals Succeed

Posted on April 6, 2012, 2:12pm | Lisa Snell

I'll be on the new John Stossel documentary "No They Can't: Why Government Fails But Individuals Succeed." The program will air tonight at 10 PM EST & 7 PM PST and the same time Saturday night.  For more information go here and read on below:

Politicians say, "Yes, we can!" and claim that they solve our problems.

When the mortgage market crashed, the president said their new law, Dodd-Frank, would create a "new financial system" so such things would never happen again.

After 9/11, Senator Tom Daschle declared "you can't professionalize if you don't federalize!" The Senate voted 100-0 to create the TSA to run airport security.

Politicians' promises are endless. They say they'll: create jobs, "make college affordable for all," protect the disabled, give disadvantaged kids a head start and invest in "cutting-edge innovation."

But they can't achieve what they promise.

· Billionaire Mark Cuban and other job-creators explain why government's rules now prevent the job creation that was once America's hallmark

· Dodd-Frank, instead of stopping fraud, added layers to already incomprehensible banking laws. Stossel shows how simple rules in the Cayman Islands not only stop fraud, but they also create prosperity

· While the TSA creates long lines, misses actual terrorists and angers passengers, screeners working for a private company at one big airport work faster, more cheerfully and find more contraband. We show how the private company does it

· Did you know that the University of Missouri is proud to have a "leisure resort" on campus? Naomi Riley, author of "The Faculty Lounges: And Other Reasons Why You Won't Get the College Education You Pay For," explains how government aid led to massive tuition hikes

· Since the Americans With Disabilities Act took effect, fewer disabled people have been able to work

· Lisa Snell from the Reason Foundation explains how the government's own research found that Head Start did not help poor kids. Government's response? Spend even more

Government grows, despite its repeated failure.

 

Livable Centers Initiative Grant Program Needs to be Refocused

Posted on April 6, 2012, 11:00am | Baruch Feigenbaum

The Livable Centers Initiative (LCI) by the Atlanta Regional Commission (ARC) is intended to promote urban regeneration in metro Atlanta communities. But the projects it has funded have had little success in creating any sustained new economic activity. Moreover, the program is supported by federal gas taxes that are supposed to be dedicated to national highways. Nonetheless, other cities around the country, from Albany to San Francisco are using it as a model.  If ARC wants to continue with the LCI program, and if other cities want to follow the model, two simple rules should be followed: first, it should be funded locally; second, it should focus on activities that have been shown to actually underpin economic development, such as the construction and maintenance of roads –especially if it is funded by gas taxes. 

When the LCI program helps cities build appropriate infrastructure, it has the potential to be a useful tool. Planning for future growth can create higher-quality developments at lower costs. Some of the grants have supported transportation improvements. The city of Marietta and Cobb County received a grant to study bus rapid transit (BRT) in the Delk Road area. The city of Alpharetta used an LCI grant to study transit possibilities in the Northpoint Activity Center. Typically LCI grants are modest, between $80,000 and $150,000. In some cases, part of the cost of studies has been funded by private businesses, thereby leveraging the public funds. 

However, there are numerous problems with the LCI program. 

First, LCIs use federal gas tax funds to support local projects. Funding for this program comes specifically from the L-230 funds in the highway section of the state’s transportation bill, not the transit section or the intermodal section. Highway funding is intended to support national highways that facilitate interstate commerce by moving goods and people along roads such as I-75 and GA 400. Yet LCI grants have been used to support non-highway-oriented projects such as the development of Cycle Atlanta on the premise that it would connect job centers and residential areas by bike lanes. Another LCI grant is slated to enhance the Marietta University District which focuses on land usage, and not highway infrastructure, along U.S. 41. 

More generally, non-motorized transport receives most of the resources from LCI grants. As of March 2011, $97,631,660 supported pedestrian facilities. Another $44,934,471 supported combined bicycling and pedestrian facilities. Only $15,438,929 supported roadway operations; $9,221,900 supported transit facilities, and $9,020,229 supported multi-use trails and other facilities. Sidewalks and bike paths do not facilitate much interstate commerce. Moreover, the transportation elements of these projects are regional at best.

The full commentary is available here. 

Latest California High-Speed Rail Plan is Still a Trainwreck

Posted on April 5, 2012, 7:49am | Baruch Feigenbaum

The California High Speed Rail Authority (CHSRA) released its latest business plan. And the plan is a trainwreck. Better in some ways than its predecessor and worse in other ways, the plan is more of a political exercise than a sound business plan.

Why did the authority release a new plan? (For those keeping track this is the fourth business plan the agency has released). Governor Brown ordered the board to rethink the previous plan after a majority of voters became disillusioned. The proposed high-speed rail line between Los Angeles and San Francisco has been much criticized. The $98.5 billion price tax was about triple what voters were told the line would cost when they approved it in 2008. The California High Speed Rail Peer Review Group expressed doubts in January concluding that it “…cannot at this time recommend that the legislature approve the appropriation of bond proceeds” because the project “represents an immense financial risk” to the state. This was in addition to criticism from the Bureau of State Audits, Legislative Analyst’s Office, the UC Berkeley Institute of Transportation Studies, Treasurer Bill Lockyer, democratic state senators, etc…Partly as a result two top board leaders, CEO Roelof Van Ark and Chairman Thomas Umberg, resigned in January. 

What changes does the agency’s latest plan make? First, the plan will save money by merging the bullet train with existing commuter rail lines in San Francisco and Los Angeles. An additional $1 billion in voter approved bonds will be used to upgrade the commuter rail tracks. The new first phase will link Merced and the San Fernando Valley by 2022, expanding on the original 130-mile Madera to Bakersfield section. However, the plan delays arrival of high-speed rail into Silicon Valley and the Bay Area. By running the bullet train on commuter rail lines, $30 billion is saved. However, the $68.4 million price tag is still $23.4 million higher than the plan voters approved four years ago.

While train service will now reach Los Angeles by 2028 instead of 2033 and the costs are somewhat smaller, the shared tracks will make service worse. Trains will not travel at average speeds of 150 miles per hour from Los Angeles to San Francisco, but at 150-200 miles per hour only in the Central Valley. In other areas where the service shares track with commuter railroads, trains will average between 30-60 miles per hour. This is slower than a car travels at highway speeds. 

This slower speed will make a big difference in attracting passengers. In order to attract passengers high-speed rail has to be time-competitive with airlines. In no country in the world has high-speed rail succeeded in luring drivers out of their cars. Automobiles offer many benefits that trains cannot match such as flexibility and comfort. In other countries, the high-speed rail passenger mix has been 90% former flyers, 5% former drivers and 5% people who previously did not make the trip. 

And the new business plan fails to solve many other problems. The plan’s funding component is still in Fantasyland. First, the plan continues to rely on billions from the U.S. Congress. With both Democrats and Republicans opposed to California high-speed rail that money is unlikely to be appropriated. 

Second, the network relies on fees from an untested cap and trade system. California is planning such a system to reduce its greenhouse gasses. Economists are wary about economic consequences from a cap and trade system. Many environmental policy makers do not think a cap and trade system is the best way to reduce pollution. And even environmentalists who support such a system think the funds should be used on environmental purposes, likely setting up a major fight over revenue. 

Third, the association is relying on mysterious private investors who will jump aboard and risk their own money once construction begins. This is the most ludicrous part of the proposal. (And for this project that is really saying something.) The private sector will become involved only when there is profit potential. This project uses artificially low costs and artificially high benefits. Nobody believes the agency’s math; and no transportation expert thinks this project could hope to break even, never mind turn a profit. No serious investor would touch this project. 

This high-speed rail line has several problems that no business plan could realistically fix. Los Angeles to San Francisco is not an ideal high-speed rail corridor. High-speed rail works best in short corridors from 200-350 miles in length. The 381-mile trip is already a little long to be ideal for rail. In addition, this rail line does not take the shortest path. California’s chose a 600-mile circuitous route because local municipalities lobbied for train service to their city, but the greater the number of cities served, the slower the train will travel. The Obama administration did not help by mandating the train served cities in the central valley. 

Why is this project still alive? Governor Jerry Brown sees this as his legacy. While he cuts other state services and proposes to raise taxes, high-speed rail remains the sacred cow. If California builds this line he will have a legacy but it won’t be anything to be proud of. This latest business plan is no better than the first three, California citizens should use all legal means to pull the plug on this trainwreck.

My colleagues Adrian Moore, Sam Staley, Adam Summers, and I have written extensively on California high-speed rail. Articles include: 

While Portugal Cancels High-speed Rail, U.S. Government Considers $5 billion for Second California Project

Jerry Brown Continues to Push High-Speed Rail Boondoggle while California Drowns in Debt 

California's High-Speed Rail Fibs 

The Detailed Concerns of the CA HSR Peer Review Group 

High-Speed Rail Gets Congressional Scrutiny

Innovators in Action: Carrollton, Texas City Manager Leonard Martin and Director of Competition Tom Guilfoy

Posted on April 5, 2012, 7:00am | Leonard Gilroy

In the latest installment of Reason Foundation's Innovators in Action series, I interview the Dynamic Duo of Carrollton, Texas: city manager Leonard Martin and director of competition Tom Guilfoy. Trust me—you don't want to miss this. There's a reason I call them the Dynamic Duo.

Ten years ago, Carrollton's city leaders charted a new direction for how the city would operate, directing administrators to transform the bureaucracy from a government culture to a competitive, business-like culture. Officials hired Martin to lead this change, and he created a new Director of Competition—the first both for the city and nation—whose sole purpose was to drive the city's culture to become competitive, either using in-house or external service providers to provide services to residents "cheaper, faster, better, and friendlier."

Martin and Guilfoy developed a robust managed competition program where all government service costs are fully burdened with overhead costs just like private businesses, and government compares their fully loaded cost of service delivery against private sector costs to seek the best provider. In some cases, this has led to re-engineering of city services, and in others, like solid waste collection and vehicle fleet maintenance, the city has turned to private service providers.

Overall, Martin and Guilfoy estimate that managed competition has saved the city $30 million over the last decade (and they add that it's a conservative estimate). Moreover, despite an increase of over 40,000 residents, the city still operates with about the same number of employees on the payroll in 1990, a testament to both the results of competition and the city's fiscal stewardship.

In the interview—available here—Martin and Guilfoy discuss the first decade of managed competition in Carrollton, the process used, and what it takes to create a culture of competition in city government. Here's a small excerpt:

Martin: [...] Government has been taught that there are only two options: raise taxes or cut services. You hear it in Washington. You hear it in the states and cities. No, there's another option: run it like a business and make it efficient. We don’t try to be everything to all people.

[...] Our exercise wasn’t really fancy. We took legal pads, put a line down the middle, and on the left side put essential services and on the right, non-essential. We listed out every service we did. The things we learned that we were doing were things we didn’t previously have a clue on, like the movies. We don’t need to go out and undercut businesses, so we just stopped doing some things. Another example is karate, where you can’t drive down the street and not see a school on every other corner. Yet city government was offering karate classes. And you’re out there with your black belt, paying your lease, paying taxes on your business that I get to keep to undercut you at the rec center.

I had an employee that defended it to me once, saying that there were people that couldn’t afford to go take karate. So I told him that was an excellent point that I hadn’t thought of. At the time George Bush was president, and I said, “I’m quite sure that President Bush had to know karate under the Constitution in order to run for president.” Because obviously if you’re going to be President then you have to know karate. I wanted to be an astronaut, and my town didn’t provide me astronaut training. It’s amazing I was able to become a city manager since my town let me down on astronaut training.

So that guy quit. I respect that person because they lived up to their principles. And I assure you that there were lots of places in government he could go that had that same philosophy: that anyone who wants something gets it. Not here. The council has stayed firm to our policies. We’ve known other places where the staff want to do managed competition, but the council doesn’t want to push on employees because the employees are viewed as a strong voting base. You see that especially at the state levels, where politicians cater to that state bureaucracy.

Our councils have not gotten into that, and they’ve stayed on firm ground and done what’s right for the taxpayer. You got people on the council that have been there for years and understand the culture and are proud of it. All of that takes some courage.

Read the rest of the article here. All I can say is that it's a must-read for anyone interested in what cutting edge city management looks like. One of the more interesting takeaways from the interview is that implementing tools like managed competition is necessary but not sufficient. To really streamline government and keep it lean, you need to change the culture of the bureaucracy. Martin and Guilfoy's insights on that subject alone are fascinating and, frankly, should be internalized by every public administrator (and politician) in the country.

With policymakers at all levels of government seeking ways to reduce spending and improve services delivered to taxpayers, Reason Foundation's Innovators in Action series highlights good government efforts that are delivering real results and value for taxpayers. It is our hope that that the examples and experiences offered by innovators like Martin and Guilfoy will inspire reform-minded mayors and administrators elsewhere to provide better, leaner and cheaper government to taxpayers.

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication has been on a temporary hiatus since then, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

The Federal Reserve Signals No Further Easing…Until the Next Easing

Posted on April 4, 2012, 12:12pm | James Groth

 

Minutes for the latest Federal Open Market Committee (FOMC) meeting were released yesterday afternoon sending the stock market down and Treasury yields up largely due to the hawkish tone of the release. Committee participants noted stronger signs in labor markets and improvements to output as lacking necessity for further easing. Outspoken hawks, President Lacker being the only one, stated that the current degree of policy accommodation beyond this year would be “inappropriate.”

Yet despite the meeting’s tone, members’ hawkish comments and the securities markets’ reactions, we will most certainly be seeing continued accommodation and likely further easing before the year’s end.

Why?

The following two charts:

The first is a 5-year chart of Treasury Bonds:

The second is a 25-year chart of commodities prices:

Selling in long-dated Treasuries has pushed yields up to uncomfortable levels. Despite Bernanke purchasing more than $40 billion per month under Operation Twist, yields on the 30-year Treasury Bond have gone from 2.7 percent when Bernanke first commenced the unprecedented buying program to just over 3.4 percent in yesterday’s trade. They are expected to go much higher. As selling pressure persists, the Fed will likely purchase more to offset the rise in yields that has been persistent since last October either through extending Operation Twist or by announcing another round of bond purchases.

The one thing that would stop the Fed from such a move is inflation pressures. This is where the second chart comes into play.

Bernanke has remained consistent pointing to a slack labor market keeping wages down and so holding off inflation. Recently he has also been pointing to declines in commodity prices (highlighted) as a sign that the initial rise in commodity prices was indeed transitory as he predicted throughout its rise.

The combination of dangerously high Treasury yields (yes, when the Federal Debt is nearing $16 trillion, even 4.5 percent on a 30-year is unmanageable), a slack labor market, and “declining” commodity prices is reason enough to continue debasing our currency.

But take a look at the charts again. Much of the weakness in commodities, or rather the slight pullback in prices, can be attributed to lower demand from the Eurozone. Similarly, some of the money pumped into Treasuries over the last nine months has come from sales of Euro area debt and other Euro securities. Recent trends point to this continuing.

Despite nearly $1.5 trillion in loans from the European Central Bank (ECB) pumped into banks and institutions since December and more than $100 billion of additional direct purchases of sovereign debt over the year, European periphery debt is still pricing in downside risk. The ECB’s efforts have attracted significant interest from domestic buyers, but institutions abroad in the US and elsewhere have not participated, and many have sold into the backstopped Euro buyers. Without further accommodation from the ECB, bond auctions in Spain, Italy, and Portugal will continue to disappoint and push up yields (as can be seen following today’s Spanish auction). Couple this with negative growth over all of 2012 and most of 2013 in the Euro periphery, as projected by the IMF (more severe projections by most economists), and one has to conclude that commodity pressures will continue to ease.

That gives Bernanke the green light.

Unless US employers start kicking up wages, inflation will be kept in check. This is regardless of the trillions printed by the Fed and the trillions more in the pipeline. Wage increases won’t broadly occur until unemployment hits closer to 6 percent, and that isn’t in the cards for……..? So, as long as the current US and Euro picture persist, Bernanke will soon once again hit the gas. Both the Fed and the Treasury can ill-afford any rise in Treasury yields.

And they are rising.

Banks and institutional investors are exiting long-dated Treasuries in droves. Yields on the 30-year and 10-year Ts are 3.4 percent and 2.3 percent respectively. That is up from 2.7 percent and 1.7 percent last fall. European buyers are parking funds that would otherwise be allocated to Ts into German Bunds which have decoupled from US Ts following the massive injection from the ECB. German 30-year and 10-year paper trades at 2.5 percent and 1.8 percent respectively. This is a significant spread from Ts, which before the ECB easing used to trade with similar yields.

Bernanke knows that without buyers from European institutions, and with domestic institutional selling, current Treasury yields cannot be supported. The Eurozone weakness and the US slack labor market is a godsend to further accommodation.

Signaling aside, the Fed is not finished. They won’t be until either Congress forces their hand, or for some reason American employers decide to bump wages and share the wealth. At present, a larger percentage of corporate earnings are going towards profits than to wages than at any other period since 1947. That may help shareholders, and the wealthy, but it is short-term and does not improve the economy as a whole. Expect more easing, expect more wealth divide, and expect more central bank control of the “free market.”

 

The Facts Behind EPA's Greenhouse Gas Regulations

Posted on April 3, 2012, 5:35pm | Adam Peshek

After the defeat of his carbon dioxide cap-and-trade legislation in 2009, President Obama told a room of reporters that there was “more than one way to skin a cat.” And in the new political era of regulation without legislation, the President’s EPA has released standards on carbon dioxide that do just that.

In perhaps its most sweeping regulatory approach to date, the EPA under Lisa Jackson recently released New Source Performance Standards (NSPS) for carbon dioxide, which aim to cut greenhouse gases emitted by the U.S.

In today’s post, I will look at the logic behind the rule and its fundamental flaws. In later posts I will look at what’s next for carbon dioxide regulations and an examination of the very idea of regulating carbon.

How EPA Skins a Cat

The NSPS requires all newly constructed power plants to meet an emissions standard of 1,000 pounds of CO2 per megawatt-hour (MWh) regardless of the type of fuel. The average coal-fired power plant puts out 2,000 pounds of CO2 per MWh and newer, more efficient models emit about 1,800 pounds per MWh. Simple math shows that the future of coal-fired electricity in the U.S. looks bleak, even for the industry’s best facilities.

Advocates for the new rules (who apparently must portray themselves as pro-coal) say that the new rules will not hurt the coal industry. That is because the rule only calls for 1,000 pounds of CO2 per MWh over a 30 year average. So in theory, a coal plant could emit 1,800lbs of CO2 for the first 10 years of operation, so long as it implemented yet-to-exist technologies to cut its emissions to 600 pounds per MWh by year 11.

If only it were that simple.

EPA’s rationale for the feasibility of the regulation is two-fold: (1) technologies will be available in the next decade that allow the capture and storage of CO2 emissions from coal and (2) the abundance of cheap natural gas that has flooded the market in the past few years.

The (Un)available Best Technology

The section of the Clean Air Act (CAA) that details the NSPS directives requires EPA to create regulations based on the “best system of emission reduction” that “has been adequately demonstrated,” taking into account costs, environmental impacts, and energy requirements.

The technology EPA points to with this regulation is called "carbon capture and sequestration" (CCS). CCS involves the capture of carbon dioxide from power plants before it is emitted and then the storage of the captured gas underground. The problem with using CCS as a “best available technology” is that it is not in use anywhere in the U.S., and is only in use in experimental, highly expensive sites in a handful of sites in Europe. It is nowhere near the point of viability technologically or financially.

EPA’s own, typically bullish analysts themselves admit that CCS viability is at least a decade away. To make this pass muster, EPA applied the 30-year average requirement. In doing so, EPA is saying “yes, the technology is not available today, therefore, apply the best technology available and in a decade apply CCS when it is viable.” Government agencies are prone to the conceit that they can predict the future, but this is a stretch even by EPA standards.

Aside from the technological and financial problems involved with CCS, there is also the problem with citing plants in places that can eventually store CO2 underground. This leads to even larger permitting headaches. How can you predict permitting requirements for a technology that is not yet in use and thus has not been subject to federal, state, or local permitting requirements? It is not merely a matter of building a new, modern plant and hoping you chose a site that is adequate for CCS.

Gas, Naturally!

The second, seemingly more logical, rationale for the rule’s approach is the abundance of cheap natural gas that is making coal less economically appealing.

It is true that in the near term, low natural gas prices are already making coal uneconomical, with utilities rushing to refurbish or build new natural gas plants to take advantage of its record low prices. As I mentioned in a post two weeks ago:

A gold rush of shale gas plus the ability to get eight-times the amount of energy from one well has caused gas supplies to skyrocket, driving down prices. With low prices, companies are fleeing the historically inexpensive and dirty coal-fired plants and maximizing natural gas plants, which emit roughly half the greenhouse gases. According to the study, the U.S. emitted nearly 9% less CO2 (the chief greenhouse gas) in 2009 than it did in 2008, mostly because gas prices dropped from $12 per million British thermal units in June 2008 to less than $4 per MMBtu in September 2009. During that time, the cost of generating electricity from natural gas plants fell an average of about 4 cents per kilowatt. With average natural gas prices at $2.30 MMBtu today, it is safe to say this trend will continue. Utilities are shutting down coal-fired plants at record pace and replacing them with new or expanded gas-fired plants.

On average, coal supplies roughly 40 percent of U.S. electricity. But according to the Energy Information Agency (EIA), coal-fired electricity dropped below the 40 percent mark last December for the first time in over 30 years. Coal consumption will likely drop another 5 percent this year according to the EIA. The agency expects natural gas to pick up the slack, with a 9 percent increase this year, or a record high of 22.7 billion cubic feet a day.

However, it’s important to note that these have all been the economics of a struggling economy with a drop in electricity demand. But, as we know, energy needs fluctuate. During last summer’s heat wave, every single unit scheduled for retirement was running to meet increased demand, including coal. Had these facilities been taken off-line there would have been sweeping brown outs across the warmest areas of the U.S.

So, according to EPA’s own analysis, natural gas’s affordability makes NSPS rule unnecessary. Economic factors – not environmental concerns – are already giving utilities more than enough incentive to switch from coal to gas. As noted in my earlier post, this leads to cheaper energy and a cleaner environment. But the Agency is following its usual path of imagining what the future will look like today. With natural gas prices and energy demands locked at 2011 levels, an emissions standard of 1,000 pounds per MWh makes sense. But they refuse to note that maybe, just maybe, market conditions will change. If natural gas prices and electricity demand rise simultaneously, this rule will be enormously costly and may have an effect on keeping the lights on in certain regions.

A New Type of Regulation

From a regulatory standpoint, this is a first for EPA.

As noted above, NSPS requirements in the Clean Air Act require the Agency to create regulations based on the “best system of emission reduction” that “has been adequately demonstrated,” taking into account costs, environmental impacts, and energy requirements. The statute does not allow EPA to prescribe specific technologies, only an emissions level for the source to meet.

For 40 years, the EPA has regulated NSPS based on specific fuel types (oil, gas, coal, etc.), as laid out in statute. For this regulation, however, EPA has chosen not to distinguish between fuel types. Instead, it requires coal to meet the emissions level of natural gas, which can easily meet the requirement. In other words, it implicitly asks coal to meet the emissions levels of gas with a technology that has not been demonstrated as technically or financially viable. If you asked natural gas to reach the emission levels of nuclear, you would also effectively ban natural gas plants. This is not a game EPA has played before, and it is a dangerous precident to set without legislation to point to.

***

Unlike most EPA regulations, NSPS are binding once it is printed in the federal register. This is problematic for two reasons. First, it has effectively put a ban on the construction of new coal plants. Second, any legislative action to deal with this issue is hamstrung by the fact that the rules are not officially “final,” and thus could get around being subject to legislative review. It could easily be more than a year until EPA addresses all the comments and proposes a final rule.

Luckily for the coal industry, there is still a global market for coal. Metallurgic coal is in high demand in China where is used for steel making. Energy-dense bituminous coal is highly valued in places like India where it is burnt for power and heat. In fact, if you look at the countries across the globe who have growing economies, just about all of them are building new, state-of-the-art coal plants.

Electricity demand is flat thanks to a struggling economy, so the results may not be immediate. The question is its effects long term once the economy rebounds.

A big part of this will be whether or not EPA releases regulations on current coal facilities, as they have said they would do. Most observers believe that Obama will issue such regulations if he earns a second term in office.

My next post will look at the implications of a similar regulation on existing sources.

Teachable Moment: Yonkers Evaluating Private Finance for $1.7 Billion K-12 School Modernization Program

Posted on April 3, 2012, 3:30pm | Leonard Gilroy

Call me crazy, but for years I've been scratching my head wondering why K-12 public school systems still rely on an antiquated 20th century model to build and maintain school facilities—one based on a combo of debt, taxes and inefficient contracting processes—when there are other options out there, like public-private partnerships (PPPs) that dial up the private sector's role in financing, delivering and maintaining assets. The transportation sector realized decades ago that PPPs offer a innovative way to deliver public infrastructure assets as needs grow and citizens' willingness to absorb new taxes and debt plummets.

It's taken some time, but it seems that K-12 schools are slowly starting to wake up to the emerging PPP opportunity as well. The most recent evidence comes from Yonkers, NY, where school district officials announced today that they've selected a team of financial, legal and technical advisors to evaluate the potential for using PPPs to deliver a whopping $1.7 billion in school construction and address a $460 million backlog in facility repairs. Today's press release offers more details, and a February Construction News article offered a good summary:

For a city chock full of hopes and dreams, Yonkers has enjoyed many groundbreakings over the years. There just may be another one on its horizon: the use of a public-private partnership, or P3, which its public school system is exploring as a means to finance some $1.7 billion in school construction.

If it happens, the Yonkers School District would be the first in the nation to engage in the much-discussed (and debated) P3 financing methodology for financing a public school project.

[pause] Close, but not quite right. Puerto Rico's "Schools for the 21st Century" project, currently underway, beat them to it. And that's just in the U.S. and its territories. Earlier this year, New Zealand announced a winning bidder for its pilot schools PPP project. Last summer, the U.K. launched its privately financed Priority School Building Programme. Earlier that year, the Netherlands-based Amarantis launched a PPP procurement for several schools. Those are just a few recent efforts; suffice to say that PPP schools are nothing new under the sun from a global perspective. Continuing on with the Construction News excerpt:

Yonkers Schools Superintendent Bernard Pierorazio and Joseph Bracchitta, chief administrative officer for the Yonkers Public Schools in a telephone interview with CONSTRUCTION NEWS, discussed the progress of the P3 initiative and the need for creative financing for the school district’s sizable capital project needs.

As initiatives are underway from the Governor’s office and others to propose and pass legislation that would allow public-private partnerships on construction projects in the state, the Yonkers City School District has the ability to “engage the private sector” through its Educational Construction Fund statute. To actually undertake a P3 for school construction work will most likely require some legislative authority from the state, Superintendent Pierorazio said.

[…] The need for creative financing is caused by the age of the schools in the City of Yonkers. The average age of a Yonkers school is 73. Its oldest building is 117-years-old and nine of its school buildings are over the age of 95. In 2009, the school district released a long range Educational Facilities Plan that identified at least $1.7 billion in construction needs (either school renovations or new construction), along with $460 million in emergency repairs.

School Superintendent Pierorazio said that studies show that the school district is short 5,000 seats for students and will be short by another 3,000 students by 2018- 2019. As part of the master plan, the Yonkers City School District has, for the last three years, been exploring the possibility of using public equity and public-private partnerships to fund its capital construction program. The only school districts to successfully complete projects via a P3 arrangement are in the United Kingdom and Canada.

“We felt at this point in time it would be the only way for us to do a massive refurbish and rebuilding of the district,” he said.

In November the school district issued an RFP for a consulting team to further explore P3s as a possible funding mechanism for the first phase of the capital construction project, estimated at about $700 million. A total of eight project teams responded to the RFP. The city expects to make a selection sometime in March.

[…] The P3 arrangement the school district is looking to structure is a “Design-Build and Maintain” with the private sector. The school district, which would retain ownership of the buildings and the properties, believes that by utilizing the P3 method it will be able to finance the capital program and achieve significant savings on the maintenance costs of the school properties.

Check out the District's original RFP here for more details.

Yonkers School District officials deserve kudos for taking a serious look at the PPP opportunity, and others should follow their lead because the long-term viability of the 20th century school finance model is questionable at best. And it's not just about dollars and cents. Puerto Rico PPP Authority executive director David Alvarez notes the real value play with the PPP model:

So at the end of the day, with this school program we're tackling infrastructure challenges, but the ultimate goal for us is to improve academic performance of students. We're trying to go in an indirect way towards academic performance by providing and delivering better infrastructure, with the goal for students to perform better at school—to keep more people in school and to get better results. That's the ultimate goal of the program, really.

Hopefully other school systems adopt the same forward thinking approach as Puerto Rico and Yonkers.

The Risks of Misapplied Privacy Regulation

Posted on April 3, 2012, 3:15pm | Steven Titch

Reason.org has just posted my commentary on the five reasons why Federal Trade Commission's proposals to regulate the collection and use of consumer information on the Web will do more harm than good.

As I note, the digital economy runs on information. Any regulations that impede the collection and processing of any information will affect its efficiency. Given the overall success of the Web and the popularity of search and social media, there's every reason to believe that consumers have been able to balance their demand for content, entertainment and information services with the privacy policies these services have.

But there's more to it than that. Technology simply doesn't lend itself to the top-down mandates. Notions of privacy are highly subjective. Online, there is an adaptive dynamic constantly at work. Certainly web sites have pushed the boundaries of privacy sometimes. But only when the boundaries are tested do we find out where the consensus lies.

Legislative and regulatory directives pre-empt experimentation. Consumer needs are best addressed when best practices are allowed to bubble up through trial-and-error. When the economic and functional development of European Web media, which labors under the sweeping top-down European Union Privacy Directive, is contrasted with the dynamism of the U.S. Web media sector which has been relatively free of privacy regulation - the difference is profound.

An analysis of the web advertising market undertaken by researchers at the University of Toronto found that after the Privacy Directive was passed, online advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world. Even when the researchers controlled for possible differences in ad responsiveness and between Europeans and Americans, this disparity manifested itself. The authors go on to conclude that these findings will have a "striking impact" on the $8 billion spent each year on digital advertising: namely that European sites will see far less ad revenue than counterparts outside Europe.

Other points I explore in the commentary are:

• How free services go away and paywalls go up
• How consumers push back when they perceive that their privacy is being violated
• How Web advertising lives or dies by the willingness of consumers to participate
• How greater information availability is a social good

The full commentary can be found here.

 

A Financial Products Agency is a Bad Idea

Posted on April 3, 2012, 10:21am | Anthony Randazzo

Back in February Eric Posner and Glen Weyl, both of the University of Chicago and deservedly respected economic and legal minds, wrote a paper proposing a Financial Products Agency. The idea is relatively simple—just as the FDA must approve new food and drug products for consumption, an FPA should approve all new financial products with a test measuring for social benefit. 

This is a terrible idea for at least three reasons:

First, an FPA would not have stopped the financial crisis. Let us assume for a moment that this FPA existed in 1998. Back then, when subprime debt began to pick up its pace, there was little understanding of the risk that was building up in the system. We can't just assume that having an FPA would mean regulators have somehow gained hindsight. Regulators were aware of what was going on to the degree that they had the resources to manage and the expertise to understand and didn't do anything then. Let's assume again that the FPA existed in 2004. Around that time regulators like Greenspan and Bernanke were well aware of the housing bubble but either did not think the risks were that big or did not think it was appropriate to step in. With rising housing prices (that all the regulators never thought would go down) masking the risks of subprime debt by preventing defaults, it is very hard to believe that regulators at this FPA would have done much to stop the risky financial products Posner and Weyl blame for contributing to the financial crisis.

Second, the model of the FDA is not a great idea unless you want to stunt markets. While the public has come to depend on the FDA to keep them safe there are regular outbreaks of diseases and complications with medicine. Even approved products can be misused. Beyond this, there are numerous cases where the FDA has prevented positive health outcomes, such as slowing down cancer prevention drugs for political reasons or sheer incompetence. And given the bureaucratic nightmare that is the FDA, it is impossible to know what drugs have not been pursued simply to avoid the compliance and approval costs and headaches. What we do know is that there is a growing problem of drug shortages in the U.S. and it is in part because of the FDA.

Finally, the whole argument for an FPA is based on the premise that derivatives contracts were significant contributors to the financial crisis. But derivatives—even the most risky contracts—are innocuous vessels. Blaming them is like blaming money for the crisis or computers. Though an argument can be made that there was too much money via central banks and too much computing power pushing high frequency trades, it is not the money or the computers but how they are used in connection with the other factors that caused the crisis. Derivatives contracts became a problem because the underlying assets they were being created with were misunderstood and financial institutions did not properly hedge their risk. If AIG had set aside the necessary amount of capital relative to its risk exposure, there wouldn't be as much carping about derivatives. If lending standards had not fallen so low, the subprime debt levels that did exist would not have been there to generate such a massive amount of unhedged, misunderstood, risky derivatives for subprime debt in the first place.

Unfortunately, despite these problems, the FPA finds the approval of NY Times business columnist Gretchen Morgenson, who wrote over the weekend regarding this proposed idea:

It is a refreshing rejoinder to the mantra on Wall Street — and in some circles in Washington — that financial innovation is always good and regulation is always bad. Bankers often argue that complex financial products are among America’s great inventions. But given that exotic instruments played a central role in the credit crisis, it is worth questioning the costs and benefits of such financial innovations. 

I agree that it is always worth questioning and debating and wrestling with ideas. That is the best way to avoid getting tunnel vision on something. But in this case, the idea under consideration is not a very good one.

Ms. Morgenson makes the problematic assumption at the start of her column that regulators would somehow have behaved differently if there were an FPA before the crisis. "Imagine if there were a Wall Street version of the F.D.A.," she says, "How different our economy might look today, given the damage done by complex instruments during the financial crisis." But as we were just pointing out, there was lot of authority to limit Wall Street. Financial markets are and have been one of the most heavily regulated industries in the U.S. But the only thing that I can think of that would have actually changed regulator behavior prior to the crisis would be something that eliminated regulatory capture. An FPA, just like the SEC, would have been filled with bureaucrats more than willing to use a light hand on approval procedures to ensure they had a job with some firm after their civil minded spirit got drilled into the pavement of Manhattan with one to many luxury cars. 

Then, Ms. Morgenson begins to lay out the case for the FPA, noting that the Posner/Weyl paper argues we should be able to regulate financial markets because they are different from the real economy, where a more laissez faire approach is good. The two leading problems with this argument are that:

1. Financial markets are so interwoven with the real economy that you can't truly separate the two. Financial markets are the lifeblood of new businesses, which in turn are the lifeblood of the U.S. economy. So anything regulations that unnecessary restrict credit are actually hitting the real economy; and
2. The problem is not a lack of rules but the absence of the right rules. If we learned anything from the crisis shouldn't a key lesson be that a lot of rules without regulators smart enough or inspired enough to enforce them winds up with meaningless protections and a false sense of security. It is foolish to depend on this regulatory crutch again and again. It is literally insane.

The next piece of the Posner/Weyl argument is that derivatives that are risky bear limited social utility and can cause system risk. I counter by arguing that: 

1. Just because something has limited social utility does not mean it should be restricted. Fantasy baseball may actually reduce productivity at work places across America, for instance, and may not get past a social utility censor. But I'll join up with an Upper Peninsula anti-government militia if the government tries to stop me from competing for glory; and
2. Derivatives in a market that has too-big-to-fail banks may cause systemic risk—but the problem there is the bloated banks and the lack of handling failed institutions. If every bank had 75 percent capital requirements there would probably be very little derivative risk. Of course we'd also have a nonexistent banking system. The key here is to solve for moral hazard and improper incentives in the system, not try to limit financial activity on the other side of the equation.

Ms. Morgenson further carries the Posner/Weyl case forward by noting they also want the proposed FPA to measure financial instruments for "how they affect capital allocation, and whether they might add useful information to the marketplace." Again, a couple of points:

1. How could an FPA really understand where capital should be allocated? Every regulator under the sun thought that capital flowing to the housing industry was a good idea during the bubble era. Imagine the FPA arguing in 2002 that there was too much capital flowing to the housing industry. It never would have happened, and on the off chance that our revisionist history unearths a Mike Burry to have influence in this FPA, the counter political pressure would have been too strong to let them do anything. Everything politically during the bubble was pushing capital towards housing. The Bush "Ownership Society" mantra. The previous decade's changes at Fannie and Freddie and FHA. Basel rules favoring housing. Even a massive accounting scandal at the GSEs failed to really derail their political or financial activities, so strong were the pressures to increase home ownership rates.
2. And why should a financial product be disallowed if it doesn't provide useful information to the marketplace? If I want to structure a deal with my neighbor where we place a complicated bet on the outcomes of real estate values from the properties of people two streets over, with a few voluntary counter-parties financing the bet... why should anyone else care? Posner and Weyl may respond they would care if my personal failure on coming up short in the bet posed a risk to the financial markets. But I would again push back that the problem then would not be the derivative contract but the fact that the system was so poorly incentivized that I could become a systemic risk.

The Posner/Weyl paper says in the introduction that Dodd-Frank is an empty vessel and on this point we agree. My remarkes are not a defense of Wall Street today or the regulatory system. This FPA idea is just not the right response mechanism to that problem. 

New Deepening Option for Port of Savannah Vital

Posted on April 3, 2012, 9:24am | Baruch Feigenbaum

In an Atlanta Journal-Constitution editorial, I recommend deepening the Port of Savannah through a public-private partnership: 

The Port of Savannah needs hundreds of millions of dollars to deepen its harbor to take advantage of the Panama Canal expansion. But with the federal debt and deficit soaring, there is little taxpayer money available for harbor deepening at American ports. That expansion is expected to cost $650 million. The state is contributing $252 million and hopes the federal government will pay the rest. Georgia's leaders need to be realistic about the funding shortfalls.

Across the world, public-private partnerhips are used to deliver needed infrastructure including ports, raise new sources of capital for modernization, shift risks away from taxpayers and onto investors, and encourage innovation.

Maryland is showing how successful these partnerships can be. In 2010 the staet signed a 50-year lease with Ports America to operate the Port of Baltimore. This type of lease could also work for the Port of Savannah. Additionally, leases often include other benefit such as improvements to roads and rail systems near the ports. In Maryland, the port operator provided the state $120 million to pay for infrastructure improvements near the port.

The full piece is available here.

Regulators Making Moves to Force More Banks Into Mortgage Settlement

Posted on April 2, 2012, 10:49pm | Anthony Randazzo

A few weeks ago we warned that the mortgage settlement might not be limited to just the five banks that signed on, but that regulators would find a way to force others into the agreement, like PNC and US Bancorp. Well, today the NY Times reports:

Federal regulators are poised to crack down on eight financial firms that are not part of the recent government settlement over home foreclosure practices involving sloppy, inaccurate or forged documents. Last week, a senior Federal Reserve official recommended fines for these additional firms, raising questions about how deep foreclosure problems run through the banking industry.

The firms cited include, non surprisingly, SunTrust Bank, U.S. Bancorp, PNC Financial Services, plus five more: MetLife, EverBank, OneWest, Goldman Sachs, and HSBC’s United States bank division. The Times story continues:

The recommendation is the culmination of an investigation begun nearly two years ago over accusations that bank representatives had been churning through hundreds of documents a day in foreclosure proceedings without reviewing them for accuracy, a practice known as robo-signing. Some see the Fed’s recommendation as an attempt to push these firms to agree to the terms of the broader mortgage settlement involving the state attorneys general and federal officials. 

Count me as one of those seeing a push. More of a shove really. PNC, for example, believes that it is going to be required to sign on to the new national mortgage servicing standards and modify mortgages. But where Bank of America and JP Morgan Chase have plenty of investor mortgages to write down principal on—essentially using other people's money for their own fines—PNC does not. From their perspective this is unfair punishment, since they'll actually have to pay the fine.

In one sense, they are right. It isn't fair. But there really shouldn't be any write downs. There is a $1.5 billion settlement pool set up for the roboforeclosed and anyone whose home was wrongly seized can still bring legal suit. And if PNC and others committed the same failures they should pay into the settlement pool too. But modifying the mortgages of borrowers now, borrowers unrelated to the robosigning, is bad housing policy but extortion and not justice being served. 

 

Finding a Better Way to Pay for Highways

Posted on April 2, 2012, 5:45pm | Robert Poole

The National Journal's Transportation Blog asks what alternatives are there to funding our nation's highways?

It's increasingly obvious that the fuel tax system of paying for highways is running out of gas. Charging for road use based on gallons consumed rather than miles driven only worked as long as everybody consumed gallons at more or less the same rate. 

The users-pay/users-benefit principle is still a sound one-after all, it's how we pay for the services of other capital-intensive network utilities: electricity, telecom, natural gas, water, etc. What's broken is the relationship between use and payment.

That's why we need to begin the shift from gallons consumed to miles driven as soon as possible-and this shift can be encouraged in the currently pending reauthorization bill. The way to do this is to reduce current federal barriers to tolling and pricing on federal-aid highways, especially the Interstates.

Ever since the Intermodal Surface Transportation Efficiency Act (ISTEA) reauthorization 20 years ago, each reauthorization bill has chipped away at what used to be a pretty thorough prohibition of tolling on federal-aid highways. But nearly all of this has been brought about via pilot programs, limited only to a modest number of states or a limited number of projects. Each of these pilot programs-Value Pricing, Express Lanes, Interstate Reconstruction via Tolling, etc.-was debated by a previous Congress, with the inclusion of various safeguards to prevent those user fees from turning into broader taxes (i.e., safeguarding the users-pay/users-benefit principle).

Consequently, the simplest near-term way to expand states' options for tolling and pricing is for Congress to remove the numerical limits on these pilot programs. Nothing new needs to be invented; all we need do is to let all states make use of these tools, rather than limiting them to a relative handful of states or projects.

A bipartisan amendment to do just that made a lot of progress in the Senate last month, jointly sponsored by Sens. Tom Carper (D-Del.), Mark Kirk (R-Ill.) and Mark Warner (D-Va.). Opposing it was an anti-tolling amendment from Sen. Kay Bailey Hutchison (R-Texas). After fierce lobbying over both amendments, both were withdrawn shortly before the voting was scheduled. Tolling and pricing advocates are now making their case to members of the House.

To be sure, expanding the tolling and pricing pilot programs will not solve the "pay-for" problem of the current bills. But it would be an important step toward enabling state Departments of Transportation (DOTs) to cope with what, at best, will be the first ever no-increase reauthorization bill since the federal program began in 1956. 

Gov. Cuomo Ushers Through $132.6 billion NY State Budget

Posted on April 2, 2012, 2:35pm | Harris Kenny

Last week New York Governor Andrew Cuomo, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver announced the early passage of the state’s fiscal year 2013 budget. The Legislature approved the $132.6 billion budget on Friday March 30. According to an article by Thomas Kaplan in The New York Times:

The voting on Friday marked the first time the Legislature had approved a state spending plan with more than 24 hours to spare since 1983 – when Mr. Cuomo’s father, former Gov. Mario M. Cuomo, passed his first budget.

Four major stories jump out of this budget deal.

1. Fiscal Responsibility: Lawmakers closed a multi-billion dollar deficit ($2 billion, or 3.5% of the state budget, according to the Center on Budget and Policy Priorities) without raising taxes or imposing fees. State spending growth held to 2% for the second year in a row, while net spending (state and local) was reduced for the second year in a row thanks in part to tax caps on local governments. State spending will total roughly $88.8 billion in FY 2013. Most impressively, out year deficits have been reduced by a cumulative $72 billion since Gov. Cuomo took office.
2. Government Reform: Lawmakers are empowering the Office of General Services (OGS) to serve as a clearinghouse for state agencies, thereby transforming procurement by facilitating bulk purchase common goods and services through centralized contracts. Officials will leverage the state’s purchasing power to save $100 million in FY 2013 and a projected $755 million over five years. They’re also eliminating 25 state boards and commissions that are no longer active or whose missions have been completed or become redundant, such as the Department of State’s Barbers Board. (See the full list of eliminated boards and commissions available online here, for more on the new OGS initiatives see here).
3. Transportation Infrastructure: Lawmakers are enhancing their focus on transportation infrastructure. The budget establishes the New York Works Task Force to coordinate capital plans across state government and funds the New York Works program with $232 million in state capital funds and $917 in federal funds for $1.2 billion in new spending. This is in addition to $1.6 billion already allocated this year to core transportation capital investment. And most importantly, these funds are in addition to the advancement of the Tappan Zee Bridge replacement project. (For more on the Tappan Zee Bridge replacement project, see my colleague Baruch Feigenbaum’s latest Out of Control Policy Blog post here.)
4. Criminal Justice: The Budget serves as the launching point for Gov. Cuomo’s Close to Home Initiative, which seeks to reform the state’s juvenile justice facility system. Specifically it allows New York City officials to take responsibility for the case of lower risk youth who come from the City. This applies to youth in non-secure and limited security facilities. The aim of the program is to reduce crime and improve outcomes for youth and the communities in which they live by providing targeted educational, mental health, substance abuse and other service needs without compromising public safety. The program is expected to save $4.5 million in FY 2013 and $27 million in FY 2014, in part by reducing the state’s juvenile justice system capacity by 140 beds in FY 2013 and 180 beds in FY 2014. (For more on the Close to Home Initiative see a write-up by the New York State Juvenile Justice Advisory Group here.)

Overall there are some major accomplishments in this budget. Kudos to state policymakers for finding common ground and balancing innovation with fiscal responsibility along the way. Once considered in the dysfucntional company of states like California and Illinois, New York appears to be taking serious strides in the right direction.

Streetsblog Misleads on Tappan Zee Bridge

Posted on April 2, 2012, 8:23am | Baruch Feigenbaum

Last October, the Obama Administration selected 14 infrastructure projects for expedited federal approval. The Tappan Zee bridge replacement project in New York was one of the selected 14 projects. New York State plans to add transit to the corridor. However, the transit will not be in place when the new bridge opens. The state decided to delay the transit portion because of the $5.3 billion construction costs for the transit system.

The state’s decision upset Streetsblog. The organization, which created a special page on its website, has written about the bridge 24 times since January 1st. The organization has used its webpage to lambast groups that are usually its allies including Governor Cuomo and The New York Times. These groups support building a bridge that will not include new transit service from day one. 

Streetsblog makes several valid points. Transit is heavily used in the region; there is a market for small increases in transit service. Bus-rapid transit (BRT) is cost-effective transit. BRT has low operating costs and virtually no capital costs as it shares the road with other vehicles.

In a world where the State Department of Transportation did not have a deficit, lobbying for immediate transit service would be appropriate. Unfortunately we do not live in that world.

The Tappan Zee Bridge was built in December 1955 to connect Suffern and Yonkers. Designed to carry 100,000 vehicles, 138,000 traverse the bridge on a typical day. While the infrastructure crisis in the United States is sometimes exaggerated, this bridge is in bad shape--parts of it are literally falling down. 

New York State began studying how to replace the bridge in 2002. The Alternative Analysis process in 2006 identified more than 150 suggestions on how to improve conditions in the corridor. Those 150 options were condensed into 16 different scenarios that were analyzed for their environmental impact, ease of construction, cost and mobility improvement. The state had plans but no money. 

Enter the Obama Administration. According to The New York Times:

Citing the bridge’s deteriorating condition, the federal Department of Transportation decided it would let the state go forward with the project as long as it streamlined its earlier plan to make a new bridge a centerpiece of a $21 billion, 30-mile transportation corridor. The federal agency said it would help speed up the process for the state to build a $5.2 billion eight-lane bridge, to which mass transit could be added in the future.

John D. Porcari, the deputy transportation secretary, said the expedited review process would allow different government agencies to work concurrently, shaving two and a half years off the building process. 

The state will pay for the project by issuing $3 billion in bonds against its toll revenues; the remaining $2.2 billion will be financed with loans from labor pension funds and the Transportation Infrastructure Finance and Innovation Act. 

However the available funding is limited. As a result the State will wait to construct transit. While Streetsblog accuses NYDOT of telling lies, the website is not exactly being honest. 

The state has gone out of its way to accommodate non-traditional commuters. New York DOT is building a 12-foot wide bicycle and pedestrian path. Residents of most of the other 49 states would be thrilled to have a state DOT that built a pedestrian structure on a highway. It is unlikely that many people will choose non-motorized transit to traverse the three-mile bridge; the fact that the state included such a wide path is noteworthy. Governor Cuomo is also studying the possibility of converting the current bridge into a recreational park. Converting the old bridge to a park is not free as the State will have to maintain the structure. 

Streetsblog lists 12 local political leaders who want to restore transit to the bridge. Yet there are at least 17 political leaders in favor of fast-tracking the bridge without immediate transit. And of the 12 who support it—not one of them has offered to commit one dime to the project. It is much easier to be in support of something if you do not have to pay for it. 

The bridge is on the national interstate system. The system’s purpose is to transport people and goods between points A and B. The primary goal is and should be about motor-vehicle movement. The new bridge will be paid for by tolls paid by drivers, labor pension funds, and TIFIA loans. Not one dime of the cost comes directly from transit users.

The state already operates BRT service on the corridor. It might not be as extensive as proponents want but the service exists. And operating it is not free. The state spends $2 million dollars to provide the service to 2,000 riders a day. 

As Streetsblog notes if the State starts BRT service that uses the general-purpose lanes, buses will get stuck in traffic. And for BRT service to be effective the state would have to add dedicated BRT lanes on I-87 from the Garden State Parkway to the Cross Westchester Parkway. But in another posting, the website complains that constructing the bridge wide enough to allow future BRT service in a dedicated lane is actually a conspiracy against transit. If the bridge needs dedicated BRT lanes for successful BRT service and the state includes them, how is that a conspiracy against transit? 

The longer the state waits to construct the new bridge, the more money it needs to spend maintaining the old bridge. Yet if the State has to spend money to maintain the existing bridge, it has fewer funds to spend on a new bridge. It is a catch-22 situation. Both sides are in favor of transit. But one side wants it from day one regardless of how long that delays construction. To say that the State does not want transit is misleading.

Sound Money: Tide Laundry Soap Becoming Gold Standard in the Drug Trade

Posted on April 2, 2012, 7:57am | Anthony Randazzo

It is fitting that this story would surface around the same time that Bernanke has been harping about the gold standard. From TheDaily:

 

Law enforcement officials across the country are puzzled over a crime wave targeting an unlikely item: Tide laundry detergent. Theft of Tide detergent has become so rampant that authorities from New York to Oregon are keeping tabs on the soap spree, and some cities are setting up special task forces to stop it. And retailers like CVS are taking special security precautions to lock down the liquid. [...]

Tide has become a form of currency on the streets. The retail price is steadily high — roughly $10 to $20 a bottle — and it’s a staple in households across socioeconomic classes. Tide can go for $5 to $10 a bottle on the black market, authorities say. Enterprising laundry soap peddlers even resell bottles to stores. “There’s no serial numbers and it’s impossible to track,” said Detective Larry Patterson of the Somerset, Ky., Police Department, where authorities have seen a huge spike in Tide theft. “It’s the item to steal.”

So... what is up with this? Why Tide? Joseph Salerno picks up the story on the Christian Science Monitor blog:

 

This is just another confirmation of [Carl] Menger’s insight that the market responds to the absence of sound money by monetizing highly salable commodities. It is clear that Tide has emerged as a subsidiary local currency for black-market, especially drug, transactions — but for legal transactions in low-income areas as well. Indeed police report that Tide is being exchanged for heroin and methamphetamine and that drug dealers possess inventories of the commodity that they are also willing to sell. But why is laundry detergent being employed as money, and why Tide in particular?

Menger identified the qualities that a commodity must possess in order to evolve into a medium of exchange. Tide possesses most of these qualities in ample measure. For a commodity to emerge as money out of barter, it must be widely used, readily recognizable, and durable. It must also have a relatively high value-to-weight ratio so that it can be easily transported. Tide is the most popular brand of laundry detergent and is widely used by all socioeconomic groups. Tide also is easily recognized because of its Day-Glo orange logo. Laundry detergent can also be stored for long periods without loss of potency or quality. It is true that Tide is somewhat bulky and inconvenient to transport by hand in large quantities. But enough can be carried by hand or shopping cart for smaller transactions while large quantities can easily be transported and transferred using automobiles.

Sound money can be hard to come by.