economy

Obama’s HUDdle on Campus

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If you aren’t aware, Obama’s Secretary of Housing and Urban Development, Shaun Donovan, graced our fair campus with his presence this afternoon. According to UNC’s Office of Federal Affairs (did anyone know we even had one of those?), the purpose of the visit was “to provide an opportunity for Carolina stakeholders to engage a member of the Obama Administration and to better understand some of their policies.” Sadly, the event resembled something closer to a campaign event (and a rather poor one at that).

In the Vicinity of Beijing's 4th Ring, or More Properly, What America Should be Shooting For

I think what was most disappointing was simply the quality of the questions students asked during the Q&A. The first one was “In your dealings with President Obama, what have you found to be his best quality?” And it was simply downhill from there. Now, if this man was addressing a group of third graders, that question might have been appropriate (maybe), but among a group of college students and academics it’s simply absurd. Consider the situation. Here you are, a college student (or professor, or whatever), with an opportunity to discuss anything, from the anemic job market, the depressed housing market, a rapidly nuclearizing Iran, a debt-to-GDP ratio north of 100%, or the impeding collapse of the post-World War II world order, and you essentially ask, “Why is the President soooooo awesome?” I think this little episode perfectly encapsulates what is wrong with American higher education today. Instead of thinking critically about events around it, the academy is so radically self-absorbed and out of touch and so obsessed with its own ideology, it’s simply laughable. Is this really all that the best and brightest of North Carolina is capable of? Maybe it was a fluke, or maybe some rogue from Duke snuck in, but it was kind of embarrassing.

Secretary Donovan, when he wasn’t answering inane questions from the audience, also did a fair amount of pontificating. Apparently, the administration is convinced that we can educate ourselves out of this recession. If only we spend (a lot) more on higher education and push as many people as we can through the system, we’ll all be happy again. Color me a skeptic, but the plan he described, where the federal government subsidizes education through new tax credits, etc., guarantees low-interest loans for all comers, and then requires those borrowers to make only bare minimum payments on those loans, seems awfully similar to American housing policy circa 2008 (which incidentally, HUD bears a lot of responsibility for). I suppose if the idea is to create a giant education bubble, such that when it pops, everyone forgets about the housing problem because the education bubble is so much bigger, then this is a great idea. But if the idea is to generate genuine economic growth, this is certainly not the way to go.

And what’s a State of the Union talk without some mention of trains? Aren’t those things amazing? If only we had more of them, those pesky Chinese wouldn’t even be able to touch us. Actually, the best part of the Secretary’s little speech was when he was talking about China’s impressive infrastructure and how the Chinese are just light-years ahead of us in this regard. He clearly has no idea what he’s talking about. If he did know what he was talking about, he would know that, even in the (very crowded and polluted) major cities (i.e. places like Beijing), you can’t drink the tap water or flush toilet paper because the sewer systems are so old and so out of date. He would also know that electricity is also a problem, and that you actually have to buy surge protectors to insulate your electronic goods from regular power surges. Indeed, even China’s much lauded trains aren’t much to write home about. When they’re not falling off bridges, many of China’s trains are (very) overcrowded, smelly, and generally a very hellish experience. And their highway system isn’t anywhere nearly as well developed as ours. Now, don’t get me wrong, China’s quite a charming place, but the U.S. is definitely winning the infrastructure game.

Shiny!

There was also a fair amount of green energy hype. The Secretary informed us that while there might be a few Solyndras along the way (who doesn’t mind a little government corruption after all), we can’t expect the government to make the right choice every time when it comes to deciding which business to support. This, of course, is the whole point! The government can’t make these decisions, because they are infinitely complicated and not something that some bureaucrat hiding in the basement of a federal building can make. Such choices are properly left to the market, which is a better evaluator  of risk and profit than the government will ever be. When the government tries to make these decisions, you end up with Solyndra. Solyndra isn’t merely a side effect of government intervention in the market, it is its natural conclusion.

All in all, this event was pretty disappointing. The questions were childish, and we got the same old, same old from the administration. It’s simply too bad that what could have been a really interesting event on the future direction of the country devolved into a Why Barack Obama is the Greatest Thing Since Baked Bread event.

So… Tuition

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So, this whole tuition increase business has piqued my interest. I feel like as someone who will be totally unaffected by these proposed increases (being a senior and all), I can offer my opinion on the subject without being caught up in the hurricane of emotion that seems to have enveloped the issue.

Let’s the consider the increase just on its face. A 15.6% increase for in-state students and a 6.5% increase for out-of-state students. The Consumer Price Index (core) for 2011 (year over year) currently sits at 2.1%. The Higher Education Price Index (which, incidentally is the index used to calculate fee increases) for 2011 is 2.3%. So, it’s worth asking the question why such large tuition increases (over inflation) are necessary. While the General Assembly did cut the education budget this year, I feel like their expectation was that the university would reciprocate and cut out some of the fat from its budget (maybe some of the “centers” and other things on campus that don’t contribute very much to the academic mission of the university).  It looks like raising tuition on students is merely an easy way out for the administration and saves them the trouble of having to make the “hard” choices. After all, it’s much easier to raise tuition than to fire people.

The structure of the increases is also curious. Why such a large increase for in-state students (who, with their parents, pay taxes to support the university), while such relatively small increases for out-of-state students? Why is the in-state increase more than double the out-of-state increase? I don’t pretend to have the answers to these questions, but considering that the university’s traditional role has been to provide an education to the people of North Carolina for “as close to free as possible,” the way that these increases are being distributed across the student body is quite odd.

And let’s consider what the increase will be spent on. From what I can tell, the new money will be spent primarily on faculty salary raises and financial aid. Raising tuition to pay for financial aid is quite strange. In effect, you’re increasing your prices so that you can give money to other people who can’t afford to pay your prices. It’s a classic redistributionist scheme. And then there’s the issue of salaries. I don’t know if the administration’s noticed but there’s a recession going on out there. Lots of people don’t even have jobs, and most of the ones that do haven’t gotten raises in a while. So, I’m not really sure that this should be a priority at the moment. Raising tuition by 15.6% (a fair amount of which will probably end up being paid via loans which students will then have the privilege of paying off for the rest of their lives) to hand out pay raises in such a depressed job market hardly seems like a good investment.

So, it doesn’t seem like these tuition increases are really worth it. What the university ought to do is own up to the fact that the golden days of ever-increasing budgets are over, and do what every other governmental entity (with the exception of the federal government) on earth has been doing for the last few years: make real, hard cuts.

About Those Gas Prices

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Because we rapidly seem to be approaching $4/gallon gasoline (a fact that seems to be largely ignored by mainstream outlets, particularly when compared to the coverage such developments got just a few years ago), I thought I’d look at how gas prices have fared during the Era of Hope and Change. It turns out the Saudis are doing pretty well. Here’s the breakdown:

Price per Gallon of Regular Unleaded Gasoline (data from the Federal Reserve)

January 26, 2009: $1.838

April 18, 2011: $3.844

Price Change: 109.14%

Would anyone care to explain to me why the Obama Administration thinks it’s a good idea to subsidize oil production in South America while curtailing any attempts to exploit our own, local resources, all while the price of gas doubles? Furthermore, why is no attention given to this dramatic price swing when we are in the midst of a rather tenuous economic “recovery”?

Ben “The Helicopter” Bernanke likes to say that inflation has been rather subdued. Looking at the CPI, one could get that impression. But considering that fuel costs typically take up a substantial portion of a household’s budget, a doubling of those costs is going to have significant psychological and economic implications for how the household is able to spend the rest of its budget. When people see the price of gas double, their first instinct tends to be depressive, i.e. they associate higher gas prices with a lousy economy and act as if they are in a lousy economy (even if the economy is performing well- which wouldn’t really apply in this case anyway). They then have to reallocate the rest of their income to account for the higher fuel costs. So, they spend more money on fuel and less on splurges at the mall. So, this is really a double-whammy for economic growth, and yet no one’s talking about it.

On a side note, if you look at the data, you’ll notice that gas prices really take off right as the FED began implementing its QE2 program. I can’t really say anything authoritatively without looking into it more, but the correlation is certainly interesting, particularly considering that one of the main criticisms of the QE2 program was that it would produce significant inflation. I’d say that an approximately 30% price jump over a 6-month period counts as significant. Although some of that may include added risk-premiums to compensate for the Middle East’s increased instability of late. But that’s not likely the entire explanation, as gas prices were on their way up well before the Arabs started getting restless.

Where’s Frédéric Bastiat when you need him?

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UNC’s beloved “Grey Lady” is sadly perpetuating the myth of “green jobs”- and jobs created due to the stimulus, generally. The article (“Grant creates green jobs at UNC”) starts out okay. Obviously, if you spend money to hire people, you are creating jobs. But in the first paragraph, Miss Serdetchnaia (who is, by the way, a friend and a delightful individual) commits a fatal error:

As unemployment rates continue to hover around double digits, universities are using federal funds to create internships in a sector that the Obama administration has repeatedly said will lead the U.S. out of the recession.

This assumes that jobs created is the same as a net gain in jobs.  An easy mistake to make (one the Obama Administration has made many a time), but a mistake nonetheless because it falls afoul of the “Broken Window Fallacy.” First articulated by Frédéric Bastiat, it basically says you have to take hidden costs of a particular action into account. In the parable Bastiat used to illustrate his point, the shopkeeper’s careless son breaks his father’s window, and a sequence of actions follows: the shopkeeper pays the glazier six francs to fix the window, who uses the money to pay another merchant, who uses the same money to buy goods from another merchant, etc.

To the onlookers, the son is a hero! He broke a window which caused the glazier to get money, which he used to buy more goods, down the line. But Bastiat says, hold on one second. The onlookers are only looking at the benefits accrued to the glazier et al. What about the initial cost to the shopkeeper? Instead of paying six francs to fix the window, maybe he wanted to buy a jacket for his wife which cost 12 francs? So now he’s out six francs and has to save up more, with no economic expansion because all that happened was a pre-existing window was replaced.

Back to the jobs created by the federal grant money. We see the internships provided by the grant money (which at UNC amount to $324,736), but what else could have been used with that money? Think about it. $5.6 billion, immediately added to our national debt (which impacts interest rates for borrowers). $5.6 billion which sucks up labor and resources that could have been directed elsewhere, in a more efficient manner. And $5.6 billion which is being used to prop up an already economically inefficient industry (seeing as it wouldn’t exist without huge government subsidies) by training people to learn economically inefficient skills for economically inefficient jobs. See where this is going?

The only way this all makes sense is if you believe the threat posed by global warming (climate change, take your pick) is great enough to warrant massive inefficiencies. But then we’ve finally dispensed with economics and have moved full on to the moral imperative of action. Which is fine, you just can’t have pundits and politicians claiming “green jobs” are economically efficient or will create a net gain in jobs because that’s just empirically false.

Math 101

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A recent report by ABC News reveals that the Obama Administration either can’t count, is involved in one of the most massive cases of fraud in American history, or both. The report reveals that spending from the $787 billion stimulus package is in full swing, except that the money is being spent in non-existent places. The report lists several examples.

However, on my own initiative, I tracked down North Carolina’s numbers, and the data was quite interesting. For example, take North Carolina’s 37th Congressional District, where two jobs were created or saved with about $4 million. Or take the 14th District where 0 jobs were created or saved with $180,000. Of course the problem here is that North Carolina only has 13 Congressional Districts. But even disregarding that, $4 million for two jobs?

Source: www.recovery.gov

Source: http://www.recovery.gov

This reveals several things. First, it shows that all of the claims made by the Obama administration about how they’ve created or saved so many jobs are false. At best they are gross exaggerations, at worst they are outright lies. This of course calls in question all the numbers put forth by the Administration. Things like the unemployment statistic announced by the Labor Department should be viewed with considerably more scrutiny after this rather shameless attempt to delude the American people.

Also, how exactly does one quantify a “saved job”? This, of course, is another attempt by the Administration to inflate its accomplishments (or lack thereof) and to sell the supposed success of the stimulus package.

What’s also interesting is where the money is being spent. Districts represented by Democrats received $3,219,725,447 or 86.11% of the money allotted to North Carolina. Districts represented by Republicans received $591,809,554 or 13.75% of the money allotted to North Carolina, despite making up 46% of the Congressional delegation. The money is being spent disproportionately in Democratic districts. One could interpret this as an attempt to buy off these districts and ensure that they stay solidly blue. But of course, it would take a really cynical person to think that.

Perhaps what most reveals that the stimulus package is not what we’re told it is, is the fact that the unemployment rate continues to rise. It currently resides at 10.2%; well above the 8% ceiling the American people were promised.

A Solution to the Biofuels Puzzle?

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Wired.com had a fascinating article today about the potential of biodiesel derived from algae.

An array of tubes used to grow and harvest algae.

An array of tubes used to grow and harvest algae.

A start-up company called Sapphire Energy is working on methods of growing algae and converting it into biodiesel fuel. They say they can produce one million gallons of fuel annually by 2011 and one billion gallons by 2025.

According to Sapphire, biodiesel made from algae is chemically identical to crude oil. That means it can be refined to whatever standard is needed and then used in today’s vehicles without an special modifications. The fuel has already been used to power jet airplanes on test flights.

Algae-based biodiesel delivers 10 to 100 times more energy per acre than ethanol. Also, the algae is grown in transparent tubes which require only sunlight and fertilizer. These tubes can be placed on non-arable land so they don’t compete with food crops. An acre of agae tubes will be able to deliver 10 to 100 times more energy than ethanol. It also requires less water than corn. In addition, algae eats up a massive amount of CO2 during its growth (oceanic algaes are actually the main purveyors of photosynthesis on planet earth). This is enough to offset the amount of CO2 released by burning the fuel, meaning algal fuels are CO2-neutral.

Sapphire Energy’s main hurdle is convincing people to switch over to the new fuel. They aren’t getting any government subsidies, which means they won’t be producing fuel no one is buying. In order to get people to switch over to algal based fuels, they need to offer a fuel that will make them a profit while being more economical than gasoline, either by being cheaper or by being more efficient. That’s the only thing that will cause biofuels to become widely adopted.