Not Enough Bricks
2019-02-14 · Guest: Mark Joffe (Reason Foundation) · 51:33
Green New Deal and California High-Speed Rail
Charlie Dice fills in for Bob Zadek to discuss the Green New Deal and the financial and environmental realities of large-scale infrastructure projects. Guest Mark Joffe, a senior analyst at the Reason Foundation, explains why California’s high-speed rail project serves as a cautionary tale for national climate proposals, highlighting the massive carbon footprint of construction and the inefficiencies of top-down central planning.
Topics: Green New Deal, California High-Speed Rail, public finance, municipal bonds, environmental policy, federalism, eminent domain, infrastructure, carbon emissions.
Speakers:
- Charlie Dice: Fill-in Host
- Mark Joffe: Senior Analyst at the Reason Foundation
- John: Caller
- Bob Zadek: Host of the Bob Zadek Show (calling in)
Introduction to the Green New Deal and High-Speed Rail [00:16]
Charlie Dice: Hey, good morning and welcome to the Bob Zadek Show. I am your fill-in host, Charlie Dice, filling in for Bob Zadek this President’s Day weekend. It’s the show of ideas, not attitude. And as always, we welcome your calls this morning. The number to dial is 424-BOB-SHOW.
It’s a funny time in American politics. We just had our midterm elections, but already the election season seems to be back in swing. And already we have candidates lining up to challenge Trump in 2020. The Democratic field is starting to emerge, and we’re seeing some trends, one of which I’m calling “Russian Roulette.” This is not to be confused with the Russiagate story. This is Russian Roulette. It’s where the candidates all try to sort of out-progressive one another, and there’s this race to, you know, outflank each other from the left.
And without naming any names, I’m thinking of a certain AOC and her proposal for a GND, that is, a Green New Deal. Okay, I guess I’ll name names just for clarity’s sake. I’m talking about Alexandria Ocasio-Cortez, who is not eligible to run for president, but she seems to be setting the tone for some of the other candidates. You have Kamala Harris, who’s lined up and said that she’s a co-sponsor of this bill, a Green New Deal, kind of hearkening back to the Great Depression when Franklin Delano Roosevelt came out with his New Deal to boost the economy—at least that was the intention.
I’m joined this morning by Mark Joffe, who is a senior analyst at the Reason Foundation, and he’s an astute commentator on all things political, but in particular on matters of public sector financial sustainability. I was researching about this Green New Deal and I just stumbled on an article that he had written recently for the Mercury News and the East Bay Times—it was syndicated in a few different places—talking about the high-speed rail. I was looking for a particular statistic about high-speed rail, and in particular, looking at how it actually stacks up if we do a real accounting to the reality of both the financial sustainability as well as the environmental aims.
The Environmental Cost of Construction [01:47]
Charlie Dice: I wanted to see how long would it take if we were to construct this high-speed rail from San Francisco to Los Angeles. How long would it take to displace the amount of, or offset the amount of emissions that it will produce just from the construction of this rail? And Mark noted a study from two UC Berkeley researchers who found that it would actually generate 9.7 million metric tons of carbon dioxide during construction, meaning that it would take the high-speed rail 71 years—and that’s using an assumption of medium occupancy—it would take 71 years to offset its own construction-related greenhouse gas emissions. And this kind of, you know, I think should give anyone pause who is looking to the government as a central planner who’s capable of restructuring the economy in a way that produces some of these environmental benefits that it’s alleging.
So, here to talk with me this morning, Mark Joffe. We are going to be discussing the Green New Deal with a particular eye toward the financial sustainability and also just how well it actually achieves the environmental aims. So Mark, thanks for joining me this morning.
Mark Joffe: Thanks for having me, Charlie.
Charlie Dice: So in your research for this piece, you also did the rest of us a favor, which was watching Gavin Newsom’s State of the State address. Gavin Newsom, recently elected governor of California, he also says he’s not positioning himself for a run in 2020. He just was elected governor, he’s got a job to do. But what do you think, listening to his speech, was he playing this game of Russian Roulette or is he kind of above the fray since he’s taken himself out of the race for 2020?
Mark Joffe: Well, you know, he was stuck with something that came from two of his predecessors, a really unsustainable, irrational plan for developing high-speed rail in California. And I think he wants to be here for four to eight years, and he needed to clean house. So he had to start by leveling with Californians that the program that was originally approved under Governor Schwarzenegger and heavily pushed by Governor Brown simply wasn’t going to work in its current form. And so he indefinitely postponed—and it became very political, a lot of people, including President Trump, marked it as a cancellation, but it wasn’t—he indefinitely postponed two of the most costly aspects of the train.
One was a connection from Bakersfield underneath a mountain range to the Los Angeles Basin, and the other was to connect San Jose to the Central Valley, again tunneling under a mountain range. So those two pieces have been put on hold while a rump segment, 165 miles connecting Bakersfield to Merced in the Central Valley, are built. Not a very rational system, but certainly the indefinite postponement of those two aspects stands to save Californians something in the range of $50 to $100 billion.
Property Rights and the China Model [03:31]
Charlie Dice: Okay, so a billion here, a billion there, pretty soon we’re talking about real money. And when we talk about the Green New Deal, I don’t know that it comes with a specific price tag, but just to kind of summarize this as I understand it, the proposal, which is maybe looking to places like California as a model for what can be done, says we’re going to use some combination of these bold transportation initiatives, multi-billion dollar high-speed rail projects, new solar power plants in the middle of the desert, and through all of this, we’re hoping to get to zero greenhouse gas emissions by 2030. And we’ll talk more about some of the fundamental flaws of that kind of reasoning when we get into more of this energy accounting. But what would you say, someone who’s looking at California, they say that as California goes, so goes the nation. What are the lessons from this bill that we passed in 2006 to try to get high-speed rail off the ground in California? Or when was the original legislation passed for the high-speed rail?
Mark Joffe: Well, the High-Speed Rail Authority was set up in 1996 to develop the plan, and then the plan was finally put on the ballot in 2008. Earlier plans were pulled from the ballot for reasons that I’m not entirely clear on. But so it took 12 years from formation of the commission to a ballot proposal, and we were looking at service starting in 2033 along the entire Los Angeles to San Francisco corridor. So you’re talking about a total period of 37 years from project conception to project implementation. The way that AOC and the others are framing the Green New Deal is that this is an emergency, a systemic threat to the world that has to be solved by 2030. So if that’s the case and you want to rely on high-speed rail, it seems very unlikely that it’ll achieve the objective of saving humanity from climate change given the length of time it takes to plan and implement these systems.
Charlie Dice: So if you’re more of a moderate in the Democratic Party, you might be wise to look at this experience and say, you know, this might not be what we want to hitch our hopes on.
Mark Joffe: Agreed. And you know, there’s some comebacks to what I’ve just said that I just want to cover. A lot of people who are advocating high-speed rail look at China and they’re like, “Wow, China’s built out an enormous amount of high-speed rail within the last decade. Why can’t we do that?” And you know, there are two things you have to consider when you look at the China example. One is there have been some shoddy construction practices that have actually resulted in casualties. And second, you know, property rights aren’t very strong in China. And so condemning the land necessary to build the high-speed rail becomes very simple in China. And I don’t think most people, including most progressives and moderate Democrats, really want to see average people losing their houses willy-nilly to these kinds of things. They would certainly hope that there would be a democratic process by which we all agreed where the least impactful route would be and then people would be properly compensated and that would take some number of years to adjudicate. So if we’re going to have a democratic process and rely on individual rights, it’s very hard to imagine how we would be able to lay a national network of high-speed rail and get it operational by 2030.
Charlie Dice: Yeah, that’s a really interesting point to bring up China because I think when you take this bill, the Green New Deal, on its face and something that is ostensibly for the environment, I think that the first people that I would want to get on board in opposing it would be the environmentalists, pointing out the statistics that you mentioned in your article about how you basically are front-loading all of these carbon emissions, which is the exact wrong thing to do if this climate change is the systemic emergency, the systemic threat that some people claim that it is. And then furthermore, I think that, you know, that alone kind of shows that this is much more about seizing power than it is about protecting the environment. And then you look at China, which is definitely not a paragon of environmental protection, and what they have to do in order to build it at this accelerated timeline is really only possible within a framework like theirs where you don’t have these property rights. So do you think that maybe there’s some sense in which this idea is really just a cover for seizing power, that it doesn’t actually have that much to do with the environment?
Mark Joffe: Well, I imagine that some people have that framework, but I believe that a lot of progressives sincerely believe that anthropogenic global warming is a serious problem and something that requires very immediate government action. So I wouldn’t necessarily look at everybody’s intentions as being negative. But at the same time, I think really this Green New Deal plan, especially with respect to how it involves high-speed rail—and I think also the retrofitting is another example—but you know, how these things represent ideas that may have existed for decades that a political analyst or policy person gloms onto and then maybe takes too far and doesn’t consider all the developments that are happening both in the private and public space.
So, high-speed rail is a technology that goes all the way back to the early 1960s. So we’re really talking about something that was implemented in Japan, I think as early as 1964. And now this is supposed to be the new way of doing things. Back in 2012, 2013, Elon Musk published a paper saying, “Why is California doing this? Why are we using this really old technology to solve the problem of getting people around the state?” And he proposed the Hyperloop system, and a lot of development has happened on that. I’m making this point because the problem with central control, especially by central control by people who are not keeping up with the latest in technology and engineering techniques, is that you end up with a solution that may not be the right one being shoehorned onto the society as a whole. Whereas I think as most of our listeners know, the market is a great laboratory for experimenting with different ideas and allowing the best ones to win out over the ones that are obsolete or less effective. So while I think that it’s very understandable that people would be concerned that CO2 and other greenhouse gas emissions are an existential threat to the human race, I don’t think that implies that command-and-control based approaches to solving that problem are the ones that we would want to select.
Public Finance and Municipal Debt [05:59]
Charlie Dice: Right. So I want to take a charitable view for a second, and I think that it’s good that you kind of corrected me there and say that it’s not necessarily out of malice or just a desire to seize power that these proposals are coming from. But giving them the benefit of the doubt, there still seems to be with almost every environmental policy that I see proposed, a basic neglect of a time accounting element of energy consumption. So the front-loading of fossil fuels for construction—the same thing is true when we talk about electrical vehicles or building green buildings where you have this upfront cost. You have to mine the materials, you have to transport them across a great distance and then manufacture them into a final product, which requires fossil fuels in order to do. And then when it comes to electric vehicles, you still have to generate electricity to power the whole system for powering the cars.
And I think that the central point is that from a libertarian perspective, whenever we have planners, central planners who are trying to reconfigure an energy infrastructure, it’s almost always going to involve more base inputs, more oil and gas in order to produce less of the desired outcome. We’re talking about the Green New Deal, high-speed rail with Mark Joffe, who is a senior analyst at the Reason Foundation. And maybe we can even get into some proposals how we would actually rewrite the Green New Deal if we were to take some of these more subtle points about market incentives and how we could develop a greener economy along free market lines. So you’re welcome to call in. The number is 424-BOB-SHOW.
Mark, how did you first start writing? I think that my knowledge of your writing was more around this area of public sector credit. What’s happening right now in that area? How are municipalities doing in terms of their sustainability, their solvency overall?
Mark Joffe: Well, you know, I got interested in this issue as a result of working at Moody’s Analytics, which is part of the credit rating agency, and thinking about how we could use quantitative techniques to look at municipal financial health. You know, and the fact is that while I started it back in 2011, 2012 when things were pretty bad, actually we’ve really entered a pretty benign period for state and local finance with some notable exceptions. So Puerto Rico has been a complete disaster. They had a bankruptcy in 2017, which had been coming for several years, and it looks like bondholders are going to be taking a major haircut there.
But by and large, most cities and states are being able to support their municipal bond principal and interest payments. Debt, new debt issuance is actually relatively moderate. If you look at the total amount of municipal bonds outstanding going back to 2009, it really hasn’t changed very much, which is a huge contrast to the federal debt, which is more than doubled during that time. So it does seem that generally it’s okay. The big problems are with public employee pensions and other post-employment benefits, and those tend to be very focused on specific governments. So for example, within the state of Illinois there are a lot of problems. In California, certain school districts like Los Angeles Unified have a lot of problems with other post-employment benefits. That actually contributed to the strike that we had a couple weeks ago.
Infrastructure Successes and Failures [08:12]
Charlie Dice: Public finance in general is kind of an interesting field because I think that we can all see the value in long-term investments, and there are some kinds of projects where it wouldn’t make sense to pay for them out of current revenues. If you can only use the money that you’re taking in in a given year for a project, then you’re very limited. And we can look back at the past and maybe point to times when we made investments in infrastructure that have provided much greater economic benefits. Can you give an example of how is this done and what were some things maybe in the past that we can look to as examples of sensible public finance?
Mark Joffe: Well, you know, normally it makes sense to use bonds for building infrastructure that’s going to be used over the long term. So you know, I’ve spoken to some other libertarian policy folks who are hostile to the concept of municipal bonds. Personally, I’m not. I think that if you’re matching your trying to match the benefits with the costs, it doesn’t necessarily make sense to pay everything upfront. And especially now when we’re in a regime of low interest rates, borrowing to finance infrastructure is generally okay. But then the question becomes, is that borrowed money going to be used efficiently or not?
So we had had in the Bay Area a lot of really bad projects recently. Probably the poster child for that is the Transbay Terminal that replaced the old bus terminal in downtown San Francisco. So that terminal cost $2.2 billion to construct. Part of the reason why it was so expensive was that it was somebody’s fantasy that it would become the terminus for the high-speed rail project. But the high-speed rail project was really only intended to terminate at the Caltrain station about 1.2 miles away. So the hope was we’d find another couple of billion dollars to lay a subway from that terminus to the location in downtown San Francisco where the terminal was being built. So now with high-speed rail being truncated, at least temporarily, that seems really unlikely. So we’re stuck with this high-speed rail station that doesn’t really seem to have any future, or at least not one for the next few decades.
So we have these projects where we’ve borrowed money to build something and then we’re not going to get the benefits of it. So I want to call people’s attention to what I think has been a very successful project in Southern California, in Carlsbad, where a desalination plant was built. And that was with borrowed money, municipal bonds were issued. However, those municipal bonds were paid out, or the revenues of that were paid out to a company that had very strict performance criteria. They had to basically bring the plant online in a certain number of years, and then the way they’re going to get paid out is actually by generating clean water by desalinating water from the Pacific Ocean. So there I thought it was a pretty good use of borrowed money. The payment basically comes from somewhat higher water rates because desalinated water costs around one cent a gallon, whereas fresh rainwater costs practically nothing. But in a state where you have a lot of people living near a very arid coast and uncertain water supplies inland, to get that kind of water security seems like a good trade-off to be willing to pay that one cent a gallon and to use borrowing in the process. So, good and bad. I think as long as we don’t waste the money, municipal borrowing is not necessarily a problem.
Incremental Rail Improvements [10:12]
Charlie Dice: Right. It’s good and bad. There’s a good and bad and there’s always a cost-benefit analysis. So you point out that the now overkill Transbay Terminal is little more than a glorified bus stop at this point. So for $2.2 billion, I’d say maybe that doesn’t quite pass the cost-benefit test. Whereas this desalination one, is it also pioneering technology that can be used in other places? Is it kind of a loss leader where this one might be more expensive but future ones? You know, I do think that California has this mentality of innovation and that even with the help of government, the space industry was, or aerospace was largely birthed in California, at least as a mature industry. Is it possible that we could invest strategically in some of these projects? And I’m not necessarily asking you to point out what they might be. Maybe some of our listeners have ideas of places where government could strategically invest. But in your research, have you come across ideas that might be better with respect to these net present value calculations of cost-benefits looking down the road? What do you think?
Mark Joffe: Well, going back onto the desalination plant, that is not original to California. Israel receives about 70% of its drinking water from desalination plants built along the Mediterranean Sea. And the Carlsbad plant basically uses the same technology that was pioneered in Israel. So in many cases, California can look at comparable geographies like Israel, which is on the water but very arid, and pick up the best ideas from there. Desalination is something that’s been discussed on and off in California for decades. And you know, there’s a lot of hardcore environmentalist opposition to it. And part of that is born from not wanting to see unsightly facilities on the ocean, which I think is understandable. But I think we have to realize that over the hundreds of miles of Pacific coast that we have, there are some unsightly facilities already. So as long as we can keep most of the Pacific coastline pristine, I think we should be open to dotting it with a few desalination plants.
And then second, what’s the impact on sea life? But a lot of progress has been made, which I don’t think some of the more extreme environmentalists have taken into account, with using filters and so forth so that the desalination intake minimizes the effect on sea life. So I think that there’s a we need in California to be a little bit more open-minded to different technologies that do have environmental impacts as long as those environmental impacts are limited and mitigated. I can answer you more fulsomely on the, you know, what are some other things we could be doing in California if you’d like.
Charlie Dice: Please.
Mark Joffe: Okay. So looking at transportation, the bullet train is not a good idea, but it doesn’t necessarily mean that we shouldn’t have more rail transportation in California. We should just be willing to do it in a more incremental way. So if you go to Amtrak’s website, for example, you’ll see that there’s actually passenger rail service all around California. You can actually take a passenger train from Oakland to Los Angeles. There’s a line that goes really all the way from San Diego up to Seattle. In the Central Valley, there’s already a line that goes from Merced to Bakersfield and beyond. So we already have a lot of train capacity.
The problem is that the trains that go on those lines are very slow, very infrequent, and subject to delays. But there are all sorts of things that we could do incrementally to improve the quality and frequency and reliability of that service so that it starts to become in certain corridors a more practical thing. So one project that’s going now that, if I was being an absolutely doctrinaire pure libertarian about this, I would oppose, but I’ve sort of stood down from, is Caltrain electrification. So right now Caltrain connecting San Jose and Caltrain station in San Francisco is diesel. But the federal government has approved several hundred million dollars of subsidies to electrify that line. The advantage is that electrified trains—once, as you pointed out, you have to have clean sources of electricity—but once those become available, that means that it’s a non-polluting train line. And then second, electrical trains can accelerate and decelerate faster than diesel trains. So that means they’ll operate faster.
So there’s a lot of other things we can do with Caltrain and similar lines to make them better, faster, and more reliable. So one of the problems with Caltrain, for example, is that there are over three dozen grade-level crossings. So that means there’s a rail crossing where there’s a gate and the gate has to come down and traffic has to stop. So there’s two problems when you have that. One is the danger, right? There’s a more possibility that a car or truck will be hit by a train. And then second, it’s bad for the community because to the extent that there’s a lot of train service going through and you have a lot of gate downtime, that means there are traffic jams on both sides of the rail crossing. So if we can replace those rail crossings with grade separations, either bridges or tunnels, we can increase safety, speed up trains because they don’t have to slow down for fear that maybe they’re going to hit somebody, and increase the frequency. Because once you don’t have to worry about gate up and gate down, you can really use that line much more intensively.
So things like electrification and using grade separations are valuable. Then in terms of like something that would be more innovative, how about trains that don’t have an operator? You know, basically driverless trains. BART actually going back to the ’70s was designed that way. So the operator really isn’t essential to the movement of the train but is there for safety reasons. But you know, I could imagine us running very small like two-car trains very frequently over BART and over an electrified Caltrain that would provide much more frequent service, but would be driverless. And because they’re driverless, that means they’ll be much less expensive to operate. You know, so those are the kinds of things that maybe we could be looking at to provide more frequency so that people who are making that decision—do I drive, do I use Uber, or do I take mass transit—who are now dissuaded by the fact that well maybe there’s a 20-minute on BART or a one-hour on Caltrain headway at certain times. You know, it’s just not convenient. I just really don’t want to wait 19 minutes or 59 minutes because I just missed the train. So if we made these trains more frequent through driverless, you know, maybe we could get people out of their cars and into trains.
Federalism and California Values [12:19]
Charlie Dice: Okay, so what I’m hearing is that we can still make progress on transportation, maybe even using some amount of municipal bond finance for it, but because it’s incremental and because it’s at a smaller scale, we have this experimentation and iteration. It’s the same force that we see in all of technological development, and it’s using these littler experiments to inspire other places to adopt what works and then leave behind what doesn’t. One of the running themes on this show has been the idea of federalism, and Bob has a new book out called Power to the States: How Federalism 2.0 Can Make America Governable Again. And the basic idea is that states were designed to be these laboratories of democracy. The federal government was never meant to engage in these behemoth projects. You could even say that something like the interstate highway system, even though it was important for World War II, that it has created this distorted landscape in a way where now we have this homogeneity across all the states.
That’s kind of neither here nor there, but the idea is California wants to try its own unique spin on policy in areas everything from the environment to immigration where we kind of buck the national standards in favor of our own progressive exemptions. And this might be a case where it’s not even really a progressive or conservative thing, it’s just a question of what works. And when we reframe it from left-right or, you know, the bold progressive proposal to just figuring out what works and doing the accounting and actually running the numbers, then we end up with technology that works. So there was one line in Gavin Newsom’s speech that I was drawn to or it got quoted a lot where he talked about “California values” up against the President’s vision of America. And this is a question that has intrigued me for a long time. California values—that could be a very ambiguous statement. But there is something, I think, in California, this kind of vision of how the future can be better than the present. And I do think that that’s something that we should hold on to and maybe utilize. And we can even think of it as this federalist experiment where California is trying out some of the objectives of the Green New Deal only on a smaller scale.
Green Marketplace vs. Green New Deal [14:12]
Charlie Dice: We’ve got some callers on the line. I’d like to first go to John calling. John, you’re on the air.
Caller (John): Good morning. I wondered if you could comment a little on the difference in the cost between the “green marketplace” and the “Green New Deal.” And in the landscape of the advertisement we just heard about federalism, we know that the other states are competing against California and winning tens of thousands of people leaving California and going to these other states. And I wonder if you could comment on that also.
Charlie Dice: Mark, let’s start off. Do you have any comments there?
Mark Joffe: Yeah, thanks John. Well, it’s certainly the case that there’s a lot of out-migration from California to states that have less taxes and regulations like Texas and Arizona and to some extent Nevada. So definitely California is an expensive place to live, and it’s made more expensive by a lot of government interventions. In terms of a green market, you can imagine government using incentives like carbon taxes and cap-and-trade to sort of guide behavior towards more green approaches without necessarily having this kind of heavy-handed top-down centralized planning approach that we unfortunately seem to have in California.
Charlie Dice: Yeah, and I would add that there are a lot of situations in which green technology just makes economic sense and people are adopting it on those grounds. Residential solar where people put solar panels on their roof—that can be a cost savings in the long run. And that’s an example of the free market operating to wean us off of what someday might be obsolete technology with the grid. And I think that there is a little bit of a paradox here where someone could take the stance and just do the kind of hand-waving position that the market will eventually just provide this. And I think that there is some truth in that, but there is also a fear of adopting new technology sometimes and being the first mover can be more expensive. And that’s where I think that again, these California values where we might be inclined to move first and in our own lives and in our own communities do some experimentation and see what might work. Does that answer the question, John?
Caller (John): It starts to. I had another thought though, but I forgot what it was.
Challenging the Concept of Government “Investment” [15:12]
Charlie Dice: Well, we’ve got one other caller on the line, and actually this is a special treat. We’ve got the regular host of the show. Bob, are you with us? Let’s see if we can get Bob Zadek on the line.
Bob Zadek: Hi Charlie. Thanks for taking my call.
Charlie Dice: Where are you, Bob?
Bob Zadek: I’m in Palm Springs, thanks for asking, for Modernism Week. And thanks for filling in for me. Here’s my question. During the course of your presentation a few moments ago, you talked about there may be areas for states and California specifically to “invest” in new technologies or experiments. And I kind of winced when you said invest, because investment commonly means you spend money in hopes of getting more money back. And if something is a good investment, that is you get back more money than you spend, why in the world do you think why isn’t private the free market making the investment? After all, the free market exists to invest money and get money back. So if the state has to do the investment, doesn’t that mean per se that the market has rejected the concept as one where you’re not going to get your money back? I don’t think states ever can make an investment as the term is commonly used. Your thoughts?
Charlie Dice: Excellent point. I knew when I was saying that I had a little voice in the back of my head—it had a Bob-like accent—that was starting to get on my case for departing from the libertarian hardline, you might say. But this is where I’m glad that we have Mark on the line because it comes back to this question of public sector credit and when there might be some times when I dare say the government’s ability to finance its debt on maybe more favorable terms or to take a longer-term outlook than free market institutions and investment banks and things like that. Maybe we can look at the past and point to say the Hoover Dam as an example of this created a hydroelectric dam which provides power now and is I don’t know. I mean, this is one case where I’m uncertain of really the full legacy of that project, which I think did come out of the sort of pre-New Deal but the Hoover administration engaging in this public works spending in order to stimulate the economy. So it’s definitely not a libertarian perspective. It relies much more on this Keynesian logic of taking advantage of a downturn when maybe interest rates are lower. Mark, what do you think? Is there an argument to be made for using public finance where the free market might not provide?
Mark Joffe: Well, I think we can square the circle a little bit with Bob’s point when you consider two things. One is that basically the state has driven private companies out of the business of providing mass transit for passengers, especially on rail. There’s still private buses, but there’s very little in the way of private rail. There’s a very long story about how we got there. And then second, if you consider that returns on investments may not necessarily take a monetary form that a company can immediately benefit from. So what I mean by that is if more people are taking a train as opposed to driving, all things being equal and the train is getting electrically powered from a renewable source, that’s providing a benefit that is potentially worth investing in if we are very much concerned about climate change. So when we consider that first of all, all spending on rail projects is going to be almost by definition going through the government in some way, shape, or form, and that the returns on investment may not be monetizable by a company, then maybe we can resuscitate the idea of government investment.
Carbon Taxes and Global Trade [17:42]
Charlie Dice: Okay, so the idea is a government is better positioned to do something that might take a fuller account of the social costs. And this is something that we haven’t really touched on and it is easily the topic for an entire show, but the climate change cost-benefit analysis is extremely complicated. Bob has done several shows on this in the past, which you can find in the archives. In particular, there was a show with Professor Richard Epstein, which particularly looks at this issue of the cost-benefit analysis. And if we’re taking energy as a separate question from the environment, there are more and less cost-effective ways of obtaining energy and using it in the economy. Do you think that it’s a good idea to kind of keep these things separate or is there a way to mix together the accounting of both greenhouse gas emissions with just the free market costs of energy?
Mark Joffe: Well, I think that’s the kind of thing that is accomplished through carbon taxes and cap-and-trade, right? If you can price emissions and you can price them correctly—and I think there’s a lot of debate over whether you can do that—but assuming you could figure out for each metric ton of CO2 emitted how much damage that’s ultimately going to cause from climate change, price that, then the market can take it into account. But there’s a lot of religion and unfortunately not as much science as I think we might like in the whole climate change debate. So determining what the appropriate level of taxation would be is very challenging.
Bob Zadek: I agree with the analysis, and the statement that how complicated it is to do the accounting, the cost-benefit analysis, tells me then don’t do it. Then don’t make decisions on the basis of superstition, which is what we are doing. If you cannot conclude that what you are doing makes sense on some basis, then don’t do it. After all, government is forcing us to behave in a certain way based upon speculation and superstition. I don’t want to be forced to do things on that basis. If the government can prove the case, fine. And that was my reason for making the point. So Charlie, thank you so much for taking my call. You’re very kind, and I look forward to listening to me next week.
Charlie Dice: We all do, Bob. Thanks for calling and enjoy Palm Springs. Getting back to this question of high-speed rail and how it particularly wins these referendums. In California, it was popular. I think it maybe even had to win by a two-thirds majority. Similarly, the Green New Deal, just based on these optics and the kind of romantic sense of investing in the green economy, there’s a strong pull to that framing. And I think that this gets to the other problem with government-funded projects in the energy and environment space compared to what the free market might do based on a more cost-benefit accounting. Mark, why do you think that something like high-speed rail has the appeal that it does?
Mark Joffe: Well, it did win I think 53-47. It didn’t need two-thirds. I’m not quite sure why that is. Normally a bond measure does require two-thirds, so some homework that I’ve gotten now. But you’re right that superficially these things just sound really good. And I think the thing is that ultimately you have to see the impacts before people realize that there are problems. So for example, you talk about Obamacare. You’re going to be able to keep your doctor, but everybody who’s currently uninsured is now going to be able to get coverage. And then it turns out, well, they actually had to interfere and a lot of people weren’t able to keep their doctor. And you get to say Medicare for All. Well, finally we find out that Medicare for All means outlawing private insurance and over 100 million people who are on private insurance are going to have their insurance disrupted.
So how does that work when we think about high-speed rail? Well, when a lot of people voted for high-speed rail in the Central Valley, they thought that it was going to run along Interstate 5 and it wasn’t going to be that disruptive. But in fact, what ultimately happened was they developed a whole new route, and that involved displacing people, using eminent domain to take away people’s farmlands, in some cases bisecting a farm so you couldn’t get your tractor over to the other side and so half your field now becomes useless. Within the city of Fresno, there’s an overhead rail line now that right now it’s not being used and there’s a lot of graffiti on it. But ultimately, if the plan succeeds, we’ll have a lot of trains running over it and generating noise pollution, shadows, and so forth.
I think of, you know, when you think of these big government programs, an analogy to something that happened back in my native New York City in the 1950s. That’s when Robert Moses, the big construction maven from New York State, put in an expressway in the southern part of the Bronx. And that accelerated the decline of the South Bronx, which ultimately became the poster child for urban decay. When you put in a highway or another big construction project, that destroys the ecosystem of housing that existed and the communities that existed there. So one thing that really troubled me about Newsom’s speech is that he said, “Well, we’ve been dismissing and ignoring the Central Valley for too long and here’s our way of helping the Central Valley.” I think you’d find that a lot of people in the Central Valley don’t find the high-speed rail to be helpful and would like to see the project terminated. So I think they really need to do a much better job of listening to people in the Central Valley as opposed to assuming what it is they want.
Charlie Dice: Right. It hearkens back to the classic Reagan quote about the nine most terrifying words in the English language: “I’m from the government and I’m here to help.” And this gets to, I think, what I appreciate most about the Green New Deal, which is that it is the perfect illustration of Economics in One Lesson. This was the little tract by Henry Hazlitt where he puts this ironclad rule of economics, which is “the seen and the unseen.” That every policy, every action even, has the most visible costs and benefits, and then there are the unintended consequences and the hidden costs. So he goes through and looks in every area of the economy how what might sound really good on paper actually has some undesirable unintended consequence.
I put up a piece earlier this week, it was titled “Towards a Free New Deal,” and it was about basically how the most direct way to turn the United States into a dysfunctional petro-state might be something like the Green New Deal, where if we try to pick winners and losers at the central level, it’s got all the wrong incentives. We’ll end up with dozens of Solyndras—that was the solar company that received, I think it was a $500 million loan from the federal government that it couldn’t pay back. They went bankrupt because basically their cylindrical solar panels were too expensive to maintain and they didn’t even generate as much electricity as just a standard flat panel. So you’ve got something that looks great on paper—oh, cylindrical solar panel, this is innovation—and the people in government who have no background in technology or engineering look at it and they hear from some people that this is the future, but they don’t do the full accounting and they end up with a big unpaid loan on their hands. So if we get this on steroids, we have all this new debt for towers of power, solar concentrating fields in the middle of the desert, and all of it sounds so good, it is backed up by the best government propaganda, but in the end we get an economy that is far less efficient, that requires far more fossil fuels just to build and maintain it than what the free market would normally develop. Any kind of closing comments on that? We’ve just got a couple of minutes left.
Mark Joffe: Okay, well just to plug into that point, you know, one of the reasons that Solyndra and some of the other companies had trouble was because of low-cost solar panels coming from China. And we’ve recently increased, or the Trump administration’s recently increased tariffs on those. Why are we doing that? If we really think that solar energy is a solution to our problems and if China wants to subsidize us, hey, let’s take it. We should be taking every single discounted solar panel we possibly can from China. I wanted to just quickly plug in on the point you made from Bob about federalism. One of the ideas that I’ve been looking at recently is that of connecting Caltrain to the Muni Metro tracks at 4th and King Street. And in looking at the SF Streetsblog, which although they don’t like me, they actually make a lot of great points about public transit, one of the objections brought up to that idea, which would allow essentially a single-seat ride from Palo Alto or San Jose all the way up to the Embarcadero and ultimately to Pier 39 at the northern tip of San Francisco—one of the objections made to that is that federal regulations are very hostile to the idea of mixing light rail, which is like Muni Metro, and heavy rail.
Charlie Dice: Mark, we’ve got the music coming in. If people want to find this article, where can they find your work? Mark is a senior analyst at Reason and he writes frequently about public sector credit as well as these transportation issues. Where can people find your work?
Mark Joffe: Reason.org. Thanks Charlie.
Charlie Dice: All right. Thanks again so much and join us next week on the show of ideas, not attitude. Bob will be back in the studio and taking your calls. Thanks so much and enjoy the rest of your weekend.