American Elephants

The Mysteries of the Butterfield Fallacy by The Elephant's Child

Have  you heard of the Butterfield Fallacy?  It is rooted in ideological prejudice, and well known to conservative commentators.  Fox Butterfield was a reporter for the New York Times  “whose crime stories served as the archetype for his eponymous fallacy.”

“It has become a comforting story for five straight years, crime has been falling, led by a drop in murder,” Butterfield wrote in 1997. “So why is the number of inmates in prisons and jails around the nation still going up?’  He repeated the trope in 2003: “The nation’s prison population grew 2.6 percent last year, the largest increase since 1999, according to a study by the Justice Department. The jump came despite a small decline in serious crime in 2002.” And in 2004: “The number of inmates in state and federal prisons rose 2.1 percent last year, even as violent crime and property crime fell, according to a study by the Justice Department released yesterday.”

The Butterfield Fallacy consists of misidentifying as a paradox, that which is a simple cause-and-effect relationship. You put more bad guys behind bars, and crime goes down. The typical New York Times reporter disapproves of sending people to prison because among other reasons they think it is racially discriminatory. “In 2004 almost 10 percent of American black men ages 25 to 29 were in prison” and it diverts tax money from what should be higher priorities.  In 1997, “already California and Florida spend more to incarcerate people than to educate their college age populations.” Here, Reynolds Law comes into play:

The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.

New York Times business reporter Reed Abelson wrote yesterday with bewilderment that insurance premiums are rising sharply as ObamaCare’s insurance regulations begin to take effect:

Health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.

Yuval Levin wrote of Ableson’s surprise that health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers. Ableson was bewildered at the Butterfield Fallacy. as Levin wrote under the perfect title “Even Though.” Some people think this might have something to do with ObamaCare’s basically outlawing actual insurance and replacing it with an economically  incoherent substitute. The article also notes with surprise that businesses that now have to have their prices approved by regulators have adopted a  peculiar practice by which they first propose higher prices than they expect to end up with and then work down toward their costs. Levin adds “sources say that supply and demand may be related in ways that influence prices, but this remain unconfirmed.”

When health care bureaucrats reduce the price that will be paid to providers for their services, oddly enough, the cost of insurance will go up.

James Taranto noted another example from the Associated Press:

A bluefin tuna sold for a record $1.76 million at a Tokyo auction Saturday, nearly three times the previous high set last year–even as environmentalists warn that stocks of the majestic, speedy fish are being depleted worldwide amid strong demand for sushi.

The reporter, Malcolm Foster, was too caught up in environmental sentimentalism to notice that this is basic supply and demand at work. When the supply of something is low, prices go up.  Imagine that.


High Gas Prices and Who to Blame: by The Elephant's Child

The price of gas at the pump affects the price of your groceries — which you have probably noticed are going up significantly. But the reasons for the hike in gas prices gets pretty interesting. According to the Daily Kos, it’s because of the oil oligarchs. The president claims that it is due to, depending on to whom he is speaking, oil company executives, undeserved oil company subsidies, and/or nasty oil speculators.

Bill O’Reilly said that “Right now we are all being taken advantage of by an administration that has an anti-fossil fuel agenda and an oil industry that manipulates the U.S. market. Who is looking out for us? Nobody.”

Investors says that “there are efforts to manipulate oil prices; That’s one reason why OPEC — made up mostly of Middle Eastern countries —was formed. But those are countries, not U.S. oil companies.

Carlos Ghosn, CEO of Renault-Nissan alliance points out that by 2050 there may be as many as 2.5 billion vehicles on earth compared with fewer than 1 billion now. China and India are expected to count for at least half of the growth by 2030. But the transportation sector is dependent on fuels derived from crude oil and will be for the foreseeable future.

The Heritage Foundation notes sensibly that: “We’re not anti- energy technology. We’re against wasting taxpayer money to “invest” in those technologies, including oil and gas. If it’s a market-viable idea, using federal money is offsetting private-sector investments. If it’s not a market-viable idea, we’re artificially propping up an industry until it goes bankrupt. Either way, it’s a raw deal for taxpayers.” But they also take notice of the Strait of Hormuz:

  • The Strait of Hormuz is a critical oil-supply bottleneck,
  • Iran probably has the capacity to significantly reduce the flow of petroleum,
  • Petroleum prices would approximately double while a blockade is in effect, and
  • The impacts on income, employment, and petroleum prices would linger beyond the period of a blockade.

The Gatestone Institute says short supply, not Middle East tensions push up oil prices. “Oil is trading in lockstep with expectations for economic growth, as reflected in stock prices. There’s not a shred of evidence that geopolitical uncertainty has added a penny to the oil price. Obama’s $20-$30 per barrel risk premium is a number pulled out of a hat, without a shred of empirical support.  In effect the president is blaming Israel for high oil prices.” notes that demand is down, but the laws of supply and demand aren’t working.  The price should be declining, but it’s going up instead. Two main forces are driving fuel prices upward in the United States: high global oil prices and the state of the U.S. oil transportation and refining industry. Stability of supplies from the Middle East is keeping oil traders up at night. Lots of good information here on the complexities of refiners, pipelines and transportation. But they still blame most of it on the Middle East.Saudi Arabia should be able to step up production enough to replace the lost volume from Iran if sanctions remain in place.

Steven Hayward suggests that the declining demand is a signal that the economy is headed down again.

Mr.  Obama’s FY 2013 proposed budget gives politically favored green energy preferential treatment over the fossil fuels industries, wit tax subsidies, tax credits, procurement preferences and grants, and in contrast burdens the oil and natural gas sectors with almost $86 billion in higher taxes over the next ten years. Fortunately both the senate and the House voted the president’s proposed budget down.

Here is my roundup of what state mandates and taxes add to the cost, but I’m not sure that I clarified anything. What is clear is that there’s a lot of finger pointing going on, and “experts” have lots of different answers.  The article by does a good job of explaining the refinery and pipeline problems.

Meanwhile, for those who want to blame oil company ‘greed’ and ‘excess profits’, this graph explains profits by industry.

NEWSFLASH: Obama Doesn’t Understand the Laws of Supply and Demand. by The Elephant's Child
April 28, 2011, 7:41 pm
Filed under: Capitalism, Economy, Energy, Junk Science | Tags: , , ,

If President Barack Obama were to schedule a major speech tomorrow, and tell the assorted networks  that America was returning to oil production— he was lifting the federal bans on drilling—the price of oil would start dropping the next day.

  • In 2008, Senator Ken Salazar (D-CO) refused to vote for any new offshore drilling.  In a conversation with minority leader Mitch McConnell (R-KY), Salazar objected to allowing any drilling on America’s outer continental shelf—even if gas prices reached $10 a gallon.  Obama named him Secretary of the Interior.
  • In 2008, Steven Chu, head of the Lawrence Livermore Laboratories at U. of California Berkeley, told the Wall Street Journal that “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” he also said “We have lots of fossil fuel; that’s really both good and bad news.  We won’t run out of energy, but there’s enough carbon in the ground to really cook us.” Obama named him Secretary of Energy.
  • During the 2008 campaign, candidate Obama said “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.” And “So if somebody wants to build a coal-powered plant, they can.  It’s just that it will bankrupt them.” He was elected president.

I don’t know if Obama ever took a class in economics, but he seems to be totally unfamiliar with the basic laws of supply and demand.  When supply is restricted, the cost goes up. When the cost of gasoline goes up, so does the cost of everything else.

Goods are transported by truck, and when delivery costs more, the price of your groceries cost more. When the government is busily printing money, the value of the dollar goes down. Oddly enough, the price of gas and the cost of food are not included in the government’s statistics on inflation. You have to keep track of that yourself.

President Obama speaks enthusiastically about his clean, green economy of tomorrow; but he doesn’t seem to understand that windmills and solar arrays produce only small amounts of electricity, which has little to do with transportation, and does not replace gasoline.  Our transportation sector is powered by petroleum, and will continue to be powered by petroleum far into the foreseeable future.  There is no alternative.

Why do I say that an Obama speech turning the energy sector free would start to bring down oil prices right away?  Ronald Reagan did it, and George W. Bush did it.  There is evidence. And the evidence that Obama’s clean, green government subsidized energy will prove to be an effective alternative — ever?  Nonexistent.

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