Cost Of Doing Business

Politico recently reported on a proposed law in Maine that would tax food wrappers. Before you react (either by yawning or rolling your eyes), consider the likely motive for imposing such a tax, and the potential implications.

Maine’s bill is an effort to recoup at least some of the costs governments incur when recycling tons of packaging waste. Managing America’s trash is expensive, its costs continue to escalate, and a significant percentage of those costs are paid with tax dollars. 

According to the report,  business groups actually asked lawmakers to tax food wrappers and containers. Industry groups did emerge to oppose certain parts of the proposal–mainly, who would control the tax revenue and how it’s spent. Packagers and consumer brands wanted authority to manage the money and use it exclusively for recycling. Maine regulators and their allies in the Legislature wanted the revenues to reimburse municipalities for hauling waste to landfills, too.

The industry won that battle, and the bill–that has now passed– designated revenues for recycling. This legislation appears be the first of its kind in the country; it could give momentum to a broader push to curb plastic waste and rationalize a recycling system that is outdated and varies from town to town. 

What I find really hopeful, however, is that I see  this as an (admittedly small) step toward dealing with the serious challenges posed by  externalities.

As I have often noted, I am a proponent of markets and capitalism–properly understood and properly regulated. The usual description of a working–and workable–market is that it is characterized by transactions between willing buyers and willing sellers  who are each in possession of all  information relevant to the transaction. That description is an accurate depiction of the ultimate purchase and sale, but it elides other, equally important assumptions–including the assumption that the pricing of a good accurately reflects the costs of its manufacture plus a reasonable profit.

That assumption isn’t necessarily accurate.

If I am manufacturing widgets, and the process involves the use or creation of a pollutant, the cost of production–and the price charged to the consumer– should include the expense of properly disposing of that pollutant. If –instead of following the rules for such disposal– I dump my contaminated waste in the local river (where it will have to be cleaned up by adjacent municipalities) I can price my widgets more advantageously than widget manufacturers who follow the rules and pay to dispose of their waste properly.

In a properly operating marketplace, the price of goods will reflect the complete cost of their manufacture–the expense of raw materials, all costs of turning those raw materials into a salable item, and the associated expenses of marketing and packaging. Appropriate regulations are those aimed at preventing some companies from gaining unfair advantage by “offloading” a portion of what should be their costs onto unsuspecting taxpayers.

Properly operating markets benefit us all. What doesn’t benefit us are (1) markets in clearly inappropriate economic sectors, like health care, where there is a huge (and unbridgeable) disparity in information and urgency between the parties to a transaction, and (2) inadequately or improperly regulated markets that allow–or even encourage–companies to profit by cheating.  

The packaging issue being addressed in Maine isn’t an instance of cheating; technically, I doubt that the need to recycle packaging is even a true externality–at least, as economists would categorize it–but the need to recycle packaging waste clearly does impose a cost that is currently being covered by taxpayers rather than manufacturers.

Maine appears to be the first state to address the allocation of that expense, and it will be interesting to see how many other states (if any) follow suit. At the very least, efforts of this sort raise awareness of an issue that is all too easy to ignore.


It’s Only Money…

There have been some truly jaw-dropping revelations coming from recent Congressional hearings–but most have been overshadowed by the continuing dramas of Trump’s refusal to produce documents demanded by Congress and Barr’s evident fabrications about the Mueller Report.

This one is particularly maddening, if only because allowing clueless Betsy DeVos to run anything–let alone the Department of Education–is infuriating.

In this article in Common Dreams, Jeff Bryant offers one particular example of DeVos’ overwhelming incapacity:

During a series of recent congressional hearings in Washington, D.C., U.S. Secretary of Education Betsy DeVos had to respond to a recent report finding the U.S. Department of Education has been scammed for hundreds of millions of dollars by fraudulent or mismanaged charter schools. Her responses reveal not only her inability to counter legitimate concerns over the spread of charter schools but also the charter school industry’s resistance to honestly address a chronic problem with its schools.

The report, which I co-authored with Network for Public Education Executive Director Carol Burris, found that up to $1 billion awarded by the federal government’s Charter Schools Program (CSP) went to charter schools that never opened or opened for only brief periods before being shut down for mismanagement, poor performance, lack of enrollment, and fraud. Our calculation was that a least a third of the $4.1 billion spent by the CSP was wasted.

Members of Congress repeatedly referred to these findings when questioning the secretary’s management of charter school grants and her proposal to increase funding for the program to $500 million annually. In response, DeVos first attempted to deny the problem, saying, “You are always going to have schools that don’t make it.”

When her “some schools won’t make it” excuse didn’t seem to convince those doing the questioning, DeVos insisted that the country needs “more charter schools, not less.” And when she was unable to explain her department’s obvious inability to properly monitor the charter grant program, she attacked the authors of the report, claiming that they had a “political agenda.” (She was also unable to provide any evidence that their conclusions were inaccurate.)

Following the hearing at which the monetary losses were explored, the Network for Public Education wrote an open letter to DeVos, in which they pointed out that 250 charter schools in DeVos home state of Michigan had received grant money between 2006 and 2014, and that 109 of those–or 42%–had either closed or never opened, wasting more than $20 million dollars. Despite this abysmal result,  DeVos’ DOE gave Michigan $47,222,222 in 2018 for the express purpose of starting up or expanding charters.

It isn’t only Michigan.

In Ohio, of the roughly 290 charter schools that received federal grants from the CSP during the same time period, 117 schools, 40 percent, also never opened or are now closed. The amount of waste to taxpayers totals $35,926,693.

In Louisiana, 51 of the 110 charter schools, 46 percent, that received funding through the CSP failed.

In California, of the more than 780 charter schools that received grant funds, 297 schools, 38 percent, closed or never opened, resulting in $103,467,332 in wasted education funds.

In Florida, of the some 500 schools getting federal grants, 184 schools, 36 percent, never opened or closed, representing a loss of $34,781,736 in lost federal tax dollars.

It is only fair to point out that this is not evidence that charter schools are all substandard or fraudulent. There are plenty of perfectly good charters, just as there are (propaganda to the contrary) plenty of perfectly good public schools. The data tends to show that overall, charters (which are public schools) perform pretty much the way traditional public schools perform.

Private schools that accept vouchers are another matter.

What this situation does unequivocally demonstrate is that, under Betsy DeVos, the Department of Education has abandoned oversight, thanks largely to her cozy relationship with for-profit “educators” and her fixation on privatizing  public education.

Under DeVos, DOE is wasting billions of dollars that could be used to actually improve public education.

Her protector and fellow ideologue, Mike Pence, must be so proud…..


We Didn’t Default….

But too many of our elected officials were perfectly willing to court disaster.

Eighteen Senators voted to continue the shutdown and to stop paying the nation’s bills. One hundred and twenty-six Representatives joined them, and several–including Todd Rokita and Marlin Stutzman from Indiana–blithely assured their constituents that a default “wouldn’t be a big deal”–all credible economists to the contrary.

The GOP brought the country to a screeching halt for three weeks–and for what? To remind us they disagreed with a law that had been passed by a democratic majority to make health insurance accessible to people who didn’t have it.

According to the Standard and Poor index, the government shutdown delivered a powerful blow to our still fragile economy. By the S & P’s estimate, this childish tantrum cost us $24 billion dollars–dollars that Elizabeth Warren accurately described as having been flushed down the drain for a completely unnecessary political stunt.

“$24 billion dollars. How many children could have been back in Head Start classes? How many seniors could have had a hot lunch through Meals on Wheels? How many scientists could have gotten their research funded? How many bridges could have been repaired and trains upgraded?”

We are governed by spoiled brats.


Black Friday, Cyber Monday and the Economy

There have been a number of Facebook posts noting the contrast between our tradition of giving thanks for what we have on Thursday, and then joining the frenzy of acquisition that begins the next day with Black Friday. (Does anyone know why we call it “Black Friday?”)

Tis the season to consume. And while it may make us feel morally superior to condemn the orgy that is the Christmas shopping season, reality is more complicated than such condemnations might suggest.

Individually, most of us don’t need the gadgets, trinkets, toys and–let’s be honest–mountains of disposable trash that we buy during this time of year. Collectively, however, our economy depends in significant measure upon the Christmas buying season. Should I complain about the forty emails I’ve already had this morning urging me to buy this or that on “cyber Monday”? Or should I hope for a robust season of buying unneeded stuff, as welcome evidence of economic recovery?

This structure of culture is what students have difficulty appreciating. Why do Americans have only two political parties? Why don’t we start another? Well–one tries patiently to explain–our entire political system grew up around a two-party reality. Changing that structure wouldn’t be impossible, exactly, but it would be a massive undertaking–far more massive than most of us appreciate.

Haven’t civil rights laws mostly eliminated racial discrimination? Well, those laws have certainly changed many behaviors. But the structure of discrimination still operates. Your company has a job opening, so you call a friend. Until your friends are truly integrated, that friend is likely to look a lot like you. Attitudes about “those people” persist. Neighborhood “complexions” change slowly. Civil rights laws nudge us toward cultural change, but the pace of that change is slow.

So what do we do about the waste inherent in a consumerist culture? On the one hand, the mountains of unneeded “stuff” pose an environmental hazard–there is enormous waste involved, energy expended, resources consumed. On the other hand, our economy depends upon the activity of buying and selling and consuming. It’s a conundrum.

Merry Christmas.


Defining “Wasteful” Spending

The charge that government wastes money (or “throws money at problems) is a favorite accusation of politicians of all persuasions. Certainly, lawmakers should refuse to fund activities that have been shown not to work. But as Steve Benen points out, the definition of waste generally owes more to ideology than evidence.