Private-sector utilities provide the bulk of electricity generation, transmission, and distribution in the United States. But the federal government also owns a share of the nation’s electricity infrastructure.

The government owns the Tennessee Valley Authority (TVA) and four Power Marketing Administrations (PMAs). The PMAs mainly transmit power generated by hydroelectric dams owned by the Army Corps of Engineers and the Bureau of Reclamation. Federal entities account for 7 percent of U.S. power generation, and they own 14 percent of the nation’s transmission lines.

In its 2018 federal budget, the Trump administration proposed privatizing the PMAs. Today, Cato is releasing a study discussing the PMAs and the advantages of privatization. A previous study looked at privatizing the TVA.

The federal government entered the electricity business in the mid-20th century when faith in government ownership was high. But over time it has become clear that government-run businesses lag private businesses in efficiency, innovation, and environmental performance. As such, there has been a global trend toward privatization, and many nations have sold their electricity assets. 

The Trump budget said, “ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives.” And it said the proposal to “eliminate or reduce the PMA’s role in electricity transmission and increase the private sector’s role would encourage a more efficient allocation of economic resources and mitigate risk to taxpayers.”

Trump is on the right track with the PMAs. Rather than increasing infrastructure subsidies, the administration should work to improve the efficiency of existing infrastructure, and that includes clearing out the federal attic and holding a garage sale.

About three-quarters of Americans receive electric power from for-profit private utilities. There are no sound policy reasons for the other one-quarter to be supplied by government facilities and subsidized nonprofit firms. Privatizing federal generation and transmission facilities would raise government revenues from the sell-off and from the payment of income and property taxes by the privatized entities over time.

President Ronald Reagan proposed privatizing the PMAs because it would “result in a more efficient power system for electricity customers.” President Bill Clinton also proposed privatizing the PMAs. It makes sense for President Trump to dust off the Reagan and Clinton plans, and move ahead with reforms.

Privatize the PMAs here.

Privatize the TVA here.

Clearing the rest of the federal attic here. 

A six-page summary of the Trump infrastructure plan seems to have leaked out yesterday.

To me, it looks like a plan that President Obama would propose with more federal spending and top-down rules. Bob Poole at Reason sees it differently.

The Trump administration is expected to request $200 billion over 10 years for its infrastructure plan. The document leaked yesterday suggests where those subsidies would go:

• “Infrastructure Incentives Initiative” would be 50 percent of the spending. The states would compete for this aid, which would be for a wide range of projects including highways, airports, and water facilities. The federal money would cover 20 percent of project costs.
• “Rural Infrastructure Program” would be 25 percent of the spending. This aid would be handed out to the states by formula, and used for projects in defined rural areas.
• “Transformative Projects Program” would be 10 percent of the spending. The Department of Commerce would hand out this aid to the states for projects that are risky and “ground-breaking.” The rules are complex.
• The remaining 15 percent of spending would go to various loan programs and financing funds.

The proposals generally move in the wrong direction. New federal subsidies are not needed. Any state wanting to improve its infrastructure can do so with its own funding. States have huge revenue-raising power through income, sales, property, and gas taxes. They can issue debt for infrastructure, and charge user fees. They can also privatize infrastructure—such as airports and seaports—and end subsidies.

Federal infrastructure subsidies are often counterproductive. As I discuss here, they distort state decision making, replicate mistakes across the country, come with costly regulations, and add bureaucracy.

The Trump six-pager hints at the new bureaucracy. For the “incentive” grants, states would have to achieve “milestones” and deliver “evidence” on project efficiency, the use of technology, the economic and social returns, and other data. The “transformative” grants would create bureaucratic structures such as “partnership agreements” and an “interagency selection committee.” To get the rural subsidies, states would need to “publish a comprehensive rural infrastructure investment plan (RIIP).”

Do we really need more subsidies for rural America? On top of all the farm subsidies and rural subsidies the government already hands out?

There are measures in the Trump plan that would facilitate use of public-private partnerships. But to me the six-page memo mainly indicates an old-fashioned, top-down, subsidy approach. Globally, infrastructure is going private, but America remains stuck in the past.

Policymakers are rightly concerned that America have better infrastructure to compete in the global economy. But we are not going to get it with a system based on subsidies and government ownership. Federal policymakers should cut subsidies, privatize the infrastructure it owns, and eliminate barriers to state and local privatization.

Classical liberal economists oppose minimum wage laws because they restrict mutually beneficial labor market trades. 

This is the basic economic case for complete freedom of contract. Wage floors mean potential employees who would otherwise be willing to sell their labor at a lower price are unable to. Employers are banned from employing more people or giving workers longer hours at a lower wage too.

It is in this spirit that Colorado State Rep. Dave Williams has proposed an amendment to the state’s minimum wage law. Williams’ legislation  would allow an opt-out in cases where applicants for jobs or employees and employers mutually agreed to a wage below the state minimum. Paying less than the minimum wage would essentially be legal again in cases where the employee or applicant had agreed to waive their minimum wage “right” (though the employer would still be bound by the federal minimum).

This has potential benefits similar to lowering or abolishing the state minimum wage. On the margin, it would help workers with low productivity levels looking for entry-level jobs. It would also reduce the risk of hiring for employers in cases where potential employees had little work experience. While there would of course be a not insignificant risk that employees might later claim the agreement was not truly “voluntary,” such a waiver would overall shift Colorado labor market law closer to the freedom of contract that libertarians prize.

For that reason, it will of course be opposed by most minimum wage proponents. Traditionally, minimum wage advocates have recognized that such laws outlaw exchanges. But they believe this is a good thing, asserting that market-based wage setting is unfair or exploitative, or appealing to older theories such as monopsony, which says that employers in certain industries have significant market power and are able to hold wages below productivity levels absent regulation. In such a scenario, minimum wages can even raise employment levels.

Almost all minimum wage studies these days are empirical in nature, testing whether minimum wages or increases have the classical or monopsonistic effect. Though the degree of the effect differs, the overwhelming majority find negative employment or job growth consequences from minimum wage increases. From an employment perspective then, any reform in the direction of Williams’ should be welcome.

But another benefit of a debate around this law could be educational. It is difficult to make the case for complete abolition of minimum wage laws, in part because opponents lament that some workers would see pay cuts. No doubt there would be some companies that sought to move to a model with lower pay, with attempts to get employees to sign forms waiving the wage. This is the “seen” effect. But what is not seen is that there are people out there willing to work in Colorado between the federal and state minimum wages, who are currently unable to do so.

Williams’ legislation highlights that minimum wage laws are coercive, ceasing to give us control over our own labor. Indeed, under Williams’ legislation, employers would have to post notices to inform applicants and employees that they have the right to negotiate wages. Well, above the federal minimum at least!

There is therefore a principle and a consequence at stake. The principle is freedom to contract your labor. The consequence is that minimum wage laws tend to cause “unemployment”. While complete abolition of minimum wages would be preferable, Williams’ legislation helps highlight the principle and ameliorate the consequence. 

Part of the federal government is closed today because the two parties cannot agree on a discretionary spending plan for the balance of fiscal 2018. No compromise has yet secured the 60 needed votes in the Senate. The government had been operating under a “continuing resolution” (CR) that has now expired.

When policymakers cannot pass regular appropriations bills or a CR, nonessential federal activities are shut down. In particular, “agencies are required to begin a shutdown of all activities not essential to the protection of property or the safety of human life and furlough all non-excepted employees.”

Shutdowns are embarrassing for policymakers, as they suggest to the public that Washington is run by squabbling kids. But it is hard to make the trains run on time under current budget rules given the supermajority barrier in the Senate and the divergent policy views of the parties.

As it turns out, the solution to the shutdown problem is simple: An automatic CR that fixes discretionary spending at current levels. If a fiscal year begins, and the parties have not agreed on a spending plan, then agencies may continue existing spending activities. The auto CR would be in force until normal appropriations bills were enacted.

An auto CR law might include declining spending levels and other mechanisms, but simpler is probably better. An auto CR would avert shutdown crises, decrease partisan acrimony, modestly tilt the budget process toward restraint, and reduce the chance of time-pressurized spending deals that blow the bank.

Brian Riedl discusses some of the advantages of an auto CR, and CRS discusses some possible disadvantages. I think the former outweigh the latter. 

If you are interested in national issues such as defense, foreign policy, and trade, and want to hold public office, you should run for Congress. If you are interested in roads, beaches, subways, and policing, you should run for city council or the state legislature.

The push to restore earmarks in Congress is led by politicians who got elected to the wrong democratic body. In a pro-earmark story today, the Washington Post highlights projects that members say justify the narrow spending set-asides:

• “There is a 14-mile gap in Interstate 49 outside Fort Smith, Ark., and Rep. Steve Womack, who represents the area, would very much like to secure the estimated $300 million in federal taxpayer money needed to fill it.”
• “Rep. Thomas J. Rooney (R‑Fla.), who is pushing a proposal that would allow Congress to earmark money for … a pair of water projects he said have been neglected in his district: a beach restoration in an area where the Gulf of Mexico is starting to lap at homes, and repairs to the massive Herbert Hoover Dike that surrounds Lake Okeechobee.
• “The Second Avenue Subway in New York City, which opened last year, received more than $600 million.”
• “Dozens of police departments received money to improve their equipment and communications systems. 

I have questions for the members supporting federal spending on these projects:

• Why doesn’t the Arkansas legislature fund the I‑49?
• If Florida beach restoration is important but neglected, why don’t landowners and city councils along the coast fund it?
• New Yorkers may support their subway project, but why should taxpayers elsewhere pay for it? And when asked to vote on it, how could members from other states judge whether it made any sense?
• Since policing is a crucial function of local government, wouldn’t citizens support local taxes to buy needed equipment?

The earmark issue is usually framed as a battle of the purse between federal politicians and federal bureaucrats. But the more important issue is ensuring that activities are funded at the level of government that makes the most sense. I discuss here why state and local funding makes sense for state and local activities. As for Congress, it suffers from structural failures that cause it to spend wastefully much of the time, so the less money flowing through it the better.

As an optimist, and I hereby proclaim 2018 “Year of Federal Spending Cuts.” To kick-off the celebrations, Cato has published Downsizing Federal Government Spending.

The new book discusses federal spending cuts on agriculture, education, health care, infrastructure, welfare, and many other activities. The cuts would save money, boost growth, and increase freedom.

Congress needs to kick the deficit-spending habit, and the new book can help kick-start reforms. Do lawmakers really want to kick younger generations in the teeth by growing the debt? I hope not, but the way some of them spend, it’s as if they know they will kick the bucket before the bill comes due.

You will get a kick out of this book. The kicker? It’s just $9.99 from Ama​zon​.com. 

The Trump administration will release its long-waited infrastructure plan in coming weeks. The plan is expected to include $200 billion over 10 years of federal funding. Where will the money come from? The president has pondered raising the federal gas tax.

Revenues from the 18.4 cent-per-gallon federal gas tax go into the Highway Trust Fund, and then are dished out to the states. But 98 percent of U.S. streets and highways are owned by state and local governments, and the owners should do the funding. States that need to improve their highways can increase their own gas taxes, sales taxes, issue debt, add user charges, or pursue public-private partnerships.

There is no advantage in raising federal highway revenues rather than the states raising their own. The states can tackle their own infrastructure challenges, and about half of them have raised their transportation taxes in the past five years.

Supporters of a federal gas tax hike say that the tax has not been raised since 1993, and its real value has been eroded by inflation. That is true. But the federal gas tax rate more than quadrupled between 1983 and 1993 from 4 cents to 18.4 cents, as shown in the chart below. The 4‑cent rate would be 9.8 cents in today’s dollars, so the real gas tax rate has risen substantially since the early 1980s.

The chart shows that the states have steadily raised their own gas taxes in recent years. API discusses state gas taxes here, and they emailed me data back to 1994. (I’ve interpolated a few missing years). The state average—currently 33 cents—includes both gasoline excise taxes and other taxes on gasoline.

I hope Trump does not go down the road of gas tax increases. Pumping more money through the federal bureaucracies would fuel more top-down planning and inefficiency. Funding for highways and other infrastructure should be handled by state and local governments and the private sector. 

More on infrastructure here and here.