Cato hosted a policy forum last week (which you can watch in its entirety if you missed it the first time around) to discuss a new paper released by Security America’s Energy Future (SAFE). The paper – written by long-time friends Andy Morriss and Roger Meiners – argues that there is a consensus among academics who have studied OPEC. The consensus? The cartel is responsible for less crude oil on the market than would otherwise be the case (which means higher prices than would otherwise be the case) and for the bulk of the price volatility we find in crude oil and, thus, gasoline markets. “The international market for oil is not a free market” they conclude. “The global oil market deviates in important ways from the competitive model and that these market anomalies have significant economic impacts and so are relevant for policy makers.”

While Morriss and Meiners would thus seem to invite politicians to act, they offered no agenda of their own. That’s where SAFE comes in. FedEx’s Fred Smith, who co-chairs SAFE’s Energy Security Leadership Council, argued at the forum that the federal government needs to respond to OPEC’s machinations by (1) achieving energy independence for North America (a goal I’ve been quite skeptical about in the past), (2) establishing tough energy efficiency standards for a whole host of goods, but most particularly, for U.S. automobiles via CAFÉ standards (an agenda that most economists would reject in favor of accurate price signals), and (3) subsidizing R&D in order to find alternatives to oil in transportation markets. SAFE discusses this agenda more robustly in their “National Energy Strategy for Energy Security, 2013”.

SMU’s James Smith – one of the most prominent energy economists who works in this field – was on-hand to offer what I think was a compelling rebuttal to the central arguments forwarded by the Morriss and Meiners study.

Smith argued that, contrary to Morriss and Meiners, there is simply no consensus in the literature about what impact, if any, OPEC has on the world crude oil market. One can find empirical analyses demonstrating that the cartel has zero impact on crude oil prices and production relative to what would be the case absent the cartel; that it’s not the cartel per se but Saudi Arabia that exercises the market power at issue; and that the cartel does indeed restrain production but not in the manner popularly thought. That is, the production restraint is primarily in the form of underinvestment in upstream production capacity, not in cutting back production at opportune times to drive up prices. Which of these narratives – if any – is closest to the truth is, according to Smith, unclear despite 40 years of serious study. While most academic observers probably believe that OPEC does indeed restrain production below what a perfectly competitive free market might yield, they can’t conclusively prove it.

Smith further argued that oil price volatility has little to do with the cartel; it has to do with relatively inelastic supply and demand. Small changes in supply or demand have a major impact on crude oil prices with or without the cartel, and those “small changes” happen all the time. To illustrate his point, he noted that natural gas markets, which have similarly (relatively) inelastic supply and demand, yield gas prices that are even more volatile than oil prices … and there’s certainly no “gas cartel” that one can blame for that.

Smith concluded with a powerful point: if a cartel exists and successfully reduces supply, the cartel members will enjoy excess profits, or “rents” in the jargon of economists. Should those rents go instead to consumers? As consumers, of course, we think that it is unfair that the rents (the difference between the world crude oil price and the cost of production plus a normal profit margin) are denied us. But beyond the fact that we benefit, is there any objective reason to believe that our claim to those rents are morally stronger than the producers’?

Cato adjunct scholar Richard Gordon offers the most powerful response to the Morriss & Meiners paper; “so what?” Whether we like or not, OPEC exists, it has market power, and it is in their rational self-interest to use it. Given that we cannot change those facts, how can we best respond? By leaving the market alone. OPEC-driven oil scarcity will produce higher prices which will, in turn, induce the necessary amount of non-OPEC exploration and production, energy conservation, and investment in alternative fuels. Market actors – if they choose – can hedge against price volatility by signing fixed price, long-term contracts, by taking positions in the futures market, or by investing in energy efficiency. The contention that government will act more efficiently in these pursuits than will the market only holds (maybe) if we can find significant market failures in non-OPEC oil and gas production, energy consumption, or alternative fuel markets … and we cannot.

Unfortunately, these issues are muddied by statements such as Morriss’ and Meiner’s contention that “The international market for oil is not a free market.” This is the standard cry of those who wish to justify intervention. After all, if it’s not a free market, leaving it alone does not yield efficiency; only intervention – ideally, to make it a free market, or less ideally, to dictate energy production and consumption patterns reflecting what we think would follow from an OPEC-free market – can hope to do that. But think about it. The international oil market is extremely competitive. Price signals change minute by minute and quite accurately reflect variations in supply and demand. At worst, the market simply has less oil to distribute because OPEC holds back production. The market qua market, however, works fine.

The Economist magazine has an article worrying that the proposed US-EU trade talks — discussed in this Cato paper and at this recent event — are floundering. They say, “[r]ight now, the pact is in trouble, beset by small-mindedness and mutual suspicion.” All is not lost, though: “Time, then, for a big push on both sides; this pact can still be saved.”

Now, I can see why people get concerned about trade negotiations. Many of them drag on for years, and the prospects for completing large-scale negotiations look dim these day. But there’s something that should be kept in mind about the US-EU talks: They haven’t even started yet! The negotiations won’t start until July, and it’s still only April. So everyone needs to relax a bit.

Having said that, I can see why people would express concern. The pre-negotiation jockeying suggests there will be serious difficulties. For example, France wants “cultural sectors,” like TV, radio and film, exempted. On this point, the Economist notes:

European governments recently sent trade officials to Brussels to a first meeting on their offer to America. Led by the French, envoys from southern and eastern Europe called for a long list of red lines. These covered the usual stuff: agriculture, public services and “audio-visual” content (eg, bungs for French cinéastes, airtime quotas to keep Flemish hip-hop on the radio). That appals Team Obama, though not because Americans are blameless. From financial services to air passenger services, America maintains lots of barriers to trade. The real fear is that if Europe starts setting out red lines, trade sceptics in America will draw their own.

There is no doubt that this kind of economic nationalist thinking gets in the way of trade liberalization. Instead of recognizing the benefits of opening the domestic market to imports, too many countries try to “protect” their economy from foreign competition. The reality is that the economy benefits from this foreign competition, and governments should be fighting to see who can liberalize the most.

Unfortunately, based on what they see as rational domestic political calculations, governments do not think or act this way. They try to use trade negotiations to open up export markets, while maintaining import protection. Not surprisingly, this undermines the potential benefits of the negotiations, and makes it very hard to get deals done.

In order for the proposed US-EU pact to avoid stalling out, as some other trade negotiations have, some realism could be helpful. We shouldn’t expect a trade deal to lead to complete and total free trade. At best, it will simply make some progress towards more liberalization. And if it can do that, that’s a good thing.

To make real progress, though, trade negotiators need to change their mindset. Protection from foreign competition is not something to be maintained through special exceptions in trade deals; rather, protection is bad for the economy as a whole (despite any benefits to particular interest groups), making us all worse off. If some day trade officials can recognize this basic economic truth, trade negotiations will become much easier!

There are plenty of reasons to legalize marijuana. But one that has received perhaps too much attention is tax revenue. In this Cato Daily Podcast (Subscribe! via iTunes), senior fellow Jeff Miron argues that tax revenue estimates are simply too rosy.

Miron’s 2010 report, The Budgetary Impact of Ending Drug Prohibition, estimates that the overall fiscal impact (including tax revenue) of legalizing marijuana nationwide could be tens of billions of dollars, the revenue boost that legalization supporters trumpet is overstated.

The Doing Business project is among the World Bank’s most useful activities – both for scholars and, more importantly, for policymakers who are interested in pursuing pro-market reforms. It is disheartening to see that the review of the project, initiated last year by the Bank’s President Jim Yong Kim, has been hijacked by groups like Oxfam, Christian Aid or CAFOD, which are trying to erode the project’s analytical sharpness and destroy its role as a focal point for economic reformers in low- and mid-income countries. Perhaps they would like to see it scrapped altogether.

Marian Tupy and I are discussing the controversy, and offering arguments in favor of the Doing Business project in our article at Foreign Policy. Bottom line:

It is true that Doing Business is not an ideal metric of business environment: Nothing is. Yet over the past decade the survey has proven an extremely useful tool both for scholars and businesspeople who want to compare the ease of actually conducting business in different countries, and for policymakers trying to foster the development of the private sector. Unless someone comes up with a better alternative, discarding or watering down this metric is likely to lead to less well-informed choices about policy.

We may disagree about the relative importance of a good business environment for poor countries. Yet few would suggest that it should be simply ignored. It’s difficult to avoid the impression that Doing Business is currently coming under attack by groups with ulterior motives, groups who are inimical to a pro-market and pro-growth policy agenda. Given the extraordinary economic and human progress achieved in the last few decades through deliberate improvements to business environment, one hopes that the Doing Business project remains central to the World Bank’s portfolio of activities.

Something fishy happened on Friday, and without further action in Congress it should scuttle the legislation to exempt the Federal Aviation Administration from sequestration-based spending limits. But maybe the old saying, “close only counts in horseshoes and handgrenades,” also applies to Senate unanimous consent agreements. If President Obama gives the bill five days of public review under his Sunlight Before Signing promise, perhaps it can be hashed out before anyone does anything foolish.

You’re probably aware of the background: Across-the-board spending cuts were threatening air travel delays because of FAA furloughs. Late last week, the House and Senate both passed bills to allow the Department of Transportation to move money around, clearing up that problem. (No new spending; just movement of funds from lower priorities to air traffic control.)

As I detailed on the Wash​ing​ton​Watch​.com blog late Saturday, the Senate and then the House passed identical bills, but determined to see the House version passed into law. Because the House would pass its bill after the Senate was gone for the week, the Senate agreed to automatically pass a bill coming from the House “identical” to the one it had passed. Problem solved.

But on Friday afternoon, after the House had passed its identical bill, sponsor Rep. Tom Latham (R‑IA) came to the floor and asked unanimous consent to change the word “account” to “accounts” in his bill. The change is a mystery. My guess is that the reference to a singular appropriation account would not allow needed flexibility because there are many FAA accounts. But the change also made the sentence ungrammatical as it has a second reference to a singular account.

Whatever the reason, there was a reason. And after changing the legislation, it was no longer identical to the Senate-passed bill. Thus, the bill sent to the Senate could not be automatically passed. Accordingly, the bill does not go to the president and does not become law.

Now, is the difference between the singular and the plural of the word “account” small enough that the Senate can go ahead and treat the bills as identical? That threatens the meaning of the word “identical.” It certainly mattered in the House. Procedure expert Walter Oleszek calls unanimous consent agreements of this type “akin to a negotiated ‘contract’ among all Senators, [which] can only be changed by another unanimous consent agreement.”

The House-passed bill not being identical to the Senate-passed bill, the better approach is to find that the Senate unanimous consent agreement does not apply, and the House bill should sit in the Senate awaiting further action.

At the time of this writing, no public sources indicate that H.R. 1765 has been passed in the Senate, presented to the president, or signed. If President Obama does receive the bill, he should give it the five days of public review that he promised as a campaigner in 2008. This would allow things to get sorted out, so that we avoid the constitutionally embarassing spectacle (and future Jeopardy/​Trivial Pursuit item) of a president sitting down to sign a piece of paper that is not actually a bill readied to become a law.

Danny Hakim of the New York Times tells us how state government works under Andrew Cuomo, in an in-depth investigation of the Empire State Development Corporation:

New York State’s economic development agency created a new position last June, and then found a candidate to fill it: a young man named Willard Younger, who had just graduated from Colgate University with a degree in classics and religion. He became a special projects associate, at a salary of $45,000 a year, according to state personnel records.

His father, Stephen P. Younger, is a lawyer and power broker in legal circles who was a member of one of Gov. Andrew M. Cuomo’s transition teams. He has also donated $26,000 to Mr. Cuomo’s campaigns over the years, disclosure records show.

The next month, the agency hired 23-year-old Andrew Moelis, a University of Pennsylvania graduate, for another new position, strategic planning associate, at a salary of $75,000 a year.

Shortly before Mr. Moelis’s first day of work, his father, Ron Moelis, a prominent real estate developer, gave $25,000 to Mr. Cuomo’s re-election campaign, according to the records.

Check out the return on investment available to political donations: give $25,000, get $75,000 within a year. I wonder if any of Mr. Moelis’s real estate developments offered such an ROI. As I wrote many years ago in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there.…

Every dollar spent by the federal government ends up in someone’s pocket as a salary, a transfer payment, a subsidy, a purchase or a loan. But there are other valuable services available, too: regulations that eliminate or hamstring your competitors, for instance, or a tax provision that induces consumers to purchase your product.

But “jobs for the boys” can also be a way to reward political supporters. And if it’s a job for your own boy, so much the better.

Agencies like this can also be very helpful to a politician with larger ambitions:

Empire State has also hired friends of Mr. Cuomo who may help form his political brain trust should he decide to run for president in 2016.

James P. Rubin, a former State Department spokesman, was hired at the agency in 2011 as counselor on competitiveness and international affairs, with a salary of $150,000 a year. Mr. Rubin’s appointment was seen by political consultants as a move by Mr. Cuomo to add a foreign policy hand to his stable.

Empire State hired 49 people in the first 20 months of the Cuomo administration, according to personnel records obtained by The Times. Nearly a third were the governor’s political associates, donors and friends, or their relatives, the records and interviews show.

At least seven of the new hires with connections were placed in newly created positions.

We hear a lot about austerity in government today. We hear that “state and local government coffers [are] empty.” We hear that spending has been “cut to the bone.” I’d say that the Empire State Development Corporation would be a good place to save the New York taxpayers $741.8 million this year.

In an op-ed on the New York Times web site yesterday, I voice my belief that the gun control bill authored by Sens. Joe Manchin and Pat Toomey, if properly modified, can and should pass with the support of gun rights advocates.

In the interest of being as specific as possible, I’d like to expand upon the sentiments expressed in that piece.

When the Senate rejected the Manchin-Toomey compromise on gun background checks, opponents of the bill were condemned for ignoring polls signaling up to 90 percent public support. The stonewalling by gun rights supporters was indeed a mistake—not just on the politics, but on the substance as well. In exchange for the modest, reasonable, and constitutional augmentation of background checks, there was plenty in the legislation for gun rights proponents to embrace.

Manchin-Toomey may be re-introduced. Gun rights advocates can seize the opportunity to address some of their own priorities while avoiding being labeled as obstructionists once again.

Here are the parts of Manchin-Toomey that gun rights proponents should be happy about, with a few recommended changes: 

First, the bill allows interstate handgun sales through dealers—under roughly the same rules that now govern long gun sales. Current law does not permit buying handguns from out-of-state sellers. So the new provision represents a major development. 

Second, Manchin-Toomey confirms that a firearms registry by the attorney general is prohibited, and adds a 15-year prison term for violators. The attorney general limitation should be broadened to cover all government agencies, the bill should clarify that data from all sources are precluded, and civil damages should be available for misuse of database records. Justice Department regulations (which should be codified in Manchin-Toomey) state that government records of approved applicants must be destroyed within 24 hours. Dealers retain the data much longer, but law enforcement agencies have access only during a criminal investigation. Registry prohibitions may not be foolproof, but Manchin-Toomey adds a layer of protection. 

Third, the bill sets a 48-hour limit on performing background checks. That’s reduced to 24 hours after four years. Most gun shows are two-day events—incompatible with current law that allows up to 72 hours for checks. That’s one reason for fewer shows of late. Under Manchin-Toomey, the National Instant Criminal Background Check System (NICS) would come closer to matching its name.

Fourth, Manchin-Toomey reinforces current law permitting interstate transportation of firearms and ammunition—unless a certain weapon or use is barred. Guns have to be unloaded and inaccessible or locked, but the re-write of existing rules helps. Most important, state laws against unlicensed possession are preempted.

Fifth, the bill immunizes sellers from litigation when a gun is used unlawfully, unless the seller knows or should have known that the buyer provided false information or was ineligible to get a gun.

Sixth, Manchin-Toomey improves NICS by expending $400 million over four years, withholding grants to states that don’t meet specified benchmarks, clarifying that mental health records in NICS do not violate the privacy provisions of the Health Insurance Portability and Accountability Act, and assuring due process for veterans facing loss of gun rights because of alleged mental illness.

Weighed against those pro-gun-rights provisions is a modest concession to gun controllers: Background checks—which already cover all sales through federally licensed dealers, whether at stores or gun shows, over the Internet, or by mail—would be extended to cover private sales at shows, over the Internet, and through published ads. Manchin-Toomey still wouldn’t cover non-commercial transfers such as gifts or bequests, in-person sales outside a gun show, or sales responding to postings on community bulletin boards. Moreover, buyers would be exempt from background checks if they had a carry permit issued within five years. Until NICS can function remotely, Manchin-Toomey should also exempt private sales to rural residents far from licensed dealers.

Finally, three suggested improvements: First, dealers impose fees for background checks ranging from $25 to $125. If those fees are deemed to promote public safety, the public (not just law abiding gun owners) should foot some of the bill. That could be accomplished by federal rebates of a stipulated amount to those who pass the NICS check.

Second, Manchin-Toomey instructs that NICS checks must prioritize gun shows over gun stores. As a result, backlogs could hamper stores during weekends when shows are held. That favoritism should be eliminated by increasing NICS personnel to expedite processing.

Third, existing law denies firearms to anyone who is “an unlawful user of or addicted to any controlled substance.” The maximum sentence is ten years in federal prison. Thus every would-be gun owner who lies to NICS about marijuana use, and every owner who smokes marijuana, could spend a decade behind bars—an unconscionable punishment that must be rectified. 

Manchin-Toomey is complex and controversial. Committee hearings are necessary and the public must have ample time to review the legislation. Still, considered as a package, a reworked Manchin-Toomey would offer substantial benefits to gun owners while imposing tolerable restrictions—none of which intrudes on core Second Amendment liberties.