Monday, January 16, 2012

Facts, figures, and finagling

Rep. Chip Cravaack (R-MN8), in his "Week in Review & Look Ahead" for January 13, quotes the National Association of Manufacturers that the Keystone XL pipeline project is "estimated to create 20,000 high-paying manufacturing and construction jobs".

So, what is a "high-paying" job? My wife cynically says anything above minimum wage. For starters, I'll go with $20/hour. At forty hours per week that would be $800/week and $41,600/year. So, 20,000 workers would be paid 832 million dollars. I was often told that the overhead for employees was equal to their salary. We do have to add 6.2 percent payroll tax, health insurance, and liability insurance. Those would easily take us over one billion dollars just for labor for the pipeline. But if "high-paying" really means high-paying, then we're probably talking $40 or more an hour. That means were talking over two billion dollars for labor for the pipeline. But these probably won't be 40-hour weeks, but more likely 60-hour weeks. That gets us to over three billion dollars.

Then we have side effects upon side effects, externalities in economic terminology.

First, all those workers will drive up local costs, making life very expensive for local people. This has already happened in the Dakotas.

Second, the free market proponents of this project should consider the anti-free market components of this project. A true free market has many buyers and sellers, buyers and sellers have all the information they need to make a decision, buyers and sellers are free to enter and leave the market, and there are no externalities – costs to other than the buyers and sellers.

There will essentially be one buyer for the right of way for the pipeline. That buyer will determine which property will be required and will set a price. The property owners of that right of way are not free to leave the market; the buyer and governments have determined that they cannot leave the market. Interestingly, free marketers are very much against government interference with private affairs.

The externalities other than contamination of the aquifers have not really been considered. These include the distortion of local economies mentioned above, farmland taken out of cultivation, air pollution from the large construction project, and cost of security for the pipeline (both for safe operation and against malicious damage).

Another factor not being considered is opportunity cost. An opportunity cost is money spent for one thing that could have given greater gain elsewhere. An opportunity cost is not regularly washing your car and paying more later for rust repair or shorter useful life.

How many solar panels and windmills could these billions buy? How much battery research could these billions buy? How much energy conservation could these billions provide? How much public transportation could these billions provide? Hey, a bus driver may not have a "high-paying" job, but it is a great job with a living wage. I know, I was a bus driver. And every passenger is often one less car on the road.

What is needed, and will rarely ever happen, is a full cost-benefit analysis of projects like these. Rather than look at the benefits for a few, we should look to the benefits and costs to the whole society. Rather than cater to special interests, something many of the writers of the Constitution decried, we need to seek the public good:

"It is a misfortune, inseparable from human affairs, that public measures are rarely investigated with that spirit of moderation which is essential to a just estimate of their real tendency to advance or obstruct the public good; and that this spirit is more apt to be diminished than promoted, by those occasions which require an unusual exercise of it." - Federalist No. 37, James Madison