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Consumer Price Index Data Reveals High Wage Areas Are Experiencing Higher Inflation

From: Minimum Wage Facts & Analysis

Inflation continues to rise to historic heights, and rapidly rising state minimum wages appear to be adding fuel to the fire. As employers feel the pinch of operating costs rising on many fronts, Bureau of Labor Statistics (BLS) data shows areas with steeper minimum wage mandates have higher inflation rates for food purchased in restaurants or take-out establishments.

The Bureau of Labor Statistics collects data on inflation through growth in the consumer price index (CPI), which measures price increases for goods commonly purchased by the average consumer. BLS also measures inflation by specific categories of goods, including food prices both “at home” including groceries, and “away from home” which includes various take-out, fast-food dining, and full-service meals.

As the restaurant industry historically employs the majority of minimum wage earners, rising mandates are most likely to affect price increases in restaurant establishments in this “away from home” category.

West Coast states have had notoriously high minimum wage requirements – reaching $15 per hour this year in California and $14.49 per hour in Washington. Despite experiencing similar levels of overall inflation (i.e. CPI increase for “all items”), these West Coast areas have experienced inflation for food away from home as much as 10 percentage points higher than areas that have not raised their mandate above the federal minimum requirement of $7.25 per hour.

While each group (high wage states and $7.25 wage states) each experienced overall inflation averaging 20% from 2017 to 2022, inflation of food away from home was significantly different. The CA and WA regions experienced on average a 25% increase in prices of food away from home, compared to less than 18.7% increases for Georgia and Texas regions abiding by a $7.25 minimum wage and a $2.13 tipped wage.

Looking at inflation over the last decade reveals this trend is not a recent fluke. California’s state minimum wage has risen by 88% since 2012, and Washington state’s rose by 60% over the same period. Inflation in these areas is up to 20 percentage points higher for food away from home since 2012 compared to states mandating the federal minimum wage.

This finding concurs with existing economic research on the link between minimum wage mandates and inflation cycles.

One review of the existing economic literature on the inflationary effects of wage hikes finds a 10 percent minimum wage increase raises prices by up to 0.3%. Another study by the American Enterprise Institute found the same wage hike could cause more dramatic inflation in the southern U.S. – up to 2.7% increases in price. A Stanford University economist also found raising the minimum wage drives the largest price increases for the poorest 20% of families.

 

The best US states for freelancers

From: Tipalti

The pandemic gave workers the opportunity to step back and reflect on their careers with many of them reevaluating their priorities, quitting their jobs and going freelance. Workers are now less willing to stay in jobs that they don’t find fulfilling and self-employment gives people a chance to take control of their professional lives, making their jobs work for them by allowing for greater flexibility and higher wages.

So which countries around the world and which US states are the best for freelancers? We’ve delved into the data to find out, analyzing the number of freelancers and coworking spaces, the cost of living, broadband and mobile speeds and costs and the demand for freelancers to find out.

The best US States for freelancers

Texas 8.2/10: Texas can be crowned the top state for freelancers in the US. Freelancers in the state are in high demand as it ranks in the top 3 for annual searches. The Lone Star State also has one of the fastest broadband speeds in the country, ranking in the top 10.

Tennessee 7.2/10: Next up is Tennessee, scoring highly in the index thanks to its low cost of living. The Volunteer State ranks in the top 10 for this factor. It also has a high proportion of self-employed workers, ranking just outside the top 10.

Georgia 7.1/10: Georgia ranks third, thanks to it placing in the top 10 for 3 factors. Georgia places in the top 10 for the lowest cost of living so freelancers won’t have to be worried about their finances. Demand for freelancers is also high in the state, placing in the top 10.

Number of self-employed people (per 100,000 residents)

Montana 8,600: Taking the top spot for the highest proportion of self-employed workers is Montanna. Agriculture is the largest industry in The Treasure State, and self-employment in agriculture is commonplace creating the largest proportion of self-employed workers in the US.

Maine 8,400: Self-employment means you are fully in control, setting your own hours and following your passion. Nobody knows this more than workers in The Pine Tree State as Maine takes second place with 8,400 self-employed workers per 100,000 people.

Vermont 8,200: Vermont is one of the most entrepreneurial states on our list with 8,200 self-employed people per 100,000. Most of the self-employed citizens of The Green Mountain State have jobs in the construction industry, followed by jobs in real estate.

The Monthly Cost of Living

Mississippi $4,401: Taking the top spot for the lowest cost of living is The Magnolia State. Rent and land prices in the state are lower than the other 49 states by 37% and the ease of shipping means prices for goods are kept low.

Arkansas $4,442: In second place is Arkansas with a monthly cost of living of $4,442. The low average salary in the state means the cost of living is lower across the board and property taxes are some of the lowest in the country.

Oklahoma $4,447: Up next is Oklahoma, ranking third as one of the US’s most affordable states. Housing and rent prices are nearly half that of the national average, thanks to a large amount of affordable land. Utility bills are also roughly 8% lower than the national average.

Number of coworking spaces (per 100,000 people)

Colorado 2.4: One of the most important benefits of coworking spaces is the motivation they provide by getting rid of distractions and increasing productivity. This is important to the self-employed workers in Colorado as they top the ranking for the most coworking spaces per 100,000 people.

New York 1.9: The Big Apple ranks second for this factor, with many self-employed New Yorkers thriving in coworking spaces thanks to the flexibility they provide and their communal atmospheres. The state has 1.9 coworking spaces per 100,000 people.

California 1.6: Next up is The Golden State with 1.6 coworking spaces per 100,000 people. Coworking spaces have flourished in the state thanks to the high commercial rent prices making office spaces less affordable for smaller businesses.

Delaware launches drive to fill 400 state jobs

From: Town Square Live 

Delaware has launched a $225,000 campaign to advertise the many state jobs available, and to make sure job seekers know the state has raised salaries and offers alternative schedules.

The campaign is a unique move for the state, pointed out Claire DeMatteis, secretary of the Delaware Department of Human Resources.

Delaware DHR State Jobs

CLAIRE DEMATTEIS

It’s aimed at catching the attention of Delaware workers as well as workers in nearby states and getting them to explore state jobs and apply, she said.

“The state government in the past really hasn’t promoted itself and tooted its own horn and said, look, we have great opportunities for people with great benefits, competitive salaries, and flexible work schedules,” DeMatteis said. “Part of this is truly getting the word out like private sector jobs do on social media, on billboards, on buses and really tell the great nature of state jobs.”

The state jobs campaign will run through October and include radio, social media, outdoor, transit, and digital advertising.

Like other large employers, state offices are having trouble filling jobs, said DeMatteis, who took over Human Resources in January after serving as commissioner of the Department of Correction and overseeing COVID funds in Carney’s office.

There is an imbalance between the technical skills required and the positions available, while generational changes regarding work-life balance no longer want the once proverbial 9 a.m. to 5 p.m. office jobs.

Many of the workers the state is seeking often look for work in the private sector or other government agencies: nurses, employment services specialists, unemployment insurance claims processors and field agents, vocational rehabilitation counselors, disability determination adjudicators, and law enforcement officers.

State jobs competitors

It’s tough across the board to hire nurses or people interested in law enforcement, DeMatteis said.

But some of the state’s empty positions require no special training, such as corporation specialists. Those workers deal with the many corporations that are headquartered in Delaware and the specialists are trained on the job, said DeMatteis.

“As you know, in a state like Delaware, our corporation services are one of the most important things we do for business,” she said. “That’s an area where we’ll train people with a high school diploma. You can come in, get the training — we pay for it — and you get a really good salary with great benefits.”

The jobs also are not politically oriented and won’t change with administrations, DeMatteis said.

Flexible work hours

The advertisements are a small part of the state’s multi-pronged approach to recruiting workers to fill its current 400 openings, said DeMatteis.

In April, her office announced a new policy that included alternative work arrangements with flexible work hours for state jobs.

Many state workers were among those who needed to work from home during the worst of the COVID-19 pandemic, and they liked it, DeMatteis said.

In addition, many younger workers like alternate schedules, such as four-day work weeks, which the state now offers for some jobs.

DeMatteis pointed out one, called the window schedule, that allows someone to work from 8 a.m. to 2 p.m., leave for a few hours, and then work from 7 p.m. to 9 p.m.

 

DHSS nurses state jobs

THE DEPARTMENT OF HEALTH AND SOCIAL SERVICES WOULD LIKE TO HIRE MORE NURSES AND CERTIFIED NURSING ASSISTANTS. THIS STOCKLEY NURSE IS ADMINISTERING A VACCINE IN FEBRUARY 2021.

Higher pay

It’s generally accepted that state jobs pay less for the trade-off of great healthcare and great retiree benefits.

DeMatteis said that legislation passed this year by the General Assembly and signed by Gov. John Carney created a 6% salary bump for every state employee.

And, she pointed out, “Nobody can match the state’s health care benefits and retiree benefits.”

Signing bonuses

Delaware also has started paying signing bonuses for the high-demand, hard-to-fill jobs, DeMatteis said.

Those who accept new jobs will get a $5,000 signing bonus.

Half is paid when the worker starts the job. The other half is paid after the worker has been on the job for two years, she said.

Recruiting bonuses

Delaware also is paying $3,000 recruitment bonuses to employees who refer a friend, colleague, neighbor or family for a job, if that person accepts a position.

The current employee gets $1,500 when the new employee begins work. The other $1,500 is paid when the new employee has two years on the job, DeMatteis said.

Working with high schools

The Department of Human Resources plans to continue working through the Delaware Career Pathways program in state high schools to prepare students to work in state jobs, such as a corporation specialists.

Those programs allow high school students to take classes related to fields they are interested in and even work or shadow workers in those jobs, must as vocational schools place students in tracks for culinary or automotive work.

No-shows for interviews

The state’s hiring problems reflect what is going on in the private sector, including having a huge number of potential hires sign up for interviews, only to have many never show up, she said.

Large employers have been complaining that the state should require anyone on unemployment to not only prove they have sought a job but actually show up for the interview. They are not required to show up, employers say.

DeMatteis thought showing up was a requirement, and said she would ask Karryl Hubbard, secretary of the Department of Labor, about it.

“If that’s true…that’s a loophole we need to shore up,” she said. “It would make no sense that it’s just an appointment…That provision needs some tweaks.”

Efforts to reach Hubbard or a Department of Labor spokesman were not immediately successful Thursday.

Changes in Unemployment Rate by City

From: WalletHub 

The U.S. job market has healed a lot from the damage done by the COVID-19 pandemic, and the national unemployment rate is currently at 3.6%, which is 76% lower than the peak of 14.7% during April 2020. Unfortunately, high levels of inflation and the threat of a recession on the horizon could cause a surge in unemployment in the near future. Some cities’ jobs have weathered the storm better than others, though.

In order to identify where workers have been most affected by the coronavirus pandemic, WalletHub compared 180 cities based on five key metrics. We looked at the change in each city’s unemployment during the latest month for which data was available (June 2022) compared to May 2022, June 2021, June 2020 and June 2019. We also considered each city’s overall unemployment rate.

Unemployment Rate Changes by City
Overall Rank  City Unemployment Rate (June 2022)  Change in Unemployment (June 2022 vs May 2022)  Change in Unemployment (June 2022 vs June 2021)  Change in Unemployment (June 2022 vs June 2020)  Change in Unemployment (June 2022 vs June 2019) 

Methodology In order to determine the cities with the biggest changes in unemployment, WalletHub compared 180 of the largest cities — including the 150 most populated U.S. cities, plus at least one of the most populated cities in each state — across two categories. In the first category, we compared the change in unemployment for the latest month for which data was available (June 2022) to May 2022, June 2021, June 2020 and June 2019, in order to show the impact since the beginning of the pandemic and the recent changes in the job market amid high inflation. In the second category, we looked at each city’s overall unemployment rate. We then used the average of those categories to rank-order the cities.

Change in Unemployment – Total Points: 50
  • Change in Unemployment in June 2022 vs. May 2022: Full Weight (~12.50 Points)
  • Change in Unemployment in June 2022 vs. June 2021: Full Weight (~12.50 Points)
  • Change in Unemployment in June 2022 vs. June 2020: Full Weight (~12.50 Points)
  • Change in Unemployment in June 2022 vs. June 2019: Full Weight (~12.50 Points)
Unemployment Rate – Total Points: 50
  • Unemployment Rate (June 2022): Full Weight (~50.00 Points)

Sources: Data used to create this ranking were obtained from the U.S. Bureau of Labor Statistics.

DE’s Legislative Session: Partisan Rule Leaves Delaware Taxpayers Out!

From: Kathleen Rutherford, Executive Director, A Better Delaware

As America enters a recession and inflation reaches a 40-year high, one might think Delaware would take some of its $1 billion budget surplus to ease the burden on taxpayers and small businesses. If you ask a legislator, they might point to the one-time $300 “relief check” they graciously returned to each Delaware taxpayer. But the reality is, every opportunity the General Assembly had to provide meaningful relief that would incentivize growth and create economic opportunity — they met with inaction. That’s in stark contrast to 24 states which, during the same period of time, enacted lasting tax cuts.

According to the Tax Foundation, ten states enacted individual income tax rate reductions, six states enacted corporate income tax rate reductions, and two states permanently exempted groceries from their respective sales tax bases.

Though meaningful tax relief didn’t happen, there were a few good bills that made it across the finish line. Senate Bill 188, for example, increases the $2,000 pension exclusion otherwise available for military pensioners under age 60 to $12,500, providing an incentive for military retirees under age 60 to locate in Delaware. The bill passed in both chambers and awaits the governor’s signature.

Yet, there were numerous bills that would have helped struggling taxpayers that never saw the light of day. Consider House Bill 358, a bipartisan bill introduced by Rep. Bill Bush, D-Dover, that would have cut the realty transfer tax by 25%. Delaware currently has the highest realty transfer tax in the nation. The realty transfer tax is levied on the purchase price of the home and is usually split between the buyer and seller. According to Zillow, the median price of a home sold in Delaware as of June was $356,744. Had it passed, HB 358 would have reduced the transaction cost for the sale of such a home by more than $3,500 and collectively saved homebuyers an estimated $83 million in its first year. According to the National Association of Realtors, realty transfer taxes are regressive because the tax burden is higher for lower-income households. Additionally, increased closing costs on the transfer of existing residential property are likely to reduce the ability of new and current homebuyers to purchase a home, the association notes. “As a result, these taxes have a negative impact on housing purchases and therefore economic development.” Even if the bill passed, Delaware’s transfer tax would still be higher than most: Only Delaware, the District of Columbia, New Hampshire, New York, Washington, and Pennsylvania, have transfer taxes above 1%. Unfortunately, the bill was assigned to the House Revenue & Finance Committee where it never received a hearing.

House Bill 191 would have cut each personal income tax bracket by 10%. The bill was assigned to the House Revenue & Finance Committee in May 2021 and never received a hearing. The bill would have also cut the corporate tax rate from 8.7% to 6.1%. At the same time, West Virginia’s House of Representatives passed a bill to cut each income tax bracket by 10%.

House Bill 445 would have cut Delaware’s gross receipts tax by 50%. Gross receipts taxes are viewed as some of the most economically damaging, as they are assessed at each stage of a supply chain rather than at the final point of sale. This leads to tax pyramiding, which causes prices to rise as the cost of taxes is often shifted to the consumer. Reducing the gross receipts tax would have allowed small businesses to be more competitive and created a tax environment that benefits both businesses and consumers. Some refer to the gross receipts tax as “Delaware’s hidden sales tax” because it is applied to the business rather than the consumer. Inevitably, though, that cost is passed on to the consumer. 45 states have repealed the gross receipts tax.

Charlie Copeland, director of Caesar Rodney Institute’s Center for Analysis of Delaware’s Economy & Government Spending, writes, “In short, during bad economic times, Delaware’s hidden sales tax, [also known as] the gross receipts tax, ensures that Delaware small business owners pay among the highest personal income tax rates in the nation – taking money out of the business at the exact moment the business most needs that money.”

The bill was assigned to the House Revenue & Finance Committee where it never received a hearing.

With the state consistently bringing in hundreds of millions in surplus funds, now is the time to give taxpayers the chance to thrive, not to burden them with additional economic baggage.

Most importantly, voters must look beyond the $300 checks and realize how much of their hard-earned money Delaware’s government is keeping — not giving back — and keep that in mind in the upcoming elections.

275 Young People to be Employed Through Bank of America’s Wilmington Youth Career Development Program

From: WilmToday

Wilmington’s 2022 Youth Career Development Program (YCD) helps young Wilmington residents form professional skills and prepare them for their careers. YCD recently received a $100,000 grant from Bank of America to aid in employing 275 young professionals across a wide range of career paths and internship opportunities this summer.

Bank of America also provides Better Money Habits financial literacy lessons to all YCD participants. The Better Money Habits program is run by Bank of America employees and uses interactive and fun methods to teach financial topics like budgeting, borrowing, investing, and building credit.

Wilmington Mayor Mike Purzycki gave his thoughts, saying “The continued financial commitment over the past seven years and financial literacy programming from Bank of America has been impactful for the program and our teens. We appreciate Bank of America’s generosity and continued support of the future of the City of Wilmington and our residents.”

Recipients of the grant were chosen based on their commitment to addressing basic needs and workforce development. This is a part of Bank of America’s philanthropic efforts in local communities.

Chip Rossi, President of Bank of America Delaware, commented that “The City of Wilmington’s Youth Career Development program is a long-term commitment by investing in our future workforce and working to create opportunities for youth to help them thrive. The city is advancing racial equality and economic opportunity in our community and having a tremendous positive impact on the next generation.”

Read more WilmToday blogs by clicking here.

Deadlines and Licensing Are a Recipe for Disaster

From: Libertas Institute

Most people face arbitrary deadlines in their daily lives. Whether you had a school assignment due on an odd date or had to complete a chore in a certain time frame, these deadlines can become cumbersome.

Unfortunately, arbitrary deadlines implemented via increased government regulation are keeping Utahns out of the labor market. This comes at a time when Utah desperately needs employees to fill essential roles, like those in healthcare left vacant by recent labor shortages. Without these roles being filled, Utah’s labor market will be prohibited from growing at a pace necessary to meet consumer demands.

Often those attempting to become licensed face arbitrary deadlines buried within licensing requirements. These deadlines dictate that a license’s education and experience requirements must be completed either within a certain number of years or no earlier than a certain amount of years.

This time frame unfairly burdens individuals who may have low incomes or large extraneous time commitments. For example, a low-income individual or a mom with multiple kids may need more time to complete the requirements due to not being able to pay for or take time off work for the education requirements within the timeframe.

Under the current system, Utahns could be barred from licensure because they were one minuscule requirement short of meeting licensure requirements in an established given time frame. Would giving this individual another month or week to complete that last hour really harm citizens? Absolutely not.

On the flip side, individuals who do have the means to meet licensure requirements in given time frames are also being punished by this system. If a highly motivated individual wanted to complete a license in an amount of time below the required years to obtain a license they would also be blocked from doing so. The result of this is this individual loses out on the income they could’ve accumulated in their new profession. This can result in monetary burdens that are completely avoidable.

Clearly, unnecessary time restrictions must be done away with. Those hoping to contribute to their communities by entering the workforce must have the flexibility to obtain licenses in a way that does not unfairly burden them. Only when this happens can Utah’s economy and consumers best be served by the workforce.

Delaware’s Mix of Businesses has Changed – Regulations Need to Change

From: Caesar Rodney Institute

In the late 1990s, Delaware’s economy was known for the “four C’s” – Chemicals, Chickens, Cars, and Credit Cards, and big business thrived. By 2000, Delaware had 113 business entities across the state that each employed more than 500 people, mainly in those four industries, but then Delaware changed.

The following decade wreaked havoc on three of the C’s – Chemicals, Cars, and Credit Cards – and the most recent decade has not seen any rebound. By 2020, the number of businesses employing more than 500 people had dropped by 22.1% (by 25 companies) to only 88 companies.

During this same time when “big business” shrank its footprint in Delaware, small businesses struggled to gain a footing. In 2000 there were 13,610 businesses with fewer than five employees in Delaware. Today that number is 15,499.

These very small businesses have grown by 13.8%. Similarly, Delaware businesses with less than 50 employees have grown from 22,536 firms to 26,021 firms, an increase of 15.5%.

Despite the last 20 years of a radically shifting employer mix, the state’s regulatory environment continued to expand dramatically.

Today, according to the Mercatus Center at George Mason UniversityDelaware’s 2019 Administrative Code (DAC) “contains 104,562 restrictions and 6.7 million words. It would take an individual about 374 hours-or more than nine weeks-to read the entire DAC. That’s assuming the reader spends 40 hours per week reading and reads at a rate of 300 words per minute.”

To put this into further context, there are almost seven times more regulations than there are Delaware employers with fewer than five employees. Yet, when one of these micro-businesses needs to upgrade an air conditioner or look for expansion space, the full force of these regulations slows and often stops their investment.

In addition, most of Delaware’s regulations are not simply health and safety regulations – but are under the auspices of Delaware’s Department of Natural Resources and Environmental Control (DNREC). While Delaware has 27,334 Health and Safety regulations, DNREC has 30,523 – 11% more than Health and Safety.

While this mismatch in regulations is already stark, Governor Carney had recently introduced Senate Bill 305 (which did not pass out of Committee) and would have empowered DNREC to grow the regulatory burden on small businesses even more than it already has.

At CRI, we want to be clear; we believe that the creation and oversight of regulations for health and safety – including appropriate environmental regulation – are a central role for government.

But, over time, the government continually adds regulations but rarely removes outdated ones. In Delaware’s case, many existing regulations are aimed at businesses that largely no longer exist in the State (e.g., according to the latest report in 2019 by the Mercatus Center, there are almost 21,000 regulations on chemical manufacturing, an industry almost entirely gone from the state). But the army of bureaucrats devoted to these existing regulations still takes taxpayer money from higher priority areas like education and mental health.

Previous CRI analyses have exposed New Castle County’s economy is smaller today than it was twenty years ago and that Delaware’s aging demographics are making economic growth even more problematic in the state.

Regulatory updating can refocus Delaware’s government on what is important to current and future citizens while freeing small businesses from wasting resources on outdated rules which ensnare them in a bureaucratic morass, slowing or even, in the case of New Castle County, stopping economic growth.

We recommend that Governor John Carney sign an executive order mandating that before a new regulation can be added, two regulations must be removed. Let’s help Delaware’s small businesses help themselves and their employees.

Delaware unemployment rate stagnant in June

From: Delaware Business Times

DOVER – Delaware’s unemployment rate was unmoved for the fourth consecutive month in June, matching the national trend despite adding 2,600 net jobs, according to state officials.

June’s job gains add to more than 3,400 jobs created since February, and Delaware added 400 more jobseekers to continue pushing its record-high labor force over half a million, according to the monthly report released Friday morning.

The labor force captures not only workers and those receiving unemployment benefits, but also those in search of work who aren’t receiving assistance. As workers stop seeking work, for a variety of reasons ranging from retirement to child care needs, they are no longer counted as being unemployed in the state.

Delaware’s June unemployment rate remained at 4.5%, and was still significantly higher than the national average, which also stalled at 3.6% for the fourth straight month.

A year ago, Delaware’s rate was lower than the national average, but the state has since steadily fallen behind in its recovery. It ranked tied for 45th in unemployment rate among states in June, according to U.S. Bureau of Labor Statistics data. It has fallen behind Maryland and New Jersey, which ranked tied for 39th and 35th at 4% and 3.9%, respectively. Pennsylvania was tied with Delaware at 4.5%. Minnesota had the lowest rate of 1.8%, while New Mexico had the highest at 4.9%.

The Delaware Department of Labor’s report is taken monthly during the calendar week that contains the 12th day. The state recorded 22,700 unemployed last month, an increase of 100 people over April.

The official monthly unemployment figure is created by looking at continuous unemployment insurance claims as well as a U.S. Bureau of Labor Statistics survey of residents on their employment status. It tracks not only those receiving benefits, but also those who are ineligible, such as terminated employees, those who have resigned and the self-employed, who only became eligible for assistance under a special federal program established under the CARES Act.

The state’s three counties saw differing rates of unemployment in June, with New Castle, Kent and Sussex counties reporting rates of 4.9%, 6% and 4%, respectively – although those statistics aren’t seasonally adjusted. Wilmington and Dover, the state’s two most populous cities, have seen an even greater impact in job losses, where 7.2% and 8% of workers were unemployed, respectively.

The largest monthly job gains came in the leisure and hospitality sector, which added 1,400 jobs last month after adding 1,000 in May, heading into the busy summer season. It was followed by the professional and business services sector, which added 1,100 jobs; education and health care, which added 600; government, which added 400; and the information, manufacturing and transportation, trade and utilities sectors, which added a combined 300.

Leading job losses was unsorted industries, which lost a total of 700 jobs, followed by construction, which lost 300, and financial activities, which lost 200.

 

 

 

 

Government manipulation of energy markets is a cause of, not a solution to, high energy prices

From:The Josiah Bartlett Center for Public Policy 

High energy prices are a major concern of voters, so naturally the political party that controls Congress and the White House has offered a set of serious policy proposals to lower prices as quickly as possible. 

Hey, we can dream, can’t we?

In reality, voters are being sold a container ship full of malarky about energy prices.

On June 15th, President Biden bizarrely blamed both Vladimir Putin and oil refiners for high gas prices and urged refiners to increase production. It was bizarre because the claims had been debunked just days before by the federal government’s own Energy Information Administration. 

The EIA published an analysis on June 10th, five days before Biden’s letter to oil refiners, that dated the surge in oil and gas prices to 2020, not to the war in Ukraine that started four months ago. And the analysis estimated that refinery capacity would hover between 94% and 96% all summer. 

Sen. Ron Wyden, D-Ore., has proposed doubling the taxes of any oil company that manages to enjoy profits of 10% or more. 

That’s slightly lower than the average profit margin of all industrial sectors in the S&P 500, and just 1.7 percentage points higher than the average for the energy sector, Yahoo Finance columnist Rick Newman reported in April. 

The tech, pharmaceutical, real estate and financial sectors all posted average profit margins last year of more than double the level Sen. Wyden has set for triggering oil company punishments. 

In New Hampshire, Democratic politicians are blaming the Legislature and the governor for high energy prices, claiming that Republicans failed to pass a slate of renewable energy bills to reduce the state’s reliance on fossil fuels. 

But they haven’t cited a single bill that would have lowered gas, oil or electricity prices this summer. 

A story about supposed “legislative inaction” on clean energy published in the New Hampshire Bulletin listed eight bills that were supposed to help deliver us from our current reliance on fossil fuels. Five of the featured bills have passed, which is not something customarily associated with “inaction.”

Not one of the five would have had any effect on current energy prices. One actually delays the reduction of Eversource electricity rates for a year and keeps the ratepayer-subsidized Burgess Biomass plant open. The plant buys wood pulp at above-market rates and has already cost Eversource ratepayers an extra $150 million for electricity.

The three other cited bills were to buy electric buses and electric state vehicles, and to accept federal money for electric vehicle infrastructure. They would have had zero effect on prices this summer.

Voters are being asked to believe that our “reliance on fossil fuels” has caused the recent energy price increases, and therefore anything that begins to shift the energy mix away from fossil fuels will help lower prices.

That is nonsense. The price increases have all been caused by a shortage in the supply of fuels relative to demand. 

Simply put, demand for energy surged in 2020 as the economy roared back to life earlier than expected, and supply has remained far short of demand ever since. 

What about renewables? In New England, gas comprises 53% of the energy mix, and nuclear another 27%, according to regional grid operator ISO New England. Renewables are up to 12%.

State subsidies for wind and solar power would have made no noticeable dent in the region’s reliance on fossil fuels for two primary reasons.

  1. Even if we could build renewable generation capacity on a massive scale in just a few years, wind and solar still rely on wind and sunshine. They aren’t yet capable of replacing gas or nuclear as a reliable source of baseload power.
  2. Renewable energy is not inherently cheaper or more reliable than natural gas. It’s become more competitive, and soon it might become a significantly cheaper source of energy. And if that happens, it won’t need subsidies or government “investments,” because the market will respond on its own.

What could have made a difference? Fewer government interventions to direct investments to satisfy the interests of politicians rather than consumers. 

When the government intervened to block pipelines, prohibit fracking, subsidize U.S. shipbuilders, divert resources to more costly “green” energy, and decommission functional, nuclear power plants, consumers suffered. 

“Under wholesale markets, private companies have carried the risks of uneconomic investments, not utilities and their customers, ISO New England concluded. “Consumers have benefited from this least-cost resource mix created through competitive markets.” 

A competitive market focuses on providing energy at the lowest cost. It will do this absent government interventions, just as markets for food, clothing, power tools and doughnuts do.

Government interventions that prevented investors from pursuing lower costs, and instead attempted to steer money to higher-cost alternatives, made energy markets less efficient, raised costs, and crimped supplies.

Repeal of the protectionist Jones Act alone would drop gas prices by 10 cents a gallon, according to a JP Morgan analysis.

To assert that the solution for high energy prices is more government interventions to further hamstring oil and gas companies would be like saying that the solution for the Boston Celtics’ scoring woes is to put more Golden State Warriors on the court. 

The answer is not more government manipulation of the market. The answer is to lift restrictions that interfere with the market’s natural pursuit of a “least-cost resource mix.”