Those pesky, invisible effects

Back in 1850, a French economist by the name of Frédéric Bastiat published an essay with the title: “Ce qu’on voit et ce qu’on ne voit pas”, literally translated as “What one sees and what one does not see” or, more colloquially, “WHAT IS SEEN AND WHAT IS UNSEEN.” Despite that title, his often-cited piece was not about theology. Instead it addressed human nature, and particularly human nature’s blind spots. Written in plain, lucid, but not technical language, and published in the year of his premature death, Bastiat’s essay dwelled on the unfortunate effects of those blind spots on the economy and on people’s prosperity, concluding:
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
In a way, Bastiat was merely elaborating on a frailty that is obvious enough in other kinds of human behavior. Compulsive shoppers crave the instant gratification of closets full of new clothes or a new car every year, while ignoring the possibility that they may be spending themselves into poverty. People who live on soda and junk food may FEEL pretty good, as long as they ignore their chances of contracting lifestyle-related diseases, including diabetes. And so on, in a process similar to the bad economists’ cravings for visible, instant results.
For the same reason Bastiat advised that, since the after-effects of a taxpayer-funded, superficially attractive economic move often turn out bad, you should listen to good economists, not bad ones. And you should do so even though the good economists often act like spoil-sports, always advising against the next alluring “investment” promoted by the bad economists. In short, “. . . the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

BATTALLIONS OF BAD ECONOMISTS

It’s obvious from Bastiat’s piece that by “economists” he didn’t just mean people with degrees in economics. Those were almost unheard of in the mid-nineteenth century, which helps explain why there were no Nobel Prizes for economists until 1969. No; by an economist Bastiat meant anyone, regardless of academic qualifications, who talks as if he knows how the economy works. The bad ones never hesitate to bet the public’s money on their opinions, but the good ones are more prudent. Basic to their outlook is that doing nothing can often be a sound policy. Leave things alone, and they will sort themselves out into something that works. Interfere, and you may block real prosperity.
It’s highly likely that in Coos Bay today, the number of bad economists of Bastiat’s description exceeds those in all of 1850 France put together, for two reasons.
First, it’s true enough that in those days the siren song of building expensive things with the taxpayers’ money “to create jobs” was chanted just like today. But the percentage of their people’s incomes that national governments, including France’s, taxed and spent was much lower. That put a natural brake on the tendency of those governments to engage (in Bastiat’s words) in the “most foolishly prodigal enterprises” to create jobs. But the difference was only a matter of degree; although government waste has grown huge in modern times, it was common enough in Bastiat’s day. The great economist himself described with some wonderment the late Emperor Napoleon’s method of creating jobs for unemployed Frenchmen, which consisted of having them dig ditches and fill them up again. Similarly in Coos Bay we had (in February 1987) a Port Manager who promoted building a new “super highway” to Roseburg, one that would parallel the existing Highway 42 but be 11 miles shorter. Since the state was unwilling to build such a highway, it would have to be a toll road with a charge of at least $30 per vehicle, which few people would have been willing to pay. But he justified the project with the boast that its construction “. . . would put 4,000 people to work right there.” The highway was never built because no sane financier could have been found for it, but it shows you how far things can go today, if government funding can be found.
Which brings me to the second reason for our present-day abundance of bad economists. It is that in 1850 government agencies for Economic Development (ED) had not been invented yet. To be sure, back then there were plenty of politicians and government officials who advocated the same dumb ideas for “job creation” that are still in fashion, but the lack of ED Departments made the bad-economist-lobby of the day less organized, and hence less influential. In this country this was finally rectified, a century after Bastiat’s essay. In 1948 the State of Michigan created the first state ED Department in the nation, and it has created many more ED departments and programs since. Unfortunately, as anyone who keeps up with the Michigan economy knows, the results of those initiatives suggest an inverse relationship: the more ED departments and programs, the worse the local economy. Regardless, the expansionist urge natural to all governments caused the other states to imitate Michigan’s example. Oregon was a latecomer when it created its ED Department in 1973. But the state’s move was eagerly imitated locally, by the bad Coos Bay economists who turned the Port of Coos Bay into an ED agency, while also creating CCD-EDC, the Regional Strategy Board, the Enterprise Zone, the Foreign Trade Zone, the Business Incubator, FONSI, SCDC and several more ED bodies, altogether close to twenty. All were run by bad economists, but the reason they were rarely called to account for their failures was that their governing boards consisted of the same kind of people, too ignorant of economics and too concerned about their own reputations to ask hard questions.
And so the bad-economist-epidemic turned virulent, infecting every local politician we sent to Salem or Washington D.C. They all think they can work wonders for our economy by funding boondoggles with public money, and they’ve achieved the exact opposite. Whether we’re talking about Arnie Roblan or Caddy McKeown or JoAnn Verger, Peter de Fazio or Ron Wyden — by Frédéric Bastiat’s standards they are all terrible economists. Nevertheless, you will see them being publicly honored for all the wonderful things they have done: things that are visible. It’s the reason why I turned down Mark McKelvey’s invitation to the annual Democrats Volunteer Recognition Dinner on May 3, where the most honored guests will include Arnie Roblan, Caddy McKeown and JoAnn Verger. Oh, and the Master of Ceremonies will be Bill Bradbury, the one who sold the Legislature on the destruction of the Port of Coos Bay’s voters’ rights. If I did attend that self-congratulatory orgy of bad economists, I might have to go on Valium.

AN INDUSTRIAL HELLHOLE

Despite what Bastiat wrote about the invisibility of the bad effects of all their foolishness, the evidence of our bad economists’ economic malpractice has been starting us in the face for decades. The problem is, they still don’t want to see it.
Check around: we still have the T-Dock and the barge slip on the North Spit, the first one built to attract fish-processing industries in 1970 and the second to attract large-scale steel equipment fabricators in 1985 – neither of which ever showed up. But both were greeted, in the press and by the local politicians, as great harbingers of progress. The same goes for the vacant fish plant and the money-losing “shipyard” in Charleston, the Enterprise Zones and the Urban Renewal Districts that have done nothing but waste millions, the $51 million, 12″ gas line that was going to bring 2,900 jobs twelve years ago, the new, unneeded airport terminal that caused us to lose our best air connection, and a lot more. Also in the visible department are shelves full of expensive studies for the benefit of industries that never came. Plus, of course, decades of never-ending sensational headlines about the impending arrival of big, obnoxious industries on the North Spit. Such headlines, even if none became reality – which so far has always been the outcome — have had consequences that the bad economists always ignore.
In essence, what they’ve ignored is that their perennial threats of turning Coos Bay-North Bend into an industrial hellhole have caused a permanent local depression. While every other part of the Oregon coast grew after it gave up on industrial recruitment, Coos Bay’s population has been declining for thirty years, all thanks to our bad economists, whose obsession has communicated to potential new Coos Bay residents that their quality of life may be destroyed at any time by a coal exports, ship breaking, steel fabricating, a nickel smelter, a chromium smelter, a huge pulp mill, a steel mill, and most recently an LNG import terminal; and every one of them sited on the North Spit, half a mile upwind from our population. While all these things were potential nuisances, the master of ceremonies of this parade has to be the LNG terminal that threatens to set off a massive firestorm. Fear is a form of pollution too, as detrimental to people’s health and happiness as having to smell somebody else’s stench around the clock.
Bastiat knew that bad economists are far too busy creating things that are visible, to worry about such things. They want to prove that SOMETHING is being done, so the ED bureaucrats and the politicians can keep their jobs, and will be rewarded with raises and higher offices. For decades, at least since January 1977, the local media have praised that obscene system. That’s when Jerry Baron, the long-time editor and publisher of The World, wrote a laudatory epitaph for the Crosline Ferry, the first in a long line of ever-more expensive financial catastrophes for the Port. They had bought it on a whim, without contracts or a business plan but with unfounded hopes that it could be turned into a profitable asset, and had lost about $100,000. Baron thought the Port Commission’s vision had been “splendid”, and: “The Crosline project was a gamble that failed . . . but the gamble was taken. That counts for something in our book . . . We’re sure that some residents in the district will give the commissioners A for effort, even if they do rate an F for success.”
But then, in the wake of the Crosline came the T-Dock, which followed the same scenario as the Crosline and cost the Port between ten and twenty times more. And this was followed by the next self-inflicted catastrophe, and the next, one after another. But Baron never changed his mind about the Port’s efforts. He thought they were heroic. And he never could understand why they didn’t work so, like most people who are out of their depth, he blamed dark conspiracies. When another big plan imploded it was the fault of the schemers in Portland who wanted to keep Coos Bay down, or it was the fault of the radical greens and the NIMBY’s. It was never the fault of the bad economists.

BLOCKING REAL PROGRESS

When Bastiat wrote about the bad effects that must be foreseen, one bad effect was usually financial. In the case of Coos Bay, where hundreds of millions in government grants and taxes have been wasted on boondoggles, that money is not available for more sensible purposes, things that would facilitate the re-invention of a worn-out industrial area. Even if that money were spent on humdrum, unspectacular projects like new streets and sewers, that would help a great deal.
It would facilitate IN-MIGRATION.
Contrary to what the bad economists think, a coastal town’s most important assets are not smokestacks but people. Smokestacks may close down and be gone practically overnight, leaving destitution behind; it’s been the history of the lumber business in Coos Bay. People, although they are mobile too, can provide more stability IF they like where they are. I’m talking about people with assets and incomes, with drive and imagination, and hopefully with a combination of these; the kind of people who might come to a beautiful area such as this to live, bringing money and creating businesses and jobs in the process. But the area has to be ready for them. Purposely or not, Coos Bay’s bad economists have made sure it is NOT ready.
Let me cite one small example of what can happen instead. At my restaurant I talk to a lot of people from smaller coastal towns who come to Coos Bay for things that may be in short supply in Florence or Bandon or Yachats. I’m talking about shopping or lawyers or specialized medical services, all more available in bigger towns. By settling in those smaller towns those people have driven up home values about 25% higher than in Coos Bay. Recently I got to talking to one man who lives in Florence, which has doubled in population while Coos Bay declined. Turns out that in Florence this man, a highly skilled machinist, manufactures precision parts for military helicopters. Who would have thought it? But that’s the kind of thing that can happen where bad economists are not given the chance to muck things up as they have done here.
Another way our bad economists have done us a huge disservice is by PHYSICALLY PREVENTING other developments. To see how, try to look at the Coos Bay waterfront in a dispassionate way. Ignore the weed- and brush-covered industrial sites and the tumbledown docks. Also ignore the Port’s resurrected railroad and its sorting yard. THINK. What is it that every successful coastal town has done to grow in a new direction? Wherever you look outside Coos Bay, the key has been REDEVELOPMENT of the waterfront. The railroad sorting yard, for instance, could be turned into an attractive “old town” district, not necessarily paid for with tax dollars, but by selling or leasing it to a developer on condition that he build something like Old Town Bandon or Old Town Florence or the Newport waterfront. As to the rest of the railroad line: it strangles the waterfront as effectively as if there were a cyclone fence around it.

TOYING WITH TRAINS

Which brings us back to the most visible feat of Coos Bay’s bad economists, the resurrected railroad that’s consumed $63 million of public dollars so far. It’s plain as day that the choo-choo train’s visibility was and is its main attraction to our bad economists; I even have the impression that the train operators are under orders to toot their horn far more often than CORP, its former owner, ever did. So let’s re-visit CORP’s experience, for it may contain clues to the future of the Port’s train.
After several years of large operating losses and huge bills for rehabilitating the line, CORP ceased running trains in September 2007. On a high-maintenance line that used to carry 40,000 carloads a year, CORP had been moving between 5,000 and 6,000. From 2002 through 2007 this had produced annual gross revenues of about $3 million. But because of excessive spending on maintenance and repairs, during the most recent four years of operations it had accumulated operating losses totaling about $3.5 million. About half of that had been spent to repair a collapsed tunnel, but the line had a dozen of those, some of which were also near-collapse. So CORP made a proposal to the unanimously indignant shippers and politicians. The company promised to get the trains moving again by means of a “public-private partnership” that would raise about $23 million dollars for immediate repairs. CORP itself would contribute $4.6 million, with the same amount provided by the Port and the State of Oregon. The rest was to come from surcharges on the carload payments of the industries that had an interest in preserving the railroad, who were asked to provide guarantees of a minimum number of carloads.
With one loud, uninformed voice, all the bad economists dismissed CORP’s proposal. Instead, the Port would be the railroad’s savior and fix it. And so, by now the public has invested over $63 million in the line, but the end, as I have documented earlier, is not even close. Although nobody really knows, another $200 million of repairs is a good guess. And that still won’t give us a really good railroad.
By mid-2012, almost five years after CORP quit running trains, the Port’s acquisition had been repaired enough to enable traffic all the way to its terminus in Coquille, which meant it could now take on freight at both the Georgia-Pacific lumber mill in Coos Bay and the Roseburg Timber plywood mill in Coquille. The Port is now boasting that after moving only 2,480 rail cars in 2012, the line moved 4,845 in 2013. This is hardly surprising since before the 2007 embargo by CORP, those two mills had accounted for the bulk of CORP’s carloads of a little over 5,000 annually.
During 2014, according to a Register-Guard article of April 22, the Port is expecting to move between 6,600 and 7,200 cars. According to that same article, in 2007, CORP had moved 6,650 cars. I’m sorry to stray into bean-counting, but it is hard to believe that CORP ran that many cars when it operated less than nine months. Apparently the Port annualized the number to 6,650, and that was the total cited in the artiucle.
Whatever be the truth, it is plain that under its new owner the Coquille-Eugene line is unlikely to move a lot more cars than CORP did; and according to Michael Baranowski, a railroad expert hired by CORP before the company gave up on its line, it would have to carry 20,000 carloads a year to be self-sustaining and profitable. As mentioned, at one time it carried 40,000, but that was long ago. Adding credibility to Baranowski’s numbers, a 1993 study by ODOT had concluded that a short-line railroad like this could make it on 13,000 carloads, “assuming other conditions normal”. But conditions surrounding the Coos Bay line have never been normal. It does not run through a flat, dry desert but through the Coast Range, which is subject to floods, landslides, timber and rock falls. It also has to cross, in addition to the aforementioned tunnels, over a hundred bridges and trestles, many very old. This is a high-maintenance line, as proved by CORP’s financial setbacks.
We now learn that the Port is requesting another $10 million in federal funds for bridge repairs, as “part of ongoing and costly efforts to rehabilitate the line into a viable freight shipping option.” Maybe three times will be a charm, because after the federal government showed considerable generosity to the Port during and immediately after its acquisition, it refused to grant additional repair funds in 2011 and 2013. But the State of Oregon gave them $10 million for bridge repairs in 2013.
Contractually the operator of the line, which is ARG Trans from Eugene, is not responsible for repairs except for routine, minor upkeep. The Port has sole responsibility to fix everything else. Under such conditions anybody can run a railroad profitably, the secret being perpetual state and federal subsidies to the Port. But nothing lasts forever, and governmental generosity is fickle. It’s true that the Port gets some revenues from “franchise” fees by ARG Trans and from carload surcharges, all of which are expected to bring in $750,000 during this fiscal year. But that is not enough to make the line self-supporting. That could only happen thanks to some dramatic development, such as Coos Bay becoming a container port, which would justify totally rebuilding it. But people who still dream that dream have their heads as far up in the clouds as those who advocate running passenger trains to Eugene — on a line that limits speeds to 10 miles an hour. Wanna go shopping in Eugene, anybody? You might get there in twelve hours!