Dodd-Frank Reform a Huge Dud: Why We Need to Repeal Dodd-Frank

The Great Recession was the worst financial crisis since the Great Depression. It hit millions of people across the globe as jobs and wealth disappeared. In response to this catastrophe, the United States government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). This bill was the most significant financial reform to take place in the United States since the Glass-Steaggal Act (see my analysis on that Act here). The purpose of Dodd-Frank, according to the Act itself, was to "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and other purposes." What I would like to do today is see if Dodd-Frank accomplished its primary goals (Congressional Research Service primer on Dodd-Frank here), whether there were unintended consequences, analyze the Dodd-Frank reform bill that passed last week (S.2155, also known as the Economic Growth, Regulatory Relief, and Consumer Protection Act), and subsequently determine whether this reform bill was the best course of action.

There have been some good things to come out of Dodd-Frank. The Minnesota Federal Reserve Bank found that Dodd-Frank reduced the probability of a bailout in the next 100 years from 84 percent to 67 percent. The Wharton School of Business points out that Dodd-Frank provided oversight over payday lending, includes measures to protect retirement money savers from abuse, and has disclosure requirements on derivatives and for oil companies on their payments to foreign government. For another, the Left-leaning Center for American Progress calculated that for every dollar of funding provided to the Consumer Financial Protection Bureau (CFPB), it has returned $5 dollars to victims of financial wrongdoing (or $12 billion in total). If you want a better view of CFPB, here is my literature review of CPFB from two-and-a-half years ago.

Nevertheless, there are multiple issues to take with Dodd-Frank, as are pointed out in detailed criticisms from the Heritage Foundation and Mercatus Center (also see Brookings Institution analysis here for a mix of praise and criticism). Here are but a few I found while conducting research on the topic:

• Effects on community banks and credit unions. In December 2015, the Government Accountability Office (GAO) found that community banks and credit unions are disproportionately hurt by Dodd-Frank because they do not have the same capacity that larger banks do to handle compliance. As a result, these smaller financial institutions have reduced the availability of credit to their customers. A working paper (Lux and Greene, 2015) from Harvard University confirms the GAO findings. This paper calculated that commercial banks' assets declined at a rate more than double than that between 2006 and 2010. The authors contributed this decline to Dodd-Frank. 
• Cost of borrowing for small businesses. Evidence suggests that borrowing for small businesses became more expensive since 2010, which hampers job creation and investment (Chen et al, 2017). Another study from the National Bureau of Economic Research confirms that commercial and industrial loans dropped nine percent since Dodd-Frank, and was due to said regulations (Bordo and Duca, 2018).
• Price tag of regulatory compliance. According to the American Action Forum, eight years of Dodd-Frank has cost $38.9 billion and 82.9 million man-hours. That exceeds the $12 billion recovered by CFPB. 
• Cost to Consumers. The American Action Forum also found that Dodd-Frank is responsible for cutting revolving credit by 14.5 percent. This is important for consumers because as the World Bank discovered, there is a strong correlation between financial inclusion and economic growth or employment (Cull et al., 2014).
• Middle-Class and Mortgages. Another cost is squeezing the middle class out of the housing market. According to a study from the University of Maryland (D'Acunto and Rossi, 2016), the combination of a 3 percent cap on mortgage-related service fees and a more costly process for verifying customer's income. This change in underwriting incentivized banks to slash the number of loans at the median income and target wealthier individuals.
• Less competition in the banking sector. There is a study that took a look at Dodd-Frank's effects on bank acquisition behavior (Bindal et al., 2017). This study is important because it shows unintended consequences of Dodd-Frank creating more regulations for banks with more than $50 billion in assets. On the one hand, very small banks are more likely to partake in acquisitions. On the other hand, they make sure to stay below the $50 billion mark so that they do not get hit with Dodd-Frank regulations. This is significant because it creates a barrier to entry in the mega-bank submarket, which solidifies market share and overall power for the already-existing mega-banks. It is another example of how regulations squash the smaller business owner, protect big business owners, and artificially encourage business consolidation, thereby perpetuating the cycle.  
• Big banks are not safer. A study from Lawrence Summers, a major supporter of Dodd-Frank, concluded that big banks are not safer, even in spite of decreased leverage (Summers and Sarin, 2016).
• Financial sector not healthier. A study from the National Bureau of Economic Research suggests that it was post-crisis regulations that are strangling financial sector growth (Chousakos and Gorton, 2017).

Dodd-Frank Reform Bill and Conclusion
If you look at the reform bill, there was not much that was reformed relative to what was initially enacted in 2010. Yes, the bill is going to ease up on supervision, which is one of the major contributors to Dodd-Frank's regulatory costs (see above). It is also exempts smaller banks [with $10B or less in assets] through the community bank leverage ratio. The SIFI (Significantly Important Financial Institution) threshold increased from $50B in assets to $250B, although there are multiple caveats attached in the Senate bill. There will also be some deregulation on stress testing, i.e., companies only have to perform two stress tests instead of three. In short, the bill primarily provides targeted relief for smaller banks.

In its analysis, the Congressional Budget Office (CBO) finds that the bill will slightly increase probability of financial crisis, although it fails to qualify that further. Former Congressman Barney Frank, who was a co-author of the bill, thinks that the reform will not make a big dent into the impact of Dodd-Frank. From Frank's standpoint, that's probably a good thing. The good news is that it doesn't like the bill is going to cause catastrophe to the U.S. financial system.

I will say that although the bill goes in the right direction, it is still inadequate. Being an 849-page bill with over 27,000 regulations, Dodd-Frank still has a stranglehold on the financial markets. Even the GAO admitted that Dodd-Frank did nothing to simplify oversight over the financial sector (see below). I know that this compromise bill was passed because they could not get votes for downright repeal. However, I still contend that even in spite of certain advantages to Dodd-Frank, repeal is still a desirable goal.

For more on financial regulation reform, see analyses from Manhattan Institute and Heritage Foundation. 

Peso Depreciation, Inflation, and Interest Rate Hike: Is Argentina Looking at a 2018 Recession?

Panic is a word that one could use to describe the Argentinian economy right now. The Wall Street Journal recently referred to it as a death spiral. The value of the Argentinian peso (ARS) fell 6.6 percent relative to the U.S. dollar on May 3. This devaluation has been occurring for quite some time, although this decline was the largest. In order to stop further depreciation, the Argentinian central bank (Banco Central de la República de Argentina) raised the interest rate to 40 percent a little over a week ago. For context: less than a month ago, the interest rate was 27.5 percent. It is bad enough where the Argentinian government asked the International Monetary Fund (IMF) for a bailout loan. I thought the IMF would not have given Argentina money considering that Argentina defaulted on an IMF loan in 2003. However, an agreement for a $30 billion loan of emergency aid is underway. What I have to wonder is what is the magnitude of the problem here.

Positive Economic Indicators

• Inflation fell from 40 percent in 2016 to 24 percent in 2018. 
• Argentina has recovered from its 2015 recession, although at a slower rate than the last two recessions (IMF, p. 4).
• Argentina is in a better position to accept an IMF adjustment program since it no longer has its peso pegged like it did in the 1990s.
• The public sector is projected to reach its deficit target of 3.2 percent (BBVA).
• Argentina's economic volatility is balanced by high per-capita income, a large and diversified economy, and improved governance scores (Fitch).
• The GDP is expected to grow considerably and inflation is expected to slow down (IMF, p. 9).
• "The removal of foreign exchange controls...resolution of the dispute with bond holders, and realignment of utility tariffs have corrected Argentina's most urgent macroeconomic imbalances (IMF, p. 4)."

Negative Economic Indicators

• Argentina will experience forex (foreign exchange) pressure from an unsustainable current account, lack of central bank credibility, and worsening external financial conditions (BNP Paribas). 
• Currency risk for companies based in Argentina is going to be high through mid-2019, according to Moody's.
• A combination of a high interest rate and currency depreciation will make further capital outflows costly. 
• Argentina has a budget deficit of 6 percent. Without new budget measures, the budget will increase precipitously. 
• Because of the increase of foreign financing and low global risk premier, there has been an upward pressure on the real exchange range. This has left the Argentinian peso overvalued by 10 to 25 percent, thereby exacerbating external imbalances (IMF, p. 9). 
• The low percent of exports will make it more difficult for Argentina to recover from its external debt (Council on Foreign Relations; IMF, p. 7).
• 30 percent of Argentina's foreign exchange reserves are non-transferable letters of credit (letras intransferibles). This means it will be more difficult for Argentina to pay off its liabilities or withstand a currency crisis (American Institute for Economic Research).

What Will Happen?

It might be fun to prognosticate, but at the end of the day, this is still speculation based on economic analysis. Nevertheless, I'll give it a go. I know that these economic shifts will both undermine Macri's economic policy of gradualism and diminish his odds of re-election. With the Argentinian central bank depleting its foreign reserves, there is little it can do to stop the capital outflow, which is worrisome. The silver linings are that Argentina is not anywhere near defaulting, and that the private sector-denominated debt is low. Even so, there are a few ways that Argentina can proceed. BNP Parnibas suggests that because of the trap of fiscal dominance, either fiscal adjustment (lowering the budget deficit) or further depreciation of the peso are the main options. Another option is currency reserve management and making sure Argentina buys enough local currency. Years of populist and protectionist policy will make any adjustment painful. What will make this more painful is that this is the canary in the emerging market coal mine. I don't think there will necessarily be a recession by the end of the year, but I anticipate a tough road ahead for the Argentinian economy. 

For more reading, read the main sources here:
- IMF's 2017 Article IV Consultation for Argentina
- Banco Central de la República Argentina [BCRA] (Report of Financial Stability, First Half of 2018)
- BBVA Research
- Heritage Foundation Economic Freedom Index

Contextualizing the 2018 Gaza Border Protests: How About Blaming Hamas?

Palestinian protestors (or as I prefer to call them, rioters) on the Gazan-Israeli border have been making quite the fuss lately. When the U.S. embassy in Jerusalem formally opened on Monday, things escalated. These protests resulted in 60 deaths on Monday, which is the highest death toll in the Israeli-Palestinian conflict since 2014. You might think that the protests have something to do with this embassy opening and recognizing Jerusalem as the capital of the Jewish state (which it is), but these protests have been going on since March 30. The other two main grievances of these protestors are the blockade of the Gaza Strip and the "right to return." If you look at such news outlets as CNN and BBC, you would think it is "Big Bad Israel" trampling the "helpless Palestinians," as if Hamas is not to blame.

Before beginning, I would like to say this first because I cannot emphasize this point enough: this conflict and this violence are nothing new. Hamas' violence predates the opening of the U.S. embassy in Jerusalem. The blockade of the Gaza Strip has been going on since 2007, and the "Right to Return" has been contentious since the Six-Day War in 1967. As I brought up when analyzing Hamas in 2014, Hamas was and still is a terrorist organization that has in its charter to wipe Israel off the map. Israel has not had military forces in Gaza since 2005. So what is really going on? I hope to answer that in the upcoming points.

1. This riot had its fair share of violent protestors. While there were a fair number of protestors who tried to keep it peaceful, there were enough that were inciting violence. Not only were a number of protestors were carrying weapons and planting explosives, but many were hurling stones, throwing Molotov cocktails, and flying flaming kites over the border in hopes to set fields ablaze. Protestors were encouraged to storm the fences, thereby suggesting a goal to incite the Israeli Defense Forces. There were multiple failed attempts for these individuals to sneak across the border intent on killing Israeli citizens. If any other country were to respond to an angry, armed mob of hundreds of individuals amassing on their border calling for its destruction, they would have in all likelihood shown less restraint than the Israeli Defense Forces showed in recent events. However, when Israel partakes in the most basic form of self-defense, Israel ends up vilified. Ask yourself why.
• Hamas used these protestors as human shields. This is part of Hamas' MO. Hamas placed terrorists among the civilian protestors so when civilians die among the terrorists, Israel gets blamed for the deaths. 50 of the 60 individuals killed were Hamas members, which further illustrates this point. I would hardly consider the European Parliament a friend of Israel, but even it recognized a couple months ago that it is standard Hamas tactics to use civilians as human shields.
2. The "Right to Return" is not a valid grievance. I wrote on this three years ago, but my argument can be summarized thusly. One, larger refugee crises have already been resolved, so why would this be an issue? Two, if this were that bad, why haven't other Arab countries opened their borders to their Arab brothers and sisters? Three, a "right to return" is a nonstarter. Four, the Gazans are technically are not refugees since their ancestors were the ones that fled Israel during the War for Israeli Independence. The expectation was that after the surrounding Arab nations destroyed the fledgling Jewish state, the refugees could return. The Israeli government offered them passage with the conditionality of an oath of loyalty, but they refused to accept. The individuals protesting are Palestinian citizens living under an oppressive Palestinian terrorist organization known as Hamas in a Palestinian territory. 
3. The blockade is Hamas' fault. Israel cannot be accused of occupying the Gaza Strip because it has not had a military presence there since 2005. According to the Israeli government, there were three stipulations that Hamas could not agree to. What were they? One, recognize the land of Israel. That one is difficult to do if your stated goal is to wipe out the Jewish inhabitants of said land. Two, disavow violent actions, which brings up an important question for pro-Palestinian individuals who have an issue with the Israeli government's recalcitrance: "How can you have compromise when one side wants the other side dead, and the other side doesn't want to die?" And three, accept the previous agreements between Israel and the Palestinian Authority. Plus, Israel helped set up Gaza with 3,000 greenhouses in 2005 to get its economy going. What did Hamas do after it won the elections? Destroy the greenhouses, as well as funnel humanitarian aid towards military operations. Clearly, Hamas does not want to take actions towards peace, but war. Israel's blockade was to minimize further bloodshed. 
4. Israel is not trying to kill as many Palestinians as possible. If Israel wanted to inflict maximum damage, it could have (although the political fallback would be too much for Israel to risk). Israel has the military technology to take out protestors on their border, but instead, they did much more than any other nation would have done to minimize casualties. Plus, if genocide were really taking place, how is it that Gaza's population went from 63,000 in 1950 to 624,000 in 2015? The Palestinian population has been increasing substantially (World Bank), which either means claiming the absurdity that Israelis are genocidal maniacs that are lousy shots, or b) the reality that there is no genocidal intent from the Israeli government because they are trying to live in peace with their Palestinian neighbors, even in spite of their antipathy towards the Jewish state.
5. The grievances date back further than a blockade or embassy. As previously stated, Hamas has it codified in its law to eliminate the Jewish state. What about with the more "moderate" Fatah party? Surely there is some legitimate gripe (Spoiler: the grievance about settlements being an obstacle to peace is invalid). If you listen to Abbas' speech from April 30 in which he blamed the Holocaust on "Jewish social behaviors," such as greedy banking practices, it should be a sign that the real grievance dates back to 1948 when the State of Israel came into being. As the Chicago Tribune pointed out, "The reality is that nothing will change until Palestinian leaders stop inciting violence on the ground and start telling their people the truth: Palestinians can have a state. But not until they can accept that the Israel they loathe is in the neighborhood to stay." 

Hamas could not kill Israelis with rockets or by sneaking into Israel after digging tunnels worth $90 million [as of 2014], so now it is resorting to this counterproductive action. If Hamas is going to use its own people in a cynical ploy to get them killed in order to get media coverage, then there will only be more bloodshed for the citizens of Gaza because this sort of play is going to put Israel on the defensive. But that's just it: Hamas knew what it was doing by approaching the border en masse and inciting the Israeli Defense Forces. Hamas got what they want: distracting its own citizens from its ineptitude while blaming Israel. As this wonderful New York Times op-ed concludes:

"No decent Palestinian society can emerge from the culture of victimhood, violence, and fatalism symbolized by these protests. No worthy Palestinian government can emerge if the international community continues to indulge the corrupt, anti-Semitic autocrats of the Palestinian Authority or fails to condemn and sanction the despotic killers of Hamas. And no Palestinian economy will ever flourish through repeated acts of self-harm and destructive provocation."

Maybe Hamas should focus on economic recovery, diverting its concrete on building houses for Gazans instead of building tunnels, or cutting its ties off with Iran. Or better yet, a diplomatic solution in which the Palestinian leaders can accept the existence of Israel is their best way to end the bloodshed. But let's be honest: accepting the existence of a sovereign Jewish state is too much for Hamas. This just leads me to my pessimistic conclusion of "expect more of the same, just like we have in the past."

Israel at 70: 25 Reasons to Love Israel

Seventy years ago on the Gregorian calendar, the Israeli Declaration of Independence was proclaimed. The Declaration established a Jewish state in the land of Israel, which came into effect right after the termination of the British Mandate on May 14, 1948. The state of Israel already celebrated Israeli Independence Day (יום העצמואת) last month since it was commemorating the Declaration on the Jewish calendar, and not the Gregorian one. It is on this anniversary that I would like to provide a list of reasons to love Israel, and I will preface by saying that the list is not a complete one.

1. Israel is the only democratic country in the Middle East. According to Freedom House, "Israel is a multiparty democracy with strong and independent institutions that guarantee political and civil rights for most of the population."
2. Israel is the most accepting of LGBT individuals in Middle East, and indeed, the entirety of Asia. Israel is also home to one of the most gay-friendly cities in the world: Tel Aviv. 
3. Israel is consistently ranked as one of the happiest countries in the world. In the 2018 World Happiness report, Israel ranked as the 11th happiest country.
4. Israel contains holy sites of the three major Abrahamic religions: Christianity, Islam, and Judaism.
5. Israel has had 12 Nobel Prize winners, which ranks Israel 15th on the list for number of Nobel Laureates. When adjusted for per capita, that ranking increases to 12th.
6. With more than 200 museums, Israel boasts of having the most museums per capita in the world.
7. Israel's intelligence apparatus has helped thwart terrorist attacks in multiple countries (see here, here, here, and here).
8. Israel leads the world in recycling wastewater at 90 percent. This is at least four times more than any other country.
9. Israel has 3.5 physicians per 1,000 people, which is well above the world average of 0.3 physicians, and exceeds many developed countries (World Health Organization).
10. From a linguistic standpoint, Israel was able to do something no other group of people has done, which is take a dead language (at least in the vernacular sense), revive it, and have it spoken by an entire nation of people. 
11. Israel has two official languages: Hebrew and Arabic. Throughout the land of Israel, you can see signs in Hebrew, Arabic, and English, thereby showing another example of inclusiveness. 
12. For the first time in centuries, there is an actual Jewish state. With the rise in anti-Semitism, if Jews want to leave their currently brutal living situation, they have somewhere safe to go. The same could not be said for Jews during the Holocaust, which is another reason I am glad that Israel exists. 
13. Israel ranked 10th on the 2018 Bloomberg Innovation Index. In terms of sub-categories, Israel ranked first on researcher concentration and R&D intensity. 
14. Intel's presence in Israel has been significant in technological research and development, and has brought such advancements as the P55C chip, Core i7, and the Skylake microprocessor. 
15. The technology for Voice Over Internet Protocol (VOIP), you know, the technology that brought you such services as Skype, was created in Israel.
16. Four Israelis at Mirabilis developed ICQ, which is the technology that allowed for instant messaging. 
17. Polish-Israeli engineer Simcha Blass was responsible for developing the modern-day drip irrigation system, which helps save water and nutrients in the agricultural process.
18. In 2017, Israel led venture capital on a per capita basis with $447.17.
19. Israel's success with Iron Dome has been great enough that Europeans have caused a boom in Israel's defense exports.
20. Israel is a prominent player in the solar power market, and is looking to acquire 17 percent of its energy from solar power by 2030.
21. The Israeli economy is one that is developed enough (see latest IMF report here) where it is part of the OECD, not to mention the number of trade agreements. Per Heritage Foundation's Index of Economic Freedom, Israel has improved enough over the past decade where it went from being categorized from "Partly Free" to "Mostly Free."
22. The Israeli Defense Force provided the self-defense and fighting system known as Krav Maga.
23. Being surrounded by four bodies of water (Mediterranean Sea, Dead Sea, Red Sea, Sea of Galilee), there are plenty of beaches to go to in Israel. 
24. Shawarma and hummus. Need I say more?
25. As a hat-tip to current events, Israel represented at Eurovision 2018 and won this past weekend.

Is Israel perfect? No. Name me one country that had its act together during its 70th anniversary. Can Israel improve? Of course. At the same time, it has done well for itself at its 70th anniversary. I look forward to see what the next 70 years bring.

Foie Gras Ban in the United States: Oui ou Non?

You know you are a public policy nerd when you read an amicus curiae brief for fun. That is what I caught myself doing recently. A few weeks ago, libertarian organizations Cato Institute and the Reason Foundation filed an amicus curiae brief regarding a foie gras ban. Foie gras is a luxury food made from the fattened liver of a duck or a goose.  To have these livers fattened, these birds are force-fed a mixture of fat and grain in a process known as gavage. The basis for the ban is that the force-feeding is inherently cruel (see PETA website for opponents' arguments).

Much like fish do not have the same neurological capacity to feel pain as humans do (e.g., Rose et al., 2012), I have to wonder if geese feel the pain of a tube down its throat. Vis-à-vis an argument of analogy, we anthropomorphize the pain because we think to ourselves, "Pushing a tube and shoving food down my throat sounds tortuous, so it must be the case for a goose or duck." But let's take the duck's anatomy for a second. Birds have gizzards, which give them the ability to digest stones and other hard materials. Ducks have been known to swallow whole fishes. Ducks also lack a gag reflex, thereby diminishing the argument that ducks are uncomfortable during gavage. The gavage takes places at the end of the fowl's life, and usually last 2-3 weeks (which is relatively short in comparison to the lifespan). Couple that with the fact that at least in the United States, the animals for foie gras production are treated better relative to other animals in agricultural production.

Setting aside biological facts for a moment, what does research say on the topic? The most thorough report on the topic comes from a 1998 meta-study completed by the European Scientific Commission (ESC). On the one hand, the report found that the gut capacity is adequate to handle gavage. The report also found that the effects were reversible in four weeks, thereby implying a lack of long-term damage. The overall evidence of injury was "small." Conversely, the same ESC report found a higher mortality rate, and that such fowl were impaired as a result of the gavage. The report also concluded that the "resulting fat liver is of no commercial value." In short, the ESC report had vindicating and damning parts. There is some other evidence suggesting a lack of pain (e.g., Guémené et al., 2006) and some suggesting more pain (Ma, 2013), more research is required to make a more determinable conclusion (Skippon, 2013).

There is the philosophical argument on animals' rights: Should we treat animals as equals to humans, as mere property of human beings, or have a legal quasi-qualification that affords animals some protections under the law? Animal rights activists argue one way, foie gras producers another. In the United States, France, and other countries where they produce foie gras, animals are afforded less rights than humans. There is a balance between animal rights and the individual human being's consumption choices, and it is difficult for society to figure out where to draw the line.

The problem with such a normative argument is that it comes down to "I personally don't like that." The logic used by foie gras opponents could be used to ban all factory farming or even all meat production, as the aforementioned amicus curiae argues. Yes, this is technically a slippery slope argument, but at the same time, animal rights activists would most probably not stop if they were able to enact a nationwide ban on foie gras. Fortunately, there is no notable legislative push to further ban production of animal products because freedom to eat whatever animals they want is preserved.

Aside from the food freedom argument and the argument that the ducks do not feel the amount of pain that animal activists purport, foie gras is a delicacy. More to the point, foie gras is not consumed at the same rate in the United States as it is a country such as France. In 2012, U.S. per capita consumption was 0.003 pounds. To put this number into perspective, the average American eats on average about 100 times the amount of buffalo meat. I'm not a fan of government bans because they are blunt instruments that often have unintended consequences. The prohibition of alcohol was so terrible that Congress had to appeal the 18th Amendment with the 21st Amendment, which is no easy feat given the constitutional amendment procedure. Prohibition of marijuana has also come with a heavy price. The thing here is that I don't expect a foie gras ban to have the same effect because foie gras does not have the same pervasiveness as alcohol. With only three foie gras production farms in this country, it is the lack of foie gras in this country that makes me wonder why we're bothering in the first place. It is probably because of that lack of demand that animal rights activists are grabbing at that low-hanging fruit. I don't mind a call for more humane practices in the foie gras industry, but when you look at biology, a lack of evidence, and market demand, I don't see why we need to take a further step to quash food freedom to placate animal rights activists.

Renewable Fuel Standard: Enough With Supporting Big Ethanol Already!

It's amazing how everything can be politicized, including food that can be turned into fuel. Last week, midwest biofuels associations were requesting that the Environmental Protection Agency (EPA) stop handing out exemptions for the Renewable Fuel Standard, such as the waiver for major oil refinery Andeavor last month. This request took place shortly before the President reportedly is to meet with Senators on biofuel policy sometime this week. The purpose of this meeting, according to Reuters, is to help "refiners cope with the Renewable Fuel Standard."

Let's get into the basics of the Renewable Fuel Standard (RFS) before we analyze it further. As part of the Energy Policy Act of 2005, the RFS was created to mandate that transportation fuel sold in the United States contained a minimum volume of renewable fuels. The EPA is the entity responsible for administering the RFS program to ensure that volume requirements are met through a system of tradable credits known as renewable identification numbers (RINs). The RFS was meant to be a major boost for ethanol producers. When formally enacted in 2007, the RFS required ethanol producers to blend 13.8 billion gallons of ethanol into gasoline by 2013, and up to 32 billion gallons by 2022. When President Bush passed the law, he stated that the idea behind this mandated renewable fuel subsidy was to limit our dependence on foreign oil while reducing carbon emissions. How well has the RFS fared so far?

Higher Costs for Drivers: The RFS was intended for ethanol gasoline to be a substitute for standard petroleum-based gasoline. According to the American Action Forum (Rosetti, 2018), Americans spent $76 billion more on transportation fuel in the past decade as a result of this mandate. In 2016, the Heritage Foundation found that repeal would save the American people $54 million over a decade's time.

The U.S. Department of Energy found that ethanol has two-thirds the energy of regular gasoline, which would further explain the higher prices. The lack of ethanol's energy content relative to petroleum-based gasoline helps explain why ethanol is costing the American people at the gas pump. Even when using E85, ethanol fuel usage is more expensive that standard fuel usage (Loris, 2016).

Higher Food Costs: In addition to higher fuel costs, there is the matter of higher food prices. The Resources for the Future estimated in 2016 that by 2022, global food prices will have increased an extra 17 percent more than they would have without the mandates (Chakravorty, 2016, p. 13). These findings should be no surprise considering how much crops are diverted from the food market (40 percent of corn production), thereby constricting supply and subsequently increasing prices. The amount of corn used to produce ethanol fuel exceeds corn production in Africa and any single country, with the exception of China (Carter et al., 2014). Think of all of the people that could have been fed if it had not been diverted by RFS! The concerns of increased food prices as a result of biofuel mandates have been expressed by the United Nations' Food and Agricultural Organization, the World Resources Institute, and the OECD.

Environmental Impact: In its 2016 report on RFS, the Government Accountability Office (GAO) concluded that it would be unlikely that the EPA could meet the RFS' greenhouse gas reductions by 2022. When it released the report, the GAO found that less 5 percent of the emissions reductions were met. The GAO found a few reasons for this lack of success. One is that most of the biofuel blended as a result of RFS has been corn-starch ethanol, which has smaller greenhouse gas emission reductions than other biofuels. The second issue is that many vehicles are not compatible with biofuels with higher concentration than E10 (i.e., gas with 10 percent ethanol). The third reason is that in spite of the mandate, demand has not been sufficiently high enough. This lack of demand undoubtedly has to do with hydraulic fracturing and more fuel-efficient cars that reduce overall demand for transportation fuel. Finally, production costs remain high, even in spite of the subsidies and the research and development work (GAO, p. 10).

More ironic is a study from the University of Minnesota that found that because of the "fuel market rebound effect," the RFS has actually increased greenhouse gas emissions (Hill et al., 2016; DeCicco, 2016). How so? The RFS mandate increases supply of fuel, which lowers prices and subsequently increases quantity produced. And this doesn't account for costs of land-use (Holland et al., 2013).

Oil Consumption and Lack of Energy Independence: Forget for a moment that energy independence is a myth. Ethanol oil has played a minuscule role in energy use for transportation, not to mention that the United States is a net importer of biofuels. Even with the de facto ethanol mandate in place, biofuels only accounted for 4 percent of transportation fuel in 2016.

• Despite the ethanol mandate and the increasing oil prices since last decade, petroleum accounts for 88 percent of the transportation fuel market. 
• Ethanol's minuscule role in the market implies that it is not responsible for reducing dependence on oil, either domestic or foreign. 
• Now that the United States is a net exporter of petroleum, it is more likely that ethanol would displace domestic production than foreign production. 
• 40 percent of our corn production is used to produce ethanol fuel and it only accounts for 4 percent of transportation fuel. Can we realistically expect that ethanol fuel be a viable replacement for petroleum if it cannot meet consumption demand?

Impeding Technological Progress: As the American Enterprise Institute illustrates in its report on RFS, there have been multiple developments in recent years that have shaped the transportation market, whether it is electric cars or hydraulic fracturing. Alternatively, there might not be enough progress to get petroleum-powered vehicles out the market. The problem is that over a decade ago, the government made a choice as to which type of fuel the American people should be nudged towards: ethanol fuel. Going back to the GAO report, the GAO admits that it would take a lot of technological investment, an amount that is not feasible, to get ethanol fuel anywhere that is cost-effective enough to meet RFS standards.

Postscript: I expressed my discontent with RFS about five years ago about how RFS should have never become law in the first place, and can you blame me? The program has neither allowed for energy independence nor has it lowered emissions. The fact that the EPA had to reduce the RFS' cellulosic fuel target from 1 billion gallons to 6 million gallons back in 2013 shows just how little the government understands the market enough to plan production. I have made the same point when analyzing wind power: the government has no business selecting winners and losers. Such market-distorting decisions harm both the consumer and the environment while benefitting a few well-connected ethanol producers. It has failed to deliver on the promises it made. Especially when ethanol has been heavily subsidized over the years and still cannot be cost-effective or environmentally friendly signals that the best reform for biofuels policy is to repeal the RFS.

Cities Easing Up on Food Truck Regulations Shouldn't Be Off the Table

Eating food is not simply an act that is done for survival's sake. What we have seen even in the past few years is an increase of demand in gastronomy. This greater demand in gastronomy is pronounced in the food truck market. Food trucks are large vehicles with the capability of cooking and selling food. Food trucks have a few bits of allure. The trucks can move to the place where customers are located. They tend to offer more exotic food and do so at a cheaper cost than a restaurant since they do not have the same upkeep costs. Food trucks have also been found to be a safer option than restaurants because the trucks' kitchens are easier to manage due to their smaller size (Erickson, 2014). Being the mobile version of a restaurant, food trucks provide considerable competition in the foodservice market. From 2011 to 2016, food truck demand increased at a comprehensive annual growth rate (CAGR) of over 7 percent. While the food truck market is outpacing the rest of the foodservice market, food truck demand growth will be restricted by regulatory hurdles.

This trend is not only mentioned in a market report from global business intelligence leader IBISWorld, but also from a Chamber of Commerce report released in late March. The report also touches upon three main types of regulations that food truck owners face: permits and licensing to operate the truck, the day-to-day compliance, and annual compliance rules.

Unfortunately, occupational licensing is not unique to the food truck regulations. As I have pointed out in the past, occupational licensing creates a barrier to market entry, restricts employment, increases prices, creates social immobility, and is disproportionately burdensome for lower-income individuals. As for the compliance costs, the Chamber of Commerce found that food truck owners have to deal with 45 separate regulatory procedures over the span of 37 days, all of which costs an average of $28,276 a year. A Forbes article suggests that these regulations are limiting market entry as a result.

The regulations against food trucks are nothing more than a form of protectionism because well-connected restaurant owners don't want to deal with the competition of food truck owners, many of whom are small business owners. Much like Uber, food trucks are a disruptive innovation that offer lower startup costs and provide greater flexibility by going where the demand is highest. Food trucks are hardly the only business that are affected by zoning or occupational licensing or onerous regulations. Even so, they provide a great service to the American people at a lower cost. It's a win for those who want to start their own business or enter the food business, as well as a win for those who want comparable food at a lower cost than a brick and mortar restaurant. Since food trucks are regulated on the local level, each jurisdiction is going to have its unique challenges. This is not to say that there should be zero regulations because that would be impractical (see National League Studies here to see how to approach food truck regulations). At the same time, the Chamber of Commerce shows how that regardless of the city, food trucks could use less regulations so society as a whole can improve.