Friday, February 19, 2010

The Law Of Unintended Consequences

What both legislators and the public overlook with alarming frequency is that when a law is enacted, there may be consequences that the supporters of the law never dreamed of. Sometimes, this consequence diverges 180 degrees from the original intent of the supporters of the law. Such is the case with the generous tax credit for mixing alternative fuels with fossil fuels. The object here was to increase the usage of ethanol and gasoline blends, which reduces the amount of gasoline consumed while not coincidentally providing a boon for corn growers. But in one case the enactment of the tax credit has caused the opposite effect in the paper industry. Part of the paper production process is the creation of a waste product called black liquor. For 80 years the paper industry has used black liquor as a fuel source to run their mills. Black liquor is as much of an alternative fuel as ethanol. So by ADDING fossil fuel to black liquor, rather than using pure black liquor, paper mills are entitled to this tax credit to the tune of tens of billions of dollars, while increasing the consumption of fossil fuels at the same time.

Clearly, when the tax credit was enacted, the intent was for alternative fuels to be added to fossil fuels to garner the credit. It wasn't meant to provide a reward for fossil fuels to be added to existing alternative fuels. But that's exactly what happened. Now there's no doubt that the black liquor tax credit will eventually be repealed. Because of the snail's pace at which Congress enacts tax (or for that matter, any) legislation, this credit is still available even though this unintended consequence has been well known for quite a while.

Unintended consequences also occur when supporters of a proposal fail to take into account potential behavioral responses to the new law. For example, the Obama administration proposed last year that US corporations with foreign income earned abroad that is not immediately subject to US tax should not be able to deduct the associated expenses relating to that income, until the income is recognized in the United States. On the surface that sounds like both a fair proposal and a revenue generator in these times of scarce government revenue--a real win-win situation for the government. Except that US multinationals pointed out that in such a situation, the rational thing for them to do would be to move those expenses offshore, since there would be no current tax benefit in any country for such expenditures under the proposal. And given that the expenses in question would in many cases be comprised of services performed by employees, the result of the proposal would be to incentivize U.S. multinationals to move American jobs overseas. Fortunately the Obama proposal never got very far in the legislative process, and recognizing this original unintended consequence, the Obama administration has now dropped that proposal

The lesson here is that before strongly advocating the passage of any new law, supporters need to look carefully and understand what all the consequences are, not just the ones you want to occur.

Thursday, February 18, 2010

Hello Dalai--It's So Nice To Have You Back In Town

I heard on the news that the Dalai Lama is in Washington DC for an unofficial visit with President Obama. This reminded me of the Dalai Lama's previous visit to our nation's capital. Listening to the news on KFWB at that time I heard the announcer proclaim that the Dalai Lama was in Washington D.C. to "receive the Congressional Medal of Honor." What? Perhaps the leading symbol for peace and nonviolence in this world being honored for wartime battlefield heroics? Immediately I was overcome with images of the Dalai Lama, hand grenades strapped to his waist, battling with the invaders from the Han nation. Then the announcer clarified that it was the Congressional Gold Medal, not the Congressional Medal of Honor that was being awarded. Oh well. Somehow the Congressional Medal of Honor sounds better.

Tuesday, February 9, 2010

Little Fuzhou--How Did They Know?

Whenever I go into a Chinese restaurant or business establishment in the Chinese community, they start talking to me in Chinese, not knowing that I don't know the lingo. Consequently, when I went into a couple of places in the Little Fuzhou section of Manhattan Chinatown and I was greeted in English, I was shocked. How did they know? Did I look Japanese or Korean? After thinking about this for quite a while (off and on for four weeks), I finally figured it out.

The answer requires a couple of digressions. The entirety of Manhattan Chinatown east of Bowery has been referred at times as "Little Fuzhou." This is to distinguish it from the original Chinatown core from Bowery and west which is Cantonese/Toishanese in origin going back to the 19th century. As Manhattan Chinatown has expanded past its original core into formerly non-Chinese areas of the Lower East Side, this expansion has been fueled by immigrants from Fuzhou as opposed to the historic immigration from the area formerly known as Canton. Keep in mind that this Fujianese immigration largely represents lower end working class migrants, who by the way are mostly not of legal status. Indeed, many of them are merely passing through New York on their way to new jobs at Chinese businesses all over the east, midwest and south, wherever there's a bus connection from under the Manhattan Bridge. When you are in this part of Manhattan Chinatown, non-Chinese faces are almost non-existent and English is seldom heard. Tourists--or even other New Yorkers seldom find their way here. There is at least one banquet size Chinese restaurant that doesn't have an English menu. This makes the greetings I heard in English all the more surprising.

The second digression is that until 2003 I had not experienced the cold winter weather the people who live east of California are used to. Since 2003, making annual winter visits to Manhattan has taught me things about cold weather, like the fact that men actually wear gloves and scarves, and that sweater hats are a daily necessity. Over these past seven years I have built up a cold weather wardrobe of purchases made in New York. One favorite purchase was made the year that winter never showed up in New York, and Macy's was stuck with a large inventory of unsold wool overcoats which they began liquidating halfway through winter. I was able to score one of those $300 items for less than half price, and I wear it religiously on each winter trip to the East Coast.

So what does any of this have to do with my initial puzzlement? Well, I figure it's that black wool overcoat that gave me away. Fujianese restaurant workers don't walk around Manhattan Chinatown wearing long wool overcoats. North Face is more the style there. Nobody walks around Little Fuzhou in a long wool overcoat except for this silly interloper.