Archive for June, 2011

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Appropriable quasi-rents, local governments, and state and federal renewable power policy

June 30, 2011

Michael Giberson

State and federal policy provides substantial subsidies to renewable power producers, but just because the subsidies go to renewable power producers in the first instance doesn’t mean they receive the full net subsidy. Figuring out the exact distribution of the subsidy requires extensive additional analysis. For example, local governments are exercising their authority to capture some small bit of the action through inspection and permitting fees and local excise taxes.

Stories like this one, from Renewable Energy World, suggest that the renewable power business is feeling the sting just a bit.

I was reminded of John Neufeld’s economic history work on the role protection of quasi-rents played in the origins of state electric power regulation, discussed at KP here.

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Horwitz reminds us that Classical Liberalism insists governments treat citizens as equal before the law

June 30, 2011

Michael Giberson

Steve Horwitz argues that Classical Liberals have become so focused on the size and reach of government that they have lost touch with another important Classical Liberal project: promoting equality before the law.

Part of the problem today is that an increasing number of libertarians lean toward the anarchist position.  When one’s whole political perspective begins with the proposition that anything and everything the State does is evil and/or unnecessary, it’s easy to ignore questions about about how the State — given its existence – should properly conduct its business.  These questions involve matters of justice and liberty, and if we libertarians ignore them, we risk not only irrelevance in important conversations but also risk consigning our fellow citizens to continued injustice and denials of liberty.

The legalization of same-sex marriage in New York last week has brought these tensions to the surface.  Libertarians seem split over whether to celebrate this action.  On one side is a group arguing that the real problem is State involvement in marriage in the first place and that this decision just makes it more involved.  Therefore, this group seems to be arguing, we should oppose the action (or at least be indifferent about it) and work to separate marriage and State.

Equality under the Law

On the other side are those like me who — while agreeing that the long-term goal is separation of marriage and State — argue that, given the slim chance of separation happening any time soon, classical-liberal principles require the State to treat all citizens as equal before the law.

For most of human history political leaders acted with near total discretion, distributing benefits and impositions among their subjects however they like.  One of the most important accomplishments of the liberal movement was to subject those with political power to rules.  Starting with the Magna Carta and up through the democratic revolutions and constitutions of the eighteenth century, liberalism worked to create a society ruled by law not by men.  Since the eighteenth century the liberal movement has also worked to ensure that all citizens, by virtue of their being adult humans, have their rights fully respected.  The liberalism of the nineteenth century was antislavery, antiracist, and part of the earliest movements for women’s rights.  It powerfully combined a commitment to liberty with a commitment to equality to make the case for the liberal order.

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Fiesta Bowl wants money back from politicians

June 29, 2011

Michael Giberson

In an actual episode of journalism, the Arizona Republic has been digging into the operations of the Fiesta Bowl, including, among other things, its lavish spending on state and local politicians. The Fiesta Bowl, which is negotiating with the Internal Revenue Service in an attempt to preserve its non-profit status, has concluded that much of its spending on trips and tickets for politicians may not have been consistent with “the Fiesta Bowl’s tax exempt purposes.” And so, as part of an effort to clean up its act, the Bowl has decided to ask for the money back.

This is awesome.

Here is a bit from the Arizona Republic‘s report:

After years of attempting to curry favor with elected officials by lavishing them with expensive gifts including out-of-state trips and tickets to sporting events, the Fiesta Bowl now indicates it wants the money back.

The bowl, which is negotiating with the Internal Revenue Service to preserve its non-profit status, is asking 31 politicians to help it determine whether trips and gifts they received “serve the Fiesta Bowl’s tax-exempt purposes.”

If they cannot, the bowl says, it may ask the politicians to reimburse it for the trips and gifts, an amount that could exceed $154,000.

Until late last year, the bowl had made it a practice of spending on politicians in an effort to lobby for help landing subsidies or legislation to benefit the non-profit organization. The bowl changed course after The Arizona Republic in December 2009 first reported that current and former bowl employees said they were reimbursed for making campaign contributions, which is illegal, and cited questionable business practices.

The bowl’s later internal investigation found excessive spending by employees and confirmation of the campaign-contribution reimbursement scheme. The bowl fired John Junker, its longtime chief executive, who has been replaced by outgoing University of Arizona President Robert Shelton.

In some cases the politicians have paid a bit back to the Fiesta Bowl and in other cases the politicians have argued they were traveling on Fiesta Bowl related business trips, and therefore ought not to be presented with a bill for the travel months or years after the fact. Among the items paid for by the Fiesta Bowl were trips and tickets that allowed state and local politicians to attend events like the 2009 Super Bowl, the Big 12 Championship game (Texas-Nebraska) in 2009, the Texas-Oklahoma football game in Dallas, and the Auburn-Alabama football game in 2006.

Perhaps some of the public officials were doing real and legitimate work for the Fiesta Bowl during their trips, but it looks like petty corruption. (One might wonder why these multi-million dollar entertainment extravaganzas are tax exempt in the first place – is the story that they further the education of thousands of student-athletes? Are they huge charity events?) In any case, I wouldn’t be surprised if other big college football bowls were discovered to engage in similar practices. Let the journalism continue!

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In search of reports that confirm or support the New York Times stories on shale gas skepticism

June 29, 2011

Michael Giberson

After following the reactions to the New York Times stories on shale gas skepticism for a day or two, I began to get tired of all of the complaints (“pretty poor quality,” “sensationalistic … false,” “poorly done piece of work,” “mislead its readers,” “approaching yellow journalism“) and so started searching for supportive reactions, for someone to say “right on,” “good work,” or “that Ian Urbina should win a Pulitzer for his mind-blowing investigative work on display in these articles.”

Here is what I found: a claim that “the New York Times’ ongoing ‘Drilling Down’ series … has been providing groundbreaking coverage” followed by the observation that three more articles had appeared. From that statement, then, we might infer that the author meant to suggest these new articles in the series also constituted “groundbreaking coverage.” That’s about as close as I came to finding a supportive remark. (Source: the NRDC Switchboard blog.)

On the other hand, even at the Huffington Post we find less than complimentary views of the Times‘ work. Raymond Learsy writes:

Quite incredibly, for two days running including a two column headline on this Sunday’s front page, “Insiders Sound Alarm Amid a Natural Gas Rush“, and again on Monday, “Behind Veneer, Doubt on Future of Natural Gas“ The New York Times descended into a realm approaching yellow journalism: reportage of freighted opinion presented as news often with only the flimsiest attribution, often undated or old enough no longer to be germane given the explosive developments in the field, repeatedly out of context and clearly selected to substantiate a predetermined point of view. In doing so, offering a selection of documents “including hundreds of industry emails, internal agency documents and reports by analysts” imparting the New York Times’ imprimatur to documents whose “names and identifying information have been redacted to protect the confidentiality of source, many of whom are not authorized by their employers to communicate with the Times.” Documents presented without context nor permitting the reader in too many cases to be able to ascertain the who, why, and motivating factors. Is this the new world of newspaper reporting?

The articles are shameless in deprecating the standing of institutions that hold differing views than that of the Times. The United States Energy Information Administration is excoriated for its optimistic assessments of shale gas reserves and its potential by inferring their research relies on “outside consultants with ties to the industry”. This from the masters of redacted references.

Energy in Depth, a project of the Independent Petroleum Association of America, also took a dim view of the two articles, essentially accusing reporter Ian Urbina of outsourcing his reporting and writing to long-time shale gas skeptic Art Berman (who is quoted briefly in the article).

In any case, I’d still like to find some support for Urbina’s articles. I thought that at least the Oil Drum would take note of the skeptic viewpoints, but as of this morning the only reference was provided in the comments to a post. Ideally, I’d like support with data (the Oil Drum commenter suggests a test based on drilling at DFW airport). Alternately, maybe one of the anonymous analysts whose email was quoted will step forward and say “that is my quote and I still believe it.” Maybe I’ve missed the outpouring of informed support, or maybe it will just take a little time for supportive analysts to get their data together and then go public. In any case, if you see complimentary remarks for Urbina’s work, please leave a comment here. Thanks.

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John Hanger reports the shale gas news too good to print in the New York Times

June 28, 2011

Michael Giberson

John Hanger is former head of the Pennsylvania Department of Environmental Protection and former member of the Pennsylvania Public Utility Commission, among other public positions. He was founding president of the group Citizens for Pennsylvania’s Future (PennFuture) which carefully tracked energy and environmental issues in the state. Hanger knows a few things about energy and the environment.

He also knows a cheap, sensationalist, newspaper smear job when he sees one, and on Sunday he read the New York Times article highlighting various shale gas skeptics claims. On his blog Facts of the Day Hanger shot back:

Could anyone imagine more sensationalistic narratives than Radiation, Ponzi, and Enron?

Consistent with this reporter’s method, today’s article uses often anonymous statements to paint a sensational narrative and leaves out or underplays critical information that is inconvenient to establishing the credibility of the dominant anti-gas narrative.

For example, the reader will not learn the following:

1. That 2010 natural gas production in the United States reached the highest levels since 1973 and neared record levels.  Nor will the reader be told that the US produces more natural gas than any nation.

4. The reader will not be told that actual large shale gas production has shattered the historic pricing link between oil and gas and now oil prices have gone up while gas prices have gone down

5. The reader will not be told that, while oil prices have spiked up due to supply straining to meet demand, actual shale gas production has caused gas prices to decline.

6. The reader will be told that the alleged shale ponzi scheme could harm consumers, but the reader will not learn that actual shale gas production so far has saved a consumer heating with natural gas about $5 to $8 per thousand cubic feet or conservatively $500 per year.

7. The reader will again be warned that consumers could be hurt by the alleged ponzi scheme, but the reader will also not be told that actual shale gas production has lowered the wholesale price of electricity about 5 cents per kilowatt-hour and saved a residential electric consumer using 10,000 kilowatt-hours per year another $500 per year.

9. All the reader is told about the Marcellus is that a Penn State professor reports well production is meeting or exceeding expectations in the Marcellus.  No charts or bar graphs.  No data. Nothing. Why? Very inconvenient facts for the ponzi, enron narrative is the answer.

12. The reader is told that improvements in shale gas drilling are lowering costs but no details. The details are impressive and in a separate posting we will discuss them. Again getting into this detail would be inconvenient to the ponzi, enron narrative.

And who are among the victims of the alleged Ponzi scheme?  Exxon, Chevron, Shell, Statoil who all have made substantial investments in the Marcellus shale plays.  They could be wrong.  They could be victims of a crime.  But they are incredibly sophisticated companies that engage in massive due diligence before making big investments.

Hanger continues his post with his view of current industry conditions. Following his Sunday riposte, Hanger has been furiously blogging the shale gas news “not fit to print” in the New York Times because it would undermine their sensationalist tale-telling:

This morning Hanger appeared with the New York Times writer, Ian Urbina, and others on the Diane Rhehm show, a public radio show broadcast in Washington, DC. Podcast available here.

NYT Reporter & Me On Radio Today

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Additional reactions to the New York Times articles documenting shale gas skepticism; More on fracking

June 28, 2011

Michael Giberson

As a follow-on to my post on the recent New York Times articles on shale gas skepticism, here’s a collection of other reactions:

  1. The most thoughtful response appears to come from Michael Levi at the Council on Foreign Relations, Is Shale Gas a Ponzi Scheme?: “The New York Times’ war on shale gas continues with two more big stories by Ian Urbina. … Both articles are based primarily on piles of emails, the first from industry sources and the second from EIA staff. I hate to say it, but on the whole, both pieces are of pretty poor quality. That’s a shame, because both – particularly the first one – had the potential to raise some important issues for debate.” Levi continues, “I’m going to focus on the Sunday story here, because it’s much more interesting, and because some of its sources raise some genuinely important issues…. In contrast, today’s story is mostly a mix of some frustrated EIA analysts’ complaints and some healthy internal EIA debate taken wildly out of context.”  Levi’s commentary continues with a cogent and somewhat damning analysis of the Times article. Worth reading the whole thing.
  2. Also thoughtful is Michael Lynch posting at MasterResource: “Two specific issues raised in the article are important: the profitability of shale gas wells and their long-term production profiles.” But also, “A careful reading of the articles, however, suggests that it is more smoke than fire.” The post includes addition examination of the relevant issues. The remaining items are not as good as these first two, but for more reactions read on!
  3. Dallas Morning News editorial: “This newspaper isn’t ready to give up on the enormous promise of ‘abundant, clean and cheap’ that natural gas may hold for America’s energy future. Still, a disturbing pattern of unfulfilled claims justifies the public’s increased skepticism.”
  4. Fort Worth Star-Telegram‘s Barnett Shale Blog: “Chesapeake Energy and its high-profile CEO Aubrey McClendon issued a blistering response to a Sunday New York Times article …. Meanwhile, U.S. Rep. Edward Markey, D-Mass., citing a related Times article published Monday, said he wants the U.S. Energy Information Administration to justify ‘optimistic estimates’ for shale-gas production. The Star-Telegram published versions of both articles.”
  5. Chesapeake Energy’s statement: the aforementioned “blistering response.”
  6. Grist writer David Roberts: “If the WSJ editorial board says it, it’s probably wrong.” Chesapeake Energy CEO Aubrey McClendon’s response to the NYT stories, “… is chock full of logically flawed arguments and right-wing talking points. Indeed, it sounds like it could have been written by the WSJ editorial board!” (HT to Roberts for mentioning the great Levi commentary noted above.)
  7. MarketNewsVideo.com reported that some of the companies mentioned in the articles were trading lower on Monday, but the effect appears small. Not mentioned by MarketNewsVideo.com was that some companies mentioned in the articles outperformed the market on Monday. I’d say no real market effect.
  8. The blogger at Early Warning speculates on the two-headed editorial sensibilities at the New York Times, sometimes publishing cheery resource reports that seem to reflect oil company PR claimes and other times publishing highly critical analyses.
  9. At FuturePundit, Randall Parker wonders whether the electric power industry and transportation policies may get burned by big investments predicated on the shale gas boom story, if it turns out the skeptics are right.

[ADDED: At FuelFix, Tom Fowler collects other reactions to the NYT articles, including a sharp blast from John Hanger, a former Pennsylvania regulator.]

While I’m at it, there have been a spate of other fracking related pieces lately, including:

  1. Wall Street Journal, The Facts About Fracking: “The U.S. is in the midst of an energy revolution, and we don’t mean solar panels or wind turbines. A new gusher of natural gas from shale has the potential to transform U.S. energy production—that is, unless politicians, greens and the industry mess it up.”
  2. Kathleen White in the National Review, The Fracus About Fracking (link goes to a summary, full article req. subscription at NR, NR link here): “Human ingenuity, catalyzed by market dynamics, has foiled predictions of irreversible decline in domestic oil and natural-gas resources. Official estimates of the amount of recoverable oil and natural gas have soared.”
  3. The Economist, Fracking Heaven: Other Europeans fear fracking, Poland is steaming ahead: “The rewards could be vast. Shale gas could free the country from its dependence on coal, a dirtier fuel, which currently accounts for 95% of Polish power generation. It could also mean that Poland no longer has to rely on Russia, the neighbourhood bully, for most of its natural gas.”
  4. At the Huffington Post, Kevis Begos reports Sportsmen Alliance for Marcellus Conservation: Fisherman, Hunters Take on Fracking: “A new coalition of outdoors groups is emerging as a potent force in the debate over natural gas drilling. The Sportsmen Alliance for Marcellus Conservation isn’t against the process of fracking for gas, but its members want to make sure the rush to cash in on the valuable resource doesn’t damage streams, forests, and the various creatures that call those places home.”
  5. And for something different, at Cycles, Trends, & Vibrations Mike Aucott offers a preliminary but well documented estimate of the shale gas energy return on energy invested (EROEI) along with a discussion of related issues. The EROEI he comes up with, in the range of 70 – 100, seems shockingly high.
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New York Times devotes front page stories to various skeptical remarks made about shale gas resources from over the past few years

June 28, 2011

Michael Giberson

The New York Times has prominently published two articles highlighting skeptical views about the amount of natural gas that will be produced from shale. On Sunday’s front page industry is featured: “Insiders Sound an Alarm Amid a Natural Gas Rush.” On Monday’s front page, skepticism in the U.S. Department of Energy is revealed: “Behind Veneer, Doubt on Future of Natural Gas.”

Shale gas skepticism has been discussed here at KP before and I’ve made clear that I’m with the optimists. After reading these articles, I’m still with the optimists. I believe that advances in drilling technologies and associated business practices over the last decade have turned vast amounts of natural gas in shale formations into recoverable resources.

I further believe the environmental concerns surrounding hydraulic fracturing are significantly overblown in the press. Hundreds of thousands of wells have been fracked and relatively few have been the object of complaints. The worst potential harms are to the landowner leasing the minerals and nearby neighbors. These parties should monitor well performance and take legal action if necessary to protect their rights. There has been essentially no demonstrated harm to people living more than about 1,000 feet from active well sites, so the rest of us can calm down and enjoy the energy supply.

The New York Times articles appear as if the paper had acquired a large collection of shale gas skeptic email and a smattering of skeptic reports, combed through the material for the potentially damning sound bites, and then interviewed a few people to fill in the gaps. The articles are not (and don’t try to be) balanced assessments of whether the skeptics are right. The articles simply document skepticism voiced by people in industry and at the Energy department over the last several years.

That “last several years” bit is important. If you watch the dates of the various emails and reports cited, you’ll notice the story bounces around from 2009 to 2007 to 2011, etc. No real sense is provided in the article of whether, over the past four years, people in industry are becoming more or less concerned. We don’t know whether 2007’s skeptics remain skeptical or have their concerned addressed. We don’t know if more and more optimists are become skeptical over time.

All we really see in the articles is that it was possible to find skeptics in 2007 and four years later it is still possible to find skeptics. The articles present an impressive collection of shale skeptic sound bites, but not much more.

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Monday afternoon speed blogging

June 27, 2011

Lynne Kiesling

Some ideas catching my attention and worth sharing:

1. Another demonstrated benefit of vitamin D: immune response. I am a data point on this study reported in Science Daily — I really cranked up my vitamin D supplementation over the winter (1600 IU/day), and did not have a single cold. This study focuses on the reduction of “bacterial infections that lead to gingivitis and periodontitis.” How cool is that?

2. Here’s a cool start-up technology for doing low-power (same frequency) wireless that enables data transfer over 45 miles; the company plans to market it for long-distance highly distributed smart grid data applications.

3. Not surprisingly, I really like Steve Horwitz’s paean to markets and human excellence in all of its manifestations (although I would refer to Sidney Crosby and Stewart Copeland instead of Pavel Datsuyk and Neil Peart, but that doesn’t detract from his outstanding argument). Like Steve, I love watching outstanding hockey players, skilled drummers, and great short-order cooks, and I agree with his observations about Smithian specialization and that market processes relying on profit and loss routinely reward such excellence spread throughout society better than other institutions do.

4. Do you think we’d let a day go by at KP without a fracking post? Here’s a video interview from Reason with Ron Bailey presenting a measured discussion of the safety and economic issues in fracking:

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Kazman on CAFE regulations

June 27, 2011

Michael Giberson

Sam Kazman, of the Competitive Enterprise Institute, opines on the loss of spare tires in some new car models:

Fewer tires, higher taxes.

That may be what’s in store for drivers under the federal government’s spiraling fuel economy mandates (known as CAFE, for Corporate Average Fuel Economy). The Department of Transportation is floating 62 mpg as a possible standard for 2025, more than double the current 27.5 mpg standard. How the industry can meet that target, and at what cost, is anyone’s guess. A new study in mid-June by the nonprofit Center for Automotive Research in Ann Arbor, Mich. put the tab at about $10,000 extra per new vehicle, while admitting that even this estimate might be far too low.

And that’s not the only bad news; in the past few weeks there have been two other unwelcome developments. First, GM announced that several versions of its compact Chevy Cruze would no longer have spare tires; instead, they’ll have vehicle-powered sealant repair kits. This is a major jump in the trend toward eliminating spare tires, a trend due largely to CAFE’s drive to shed every possible ounce of car weight.

Some argue that spare tires are unnecessary, given the growing presence of run-flat tires, tire pressure monitors, and roadside assistance systems. But the fact that spares are being eliminated in the name of fuel economy, rather than market demand, demolishes one of the chief claims of CAFE’s advocates. For several decades, the need to reduce vehicle size and weight in order to raise mileage has been CAFE’s Achilles’ heel. Smaller, lighter cars not only hold fewer passengers and less baggage; they’re also less crashworthy. CAFE-induced downsizing causes several thousand additional traffic deaths per year.

I’m not sure how clearly the loss of spare times can be linked to CAFE, but clearly shedding weight improves fuel economy and therefore is CAFE-relevant. In fact, so long as an automaker is pressed up against the compliance limit, all decisions affecting fuel economy will involve trade offs between consumer demand and regulatory compliance. GM may be testing consumer reactions to elimination of spare times by introducing the innovation on just a few models.

And if there were evidence that CAFE regulation actually secured net public benefits in a cost effective manner, then stories about innovations in regulatory compliance would be good news. In such a case this development would be evidence of companies bringing down the cost of securing a public good. Unfortunately, it just ain’t so.

Christopher Knittel, now at MIT, has summarized the results of some of his recent work as “ performance standards – such as CAFE standards – may be more inefficient than previously thought, and that pricing instruments, such as a gas tax, would likely have a bigger impact on reducing greenhouse gas emissions.” Note that he says “more inefficient than previously thought,” and while the academic literature on CAFE is diverse and complicated, CAFE has never been seen as a particularly efficient set of regulations.

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Congressman called for gas relief

June 27, 2011

Michael Giberson

Congressman Brian Higgins, of western New York, put out a press release last week welcoming the news that the Obama administration will release 30 million barrels of oil from the Strategic Petroleum Reserve. (“Higgins Welcomes News of Oil Release: Congressman Called for Gas Relief Measure in April.”) The rest of the press release was a listing of all of the efforts the congressman has supported with the intent of “keeping gas prices reasonable.”

 Our efforts include: fighting to remove subsidies to oil companies, regular monitoring of local prices to ensure they correlate to others in the region, responsible domestic drilling and aggressively pursuing alternative energy.”

I’m surprised to see “fighting to remove subsidies to oil companies” as the first listed effort to keep gas prices reasonable. Presumably the subsidies tend to shift costs from consumers as a group to taxpayers as a group and therefore lower the price of gas (if not the ultimate cost). I’m against subsidies to energy companies, however, so glad to see Congressman Higgins on the case.

A bit more, uh, laughable might be the polite term, is the press release’s claims of Higgins’s success in fighting to bring gasoline prices down:

In the fall of 2008 Congressman Higgins fought unjustifiably high gas prices in WNY.  He met with the Chairman of the Federal Trade Commission and demanded an investigation into high prices.

Over the six month period during which the Congressman vocally rallied against and demanded answers the high local gas prices decreased by $1.18 due in part to the Congressman’s actions.

In fact the FTC’s letter credited the Congressman for falling prices saying, “we note that prices began to fall soon after you raised public concerns about the elevated prices.”  The Congressman continues to monitor local gas prices through his website to make sure local gas prices aren’t unjustifiably higher than other upstate regions.

In brief, after the Hurricanes Gustav and Ike hit oil producing areas in the Gulf, prices spiked nationally for a while before resuming the sharp drop in oil and gasoline prices that had begun in the summer. Prices in Western New York were falling a little bit less sharply than prices elsewhere in the state. The Congressman began publicly complaining about the change in relative prices with respect to elsewhere in the state.

What evidence is there for the claim that prices fell “due in part to the Congressman’s actions”??? Essentially none. Notice that the FTC letter to the Congressman only observes that prices began to fall after the Congressman had complained, not that the Congressman had anything to do with prices falling. (I posted a link to the FTC letter to Congressman Higgins in a July 2009 post along with extensive commentary.)

The press release adds that Higgins is co-sponsoring the current version of the Federal Price Gouging Prevention Act, apparently languishing in committee, which I am on record as saying is a bad deal for consumers and merchants.

So the Congressman’s press release is nothing more than a list of ineffectual, misrepresented, or misguided efforts. No real suprise, right, I mean no one reads press releases for their truth content. Still, someone thought highly enough of the press release to reproduce it more or less word-for-word on a newspaper website, so I thought it worthwhile to point out some of the limits of the report.

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