Thursday, December 31, 2015

Royally Bamboozled

The way I see it, a whole lot of Montanans, including Sen. Doug Kary, have been royally bamboozled.

In a guest column that’s appeared in several Montana newspapers, Kary, a Billings Republican, cites a recent study by the Bureau of Business and Economic Research to claim that closing the coal fired power plants at Colstrip would be an intolerable disaster for Montana’s economy. And so, he argues, in implementing the Clean Power Plan, the state should do whatever is necessary to keep Colstrip up and running.

Whether or not the Colstrip plants should be closed is a decision that deserves a lot of careful thought and attention, but unfortunately that’s not what it’s getting from Kary, who so misunderstands the actual findings of the BBER study as to turn them on their head.

Kary says that the BBER forecasts that “Montana’s economy will shrink by $1.5 billion if the Colstrip facility is forced to close. Compare that with the $1.2 billion reduction in economic output Montana experienced between 2008 and 2009.”  Had Kary read the BBER study carefully, he would know that it predicts that even if all the plants at Colstrip were shut down, Montana’s inflation adjusted output would increase every single year from 2019 to 2050; it would never shrink as it did during the 2008 recession. The $1.5 billion shrinkage Kary cites, without putting a date on it, is how much lower the BBER projects output would be, in 2025, if Colstrip were closed down rather than left open. So the numbers Kary is comparing don’t measure the same thing. In fact, according to the BBER, between 2024 and 2025 output will rise about $1.7 billion, even if Colstrip is closed.

By the way, the “output” measure BBER is using when it computes the $1.5 billion shortfall is gross receipts (or sales) of businesses and other entities. This is not the measure economists usually use, because it overstates the value of output by allowing a lot of stuff to be counted twice.* Sales usually exceed the accepted measure of output, gross domestic product, by a wide margin – about 70% in the BBER model. Using GDP, the 2025 output shortfall is about $1 billion, rather than $1.5 billion.**

Kary says that if Colstrip is shuttered, “Montana will lose over 7,000 good jobs.” Again, he doesn’t say when this is going to happen. But the BBER study does not predict a decline of 7,000 jobs; it predicts, rather, that in 2025, with the CPP in place, there be 7,000, or about 1.1%, fewer jobs available in the state than there otherwise would be. Between 2024 and 2025, the number of jobs is projected to decline by 735, or one tenth of one percent.

Kary says that closing Colstrip would produce a “$145 million to $155 million a year tax hit” to the state, “about 1 in 10 of the dollars the state collects in tax revenue each year.” Actually, if he had read the BBER study carefully, he would know that $145 million represents the BBER’s estimate of how much lower state revenue from all sources (not just taxes) will be in 2025. In 2013, state revenue from those sources was about $8 billion. We don’t know what that revenue will be in 2025, but something in the neighborhood of $10 billion is a conservative estimate. In that case, $145 million in reduced revenue will translate into 1 out of every 69 dollars the state collects, not 1 out of 10, as Kary would have it.

Kary says that closing Colstrip will cause “double digit” increases in electricity prices without explaining what that means (10 percent? 99 percent?) but doesn’t recognize that  the BBER study predicts that despite increases in the cost of living, real per capita disposable income will increase every single year through 2050, even if Colstrip is entirely closed down. So will population, the labor force, real pay per job, real pay per worker, real gross state product, and real total personal income.

If you’re wondering how Kary managed to so badly garble the results of the BBER study, well, that’s where the bamboozling comes in. And the outfit doing the bamboozling is none other than BBER itself.

BBER wanted the impacts of a Colstrip closure to look as scary as possible, and presented its results so that would happen. It filled tables and graphs with calculations of what it called losses – the difference in what would happen with and without Colstrip being shut down – and suggested closure was a calamity in the making. And Kary bought it.

The only way Kary could have known that virtually every meaningful measure of economic performance would continuously improve, even after Colstrip was completely shut down, would have been to dig around in the numbers in an appendix, because BBER never bothered to point those results out.

The only way Kary could have known that the “losses” depicted in the study were not declines, and not comparable to real recessionary declines, would have been to read the fine print, because BBER itself didn’t succeed in avoiding that particular confusion.

The only way Kary could have known that the “losses” BBER attributed to closure were quite small in percentage terms, or that they would quickly be erased by normal growth, was again to have gone to the numbers in the appendix, because BBER never told him that.

The only way Kary could have known that real per capita income would continue to increase despite higher electricity prices was, you guessed it, to have gone to the numbers and calculated it for himself, since BBER never did it for him.

For a lot of people, including Doug Kary, whether or not Colstrip closes down is a make or break question when it comes to implementing the Clean Power Plan. That concern is not hard to understand, particularly when it’s coming from the people who live and work in Colstrip. But from a statewide perspective, it’s important not to go off half cocked here, and make decisions based on a contorted view of their consequences. None of us, including Doug Kary, is well served by having the wool pulled over our eyes.

*For example, when a farmer sells barley to a brewery, the barley is included in the economy’s output for the first time. When the brewery sells a keg to your favorite watering hole, the barley is counted again, transformed into beer. And when the bartender draws you a pint, it’s counted a third time.

** It’s hard to avoid concluding that BBER used sales rather than GDP because a “loss” of $1.5 billion sounds scarier than a loss of $1 billion.

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