Tuesday, June 30, 2009

Economics vs. Environmentalism

We desperately need the separation of economics and environmental science. Both disciplines attempt to understand processes of great import to our well being--but other than that, the two subjects are unrelated. Currently, the political ideology of environmentalism is conflated with the science of ecology and its sister disciplines. To accurately understand and evaluate changes in our environment such as pollution or climate, rigorous efforts must be maintained to keep these issues distinct--in our research, our schools and especially in our political deliberations.

Robust (though controversial) economic theory and empirical evidence exists which shows the entire process of government manipulation of resource management is a disvalue. The most efficient users and providers of scarce resources are being penalized at the expense of those who are less efficient or even wasteful. With either cap-and-trade or a carbon tax, the price system is disrupted--and true costs are incalculable. No one can make intelligent economic decisions because prices no longer reflect supply and demand but instead are the result of the political agenda of special interests.

Those who wish for our scarce resources to be wisely used should be screaming loudest against these political distortions of resource allocation. But failure to distinguish between the laws of economics and the laws of the physical world blind them to the destructive effects of their environmental policies.

Until we end the pollution of our science by political ideology (of any type) we will be unable to discover real and lasting solutions for sustainable prosperity.



Note: I originally had this scheduled to post tomorrow, but upon reading a similar post at Voices for Reason, I have decided to post it today instead.

Science vs. Politics, Part 2

There is nothing in the science of climatology that tells us the proper response to a change in climate (small, large or catastrophic) is government intervention.

Where are the scientists who are alarmed by climate changes and who advocate free market solutions? Why do they instead promote increased government action and power which disrupts (or completely replaces) free market processes and limits individual choice and liberty?

This fact in and of itself should make their "scientific" conclusions suspect.

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Monday, June 29, 2009

Liberty and the Separation of Powers

The Liberal Democrat remain steadfast in their belief that liberty must not be sacrificed on the altar of security and regrets the climate of fear that has been fostered by the approach of both Labour and the Conservatives to issues of domestic and international security. We believe that liberty, justice and the separation of powers are essential to achieving lasting security and that abandoning liberties, particularly in the face of unconventional threats from criminals and terrorists, will only serve to make Britain both less free and less secure.

-- Robin Lawrence UK Liberal Democrat Park Ward Councillor Source: Liberal Democrat Conference, Sep. 13, 2008 (HT Liberty Quotes)

Lawrence points out that "liberty, justice and the separation of powers" are the principles which provide us with the greatest security over the long term. He warns against letting the fear of terrorists distract us from that fact and trade them for a false sense of security in the short term.

It strikes me that the exact same thing could be said about our prosperity and general welfare--including concern over the quality of our environment. Fear of climate change, catastrophic or otherwise, and of economic downturns has politicians responding to and magnifying the call for abandoning liberty (personal freedom of choice) for the sake of security.

We traditionally, and appropriately, think of the separation of powers as the assignment of different governmental tasks and areas of control to different, and competing, divisions of government, e.g. the three branches of Judiciary, Executive and Legislative. Further division of power occurs in that each branch exists at a variety of levels, e.g. federal, state, local. Within each branch are further subdivisions which provide yet more checks and balances. For the Judicial branch, there is a hierarchy of judges as well as the jury. In the Legislative, we divide power between the Senate and the House.

Another key factor in the separation of powers is the balance of power between the government itself and the people. This is made explicit in the Constitution in the Tenth Amendment:
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, and to the people.

The more power that is delegated to the government, the less the power private individuals hold as a check against tyranny. The more we allow "public" ownership or control of businesses, the more the balance tips toward government control at the expense of liberty. Since the ultimate purpose of our government is to secure the individual rights of life, liberty and property, it is essential that we delegate to government only as much power as is necessary to achieve that purpose, and no more. Our ever-growing "public sector" is a threat to the ultimate separation of power and to the provision of checks and balances which are necessary to maintain our inalienable liberties.

A famous quotation, written anonymously but frequently (incorrectly) attributed to Benjamin Franklin is a s follows:
Those who would give up Essential Liberty to purchase a little Temporary Safety deserve neither Liberty nor Safety.
If we continue on our current path of relinquishing our independence in the name of safety, I wouldn't go so far as to say we don't deserve liberty or safety, but we certainly will not achieve them.


Addendum: For more on checks and balances, separation of power and the Rule of Law, check out the analysis of the situation in Honduras at The New Clarion. Be sure to read the comments and the linked articles. (HT Rational Capitalist.)

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Science vs. Politics

Back in February, two climate scientists debated the issue of climate change. You can watch the hour long debate at here.


Dr. William Schlesinger, President of the Cary Institute of Ecosystems Studies and former dean of Duke’s Nicholas School of the Environment, and Dr. John Christy, Professor of Atmospheric Science and Director of the Earth System Science Center at the University of Alabama and current Alabama State Climatologist, present their opposing views of the potential danger associated with global warming.The debate was sponsored by the John Locke Foundation and the Reese Institute for Conservation of Natural Resources at Lenoir-Rhyne University.


Dr. Christy reviews the science which counters the need for alarm and immediate action. Dr. Schlesinger assumes the catastrophe is coming and presents his recommendations for political action. Knowing the scientific arguments against the need for alarm is important, but the current very real catatrophe we face is political. Regardless of whether or not an anthropogenic increase in atmospheric CO2 is resulting in elevated temperatures and creating a warmer climate, what needs to be directly challenged are the assumptions of government's role in responding to the science.


The question which needs to be addressed is "What are the economic and political consequences of using the relatively slow, rigid and blunt hammer of government coercion to address a complex, ever-evolving understanding of climate change and the best allocation of scarce resources?" Supporters of government-mandated limitations on CO2 push the environmental form of the Precautionary Principle without thinking to apply that same principle to the dangers of central planning and of increasing government power at the expense of individual liberty.


Human beings may or may not be effecting the Earth's climate in a significant way. The conclusions science draws on this is irrelevant to how we as individuals and as a community or nation should respond to that information. The current tact within government hampers the acquisition and distribution of accurate information. It prevents rapid and fluid responses to new information and challenges. In violation of the principle of individual rights, we are in the process of imposing by force the conclusions and priorities of a few upon us all.


Dr. Christy's scientific work is essential to forming a better understanding of the workings of our climate. But a debate where one discusses the science and the other discusses political action, there is no debate. It is just talking past each each other.


There are two debates which need to occur--the science and the politics--and it is a critical error not to keep them distinct and separate.



Update 6-30-09: Similar points are made in comments #3 and 7 as well as Bill Brown's parenthetical remark in the body of his post Climate Change Truth at The New Clarion.

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Friday, June 26, 2009

Windfall Profits vs. Rent Seeking

Rent-Seeking:
The expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one's self as the result of a “favorable” decision on some public policy. The term seems to have been coined (or at least popularized in contemporary political economy) by the economist Gordon Tullock. Examples of rent-seeking behavior would include all of the various ways by which individuals or groups lobby government for taxing, spending and regulatory policies that confer financial benefits or other special advantages upon them at the expense of the taxpayers or of consumers or of other groups or individuals with which the beneficiaries may be in economic competition.
--(Glossary of Political Economic Terms)

Personal matters are keeping me from writing much these days, but I want to refer you to an article on a critical bill which will soon be coming up for vote in Congress--possibly even today. This bill, the American Clean Energy and Security Act, would implement a program which will intentionally increase the cost of energy to every individual and business in this country. The stated goal is to reduce CO2 emissions, but this method has been tried in Europe and has not achieved its purported goal. Please let your representative know what you think of this bill.

Near the end of the article, the author states that through cap-and-trade, some special interests will benefit from a "windfall profit." This is an unfortunate and incorrect use of the term "profit." It helps perpetuate a grave misunderstanding of the role of profits in an economy while at the same time maligns an honorable activity: that of seeking and creating profits. Profit is simply the excess value created (via honest and free trade) above the costs of production. With cap-and-trade, nothing is being produced except an artificial increase in the cost of energy. No value is being created; thus, there can be no additional value, and no additional or "windfall" profit.

The more appropriate economic term to use, which is unfortunately not widely known, is "rent-seeking." (See the definition above.) Cap-and-trade creates no real value but merely adds a costs "out of thin air" and then shifts (redistributes) the additional money collected from one place to another. Those chasing this extra money are "rent seekers." The extra money individuals and businesses will pay for energy will go in part to the Federal government (through its sale of emission permits) and to those poised to make money on the artificially created "market" for permit trading. Those companies who obtain emission permits without purchasing them are in fact receiving a government subsidy--which then puts them at a competitive advantage over those unable to lobby successfully enough to receive these handouts. Some of the money the government obtains will be used to prop up companies which are unprofitable in a free market (such as alternative energy providers.)

The entire cap-and-trade process is a disvalue. Some like to call it cap-and-tax, a term which only captures a part of the problem, but not its deeper essence. Cap-and-trade is promoted as a "market solution" but it is in fact an "anti-market" process that creates problems and does not provide a single real solution--not even to the "problem" proponents are attempting to solve, that of reducing CO2 emissions in the name of anthropogenic global warming.

A market is where individuals meet to trade value for value. Efficient users of scarce resources create excess value and thus gain profits. With cap-and-trade, instead of profit (i.e. efficient use) determining who obtains access to resources, those decisions are made through politics. Resources are wasted obtaining permits and political privileges rather being used to efficiently create energy. The price system is disrupted--and true costs are incalculable. No one can make intelligent economic decisions because prices no longer reflect supply and demand. Instead, prices are determined the political agenda of special interests. The most efficient users and providers of scarce resources are penalized at the expense of those who are less efficient or even wasteful. Those who wish for our scarce resources to be wisely used should be screaming loudest against these political distortions of resource allocation, but a lack of understanding of the laws of economics blinds them to the destructive effects of cap-and-trade.

Cap-and-trade is a non-solution to a non-problem. Real progress is made by making more goods and services available at a lower cost--through the discovery of the most efficient use of scarce resources. Cap-and-trade will make less available and cost us more. This is anti-progress and will only benefit the politically connected, and even then, only in the short term.


Up Date 6-28-09
I thought I had published this Friday morning, but it appears I had saved it as a draft. Too late now to effect the results in the House. The bill passed by a mere 7 votes, 219 to 212. The bill is expected to go before the Senate mid-September. Even Jim Hansen, one of the loudest climate science alarmists, calls cap-and-trade a Temple of Doom, and the American Clean Energy and Security Act (a.k.a. Waxman-Markey) a "monstrous absurdity." Yet another 1000+ page, unread bill is rammed throughthe House. Congress is drunk on power and out of control.

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Wednesday, June 24, 2009

Ramblin' On

Peter Schiff often has a lot of good things to say, and he said quite a lot of them in his recent Henry Hazlitt Memorial Lecture at the Austrian Scholars Conference on March 13, 2009. Unfortunately, he frequently got side tracked and the speech in its entirety is long and rambling. Below are a few choice segments..and as lengthy as they are, the original article is much lengthier. If you prefer, you can meander along with Peter through the whole speech posted on the Ludwig von Mises Institute website--or you can read the highlights below.


Why the Meltdown Should have Surprised No One


Comparing the current recession to the dot.com recession:


When people bought stocks they pretty much bought it with their own money. And if they got a margin account, maybe they had to put 50 percent down. And many of the brokerage firms were requiring higher margins on Internet stocks. So, when the bubble burst, the losses were pretty much confined to the people that made the bad bets.

And at least when the losses happened, nobody tried to bail anybody out. If you lost money, you lost money. There was no one looking to the government to get their money back because they bought a dot-com stock that went to zero.

None of the brokerage firms failed. Nobody failed because they had loaned money to people to buy stocks.

This time around, of course, everybody who bought real estate did it with somebody else's money. Very few people were paying 100 percent. Many people were buying real estate with none of their own money; people were buying real estate with nothing down. Is it any surprise that people gambled when they had nothing to lose?...


On securitization and government guarantees:

The reason that it was so easy for people to borrow all this money to buy houses was because of securitization.

At first it started with Freddie and Fannie. If it wasn't for Fannie Mae and Freddie Mac, Americans couldn't have borrowed all this money to buy houses. The only reason they did it was because the US government was co-signing their mortgages.

And people knew, well, if you lend somebody money to buy a house and if they can't pay you back, the government will pay you back. And, so, people were able to borrow a lot more money than a free market would have allowed because the government was there co-signing it.

But there were some mortgages that the government wouldn't co-sign; these were the ones known as the subprime mortgages. But Wall Street figured out that, well, we can securitize these mortgages; the government won't guarantee them, but we're going to buy them all up and put them into these structured products, and by structuring them like this we're going to reduce the risk....

Well, but it was because Wall Street was able to securitize all these bonds and sell them to the Japanese and sell them to the Chinese and sell them to the hedge funds that there was demand. And, of course, why was there so much demand for high-yielding assets? Because the Fed had the interest rate too low. Everybody needed yield and they were willing to take risk to get it...

It used to be that the mission of Freddie/Fannie, before they went broke, was to try to make homes, homeownership affordable. Now their mission is to keep home prices high, to keep homes unaffordable, to make sure we have to mortgage ourselves to the hilt to buy a house.

The government solution is high prices but low mortgage payments subsidized by the government. The free-market solution is low prices. Because if real-estate prices go down, you don't need to borrow that much money to buy a house. So it doesn't matter that your mortgage payment is a little higher...


The Fed vs. the Free Market


President Bush, in one of his speeches, said that Wall Street got drunk. And he was right, they were drunk. So was Main Street. The whole country was drunk. But what he doesn't point out is, where'd they get the alcohol? Why were they drunk?

Obviously, Greenspan poured the alcohol, the Fed got everybody drunk, and the government helped out with their moral hazards, and the tax codes, and all the incentives and disincentives they put in — all the various ways that they interfered with the free market and removed the necessary balances that would have existed, that would have kept all this from happening...


Federal Ponzi Schemes


The US government, we don't pay our bills. We're like Bernie Madoff. People loan us money. How do we pay it back? We borrow more.

If somebody came to Bernie Madoff a couple years ago and wanted their money, they got it. Why did they get it? Because they were able to take in new money. They found another sucker who didn't know it was a Ponzi scheme.

Same thing the US government does. Every time a bond matures, we just go sell another one. And every time we need to pay interest on the national debt, we go borrow that too. Well, it works until nobody wants to lend us any more money, then we're going to have to default, just like Bernie did.

And there's only two ways we can default. We just legitimately don't pay, or we print money. That's it...

Growing the government instead of the economy


And, what's happening now, of course, is the government is using this economic crisis, that they caused, to get even bigger, to grow their power, to expand, to come to our rescue, to save us from the evil forces of capitalism with government, with socialism...

[President Obama]wants the US economy to have a sound foundation, but he wants to be the one that builds it. He thinks the government can erect a sound foundation; that central government planning can replace the market; that resources can be allocated efficiently by politicians who want to get votes, as opposed to entrepreneurs who are looking for profits. He wants to replace the invisible hand with the hand of the state. And he thinks that he can do it better...

It's all about bailing and stimulating:

The government right now — everything that they're doing — what is the government trying to do right now? They want to bail people out and they want to stimulate.

Well, the bailouts are the worst thing that you can do, because they want to bail out companies that should fail, that should be bankrupted. Bankruptcy is a good thing. It's the way the market cleanses the economy of companies that shouldn't be there.

Why shouldn't they be there? Because they're not generating profits; they are not effectively utilizing resources. Those resources need to be freed up. Right now they're being held hostage. We need to free them up so that we can use them productively...

But the stimulus, what is it that the government is trying to do with the stimulus? The government is trying to recreate the conditions that led to the crisis. Because when they talk about stimulating the economy, they're not talking about stimulating economic growth. They're talking about stimulating spending...

[W]e said, "Hey, we're actually getting wealthier!" — even as we were getting poorer, because we were spending money instead of saving money. But — and as we spent money, we counted that spending as GDP. And, so, as long as our GDP was rising, we thought our economy was growing.

But the whole time our GDP was actually going up, we weren't measuring real economic growth. We weren't measuring how much wealth we had been destroying or dissipating. We were simply spending. And we thought we were okay because some appraiser said that our house was worth more, or the stock market was still going up.

But all that was an illusion, and now that those bubbles have burst, there's no way to go back to it...

[W]hen you borrow money and you invest in productive capacity, you have a real asset and the asset can generate revenue...And we became the world's wealthiest economy because we borrowed to produce. What we've done recently is we've borrowed to consume. We didn't produce anything. We borrowed money and bought trinkets. We bought depreciating consumer goods. So how can we possibly pay the money back? We didn't acquire any income-producing assets to pay the money back....

Nothing fundamental has changed


[T]he combination of Obama/Bernanke is way worse than Bush/Greenspan, but it's the same philosophy. Nothing has changed. This might as well be the third Bush term. He is doing the same exact stuff.

The rhetoric is a little bit different, but the policies are all the same, the ideas are all the same: that economic growth is a function of people spending money and that we need more government to stimulate the economy; that we should bail out the people who fail and punish the people who succeed. And that we should have no interest rate. The Fed should be cranking out money...

And if we want to have a real economy, if we want to have production, then savings need to go to producers. Well, they're not going to go to producers if they're squandered by consumers. They're not going to go to producers if the government is borrowing all the money.

So what do we need? We need the government to eliminate the deficit and go to a surplus. We need the government to stop spending money and depleting our savings. We need consumers to stop spending money and rebuild their savings. We need a recession. We need it. We need one badly...


Toward the end of the article, Schiff draws and interesting parallel between what happened during the Great Depression and now. I know, I know, that comparison has been WAY over done. But, in pointing out that Hoover was mistakenly associated with a free market, just as Bush is today, and then was followed by Even-Bigger-Government Roosevelt, whose policies deepened and prolonged the depression, what President Obama is doing now is even less defensible. It's the same damn thing all over again!!


The popular notion is that we had a depression because Hoover was so irresponsible that he trusted the free market and he did nothing, and because he did nothing we had a depression. And then Roosevelt rode to the rescue and saved the day with big government.

Well, the reality, of course, is that we had a depression because, (a) we had a Federal Reserve that was too easy in the 1920s and created a boom.

And then when the boom bust, Hoover ignored the good advice of his secretary to the treasury — which maybe is the last time the secretary to the treasury ever gave anybody any good advice. And instead of allowing the free market to work, he came up with all kinds of crazy things to bail people out and to prop things up and to distort prices and fix wages and all kinds of things that created the depression.

And then Roosevelt came in and proceeded to make it worse. And everything that Roosevelt did exacerbated it and made the depression great...

And that's very similar to what's happening now. You got Bush, who is the Hoover now of this generation, who is now associated with the free market, who is nothing like the free market. And now we have Barack Obama, like Roosevelt, coming in to save the economy with big government. Of course, the government is already huge. Maybe he hasn't figured that out.


Wealth is not the problem. Wealth is the solution. But it has to be real wealth, based on production and investments from savings--not consumption based on debt and dollars created out of thin air.

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Tuesday, June 23, 2009

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"Those who profess to favor freedom, and yet depreciate agitation,
are men who want rain without thunder and lightning. "

-- Frederick Douglass (1818-1895), escaped slave, Abolitionist, author, editor of the North Star and later the New National Era


In honor of the Iranian protesters, and resisters of statism everywhere.



(HT Liberty Quotes)

Friday, June 12, 2009

EPA collecting comments on GHG

from Cooler Heads Digest 6-12-09:

The deadline for the public comment period on the EPA’s proposed finding that greenhouse gases endanger human health and welfare is June 23rd. You may submit comments here.

Thursday, June 11, 2009

Guantanamo

Back Talk has a thoughtful analysis of the difference between our current President and the previous one in regard to their approaches to the Guantanamo Bay detention center. The important point he brings up is not the difference in the final decision, but their methods of decision making and the announcing of that decision. Reasonable people can disagree without being morally corrupt or ignorant. Mr. Obama's condescension and hubris is both ungracious and unpresidential.

Barak Obama's Greatest Accomplishment (so far)


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Wednesday, June 10, 2009

An Optimistic Perspective on Current Events

Lately, it has been easy to become discouraged by the barrage of statist rhetoric and actions coming from federal, state and local government--especially given the apparent wide public support these actions are receiving. I am always grateful for the occasional article which injects a bit of optimism into the debate. Perspectives like that conveyed in the article linked below provide a helpful reminder of how it takes time to change the assumptions held by a culture, and the importance of working to lay the groundwork. I particularly liked the parallel the author draws between the spread of ideas and the Austrian theory of capital structure. I hope you too can receive a bit of a boost to help you carry on.

"[I]deas are higher-order factors of production."


from Academic Scribbling and Current Events by Art Carden.


Addendum: A complimentary post on this subject can be found today (6/10/09) at Gus Van Horn.


Thursday, June 4, 2009

Legal Fundamentals

"Here the great art lies,
to discern in what the law
is to be to restraint and punishment,
and in what things
persuasion only is to work."

-- John Milton (1608-1674) Poet 1644



That sums up the problem pretty neatly, I think. (HT Liberty Quotes)

Wednesday, June 3, 2009

California finds a backdoor to the Fed's magic printing press. Will it be unlocked?

Doug Reich, The Rational Capitalist, has made a crucial observation that needs to be understood far and wide. Be sure to read his entire post, also up at simply Capitalism.

Now Your State Can Print Money Too!

One reason why spending at the state level can rarely get out of control is because states lack the power to print money. In other words, they must rely on taxation or municipal bond offerings to raise money to fund their budgets. Since taxation is unpopular, there is an obvious political limit to increased tax rates. Since private municipal bond investors can only buy so much debt before asking for higher interest rates, there is also a limit to the amount states can raise through borrowing. The federal government figured out how to get around this limit by creating the Federal Reserve System which is a pseudo private bank with the power to create money. The Fed can buy federal government debt from the public with fake money. Therefore, the federal government always has a buyer for its paper.

Now, the states want to get in on the action.

Of course, the states will not ask for the direct power to print money. They have a more clever way...


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GM: The Canary in the Coal Mine

After a brief hiatus due to a computer-robot error, George Reisman is back on line. Today's post is not very cheerful, but provides an important warning: what has happened to GM can happen to all of us, unless we wake up and reverse the escalating intrusion of government into our liberty and lives.

General Motors, RIP


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Monday, June 1, 2009

Recommended Reading

I may be on break...but thank goodness somebody is watching the store.

For a few good and important reads, check out these posts and stories.

On Economics:

Reality Check II: The Cost of Gas vs. The Cost of Government


On the Supreme Court Justice selection:

Beware clich├ęs in debate over Souter replacement

On Climate Change:

Climate Impacts of Waxman-Markey (the IPCC-based arithmetic of no gain)


On Nuclear Weapons in dangerous hands:

North Korea’s test

Break Over