Issue Analysis: The Minimum Wage

Proposition: The minimum wage should be retained indefinitely, and should be modestly increased periodically.

Economic Background: In purely economic terms, labor is a commodity (it can be a producer’s good or a consumer’s good) that is priced according to the same principles as other commodities. The free-market price for a specific kind of labor will be determined at the price when the amount of labor supplied is equal to the amount of labor demanded. This, in turn, means that the price for a specific kind of labor will be determined based on the marginal productivity of that labor, the productivity of the unit of labor service that is supplied and demanded for the least important (or most marginal) use out of all the units of the labor service supplied and demanded on the market at the time.

Let us illustrate this principle with an example. Say that at a specific wage rate, 100 people are willing to supply full-time secretarial services, while 100 people are willing to employ them as secretaries at that rate. For the sake of this illustration, we will assume that the 100 secretaries have roughly equal skill levels. What is this specific wage rate that will accomplish this? It will be based on the marginal productivity, or usefulness, of the secretary that is employed in the least important use, that is, the 100^th use in terms of importance. Perhaps the most important use for a secretary hired in this illustration would be as secretary to a CEO of a major corporation, while the least important use for a secretary hired would be as secretary to an HR manager in a medium-sized business. If the company of this HR manager was willing to pay $15 per hour to get him a secretary, and a wage rate of less than $15 per hour wouldn’t be enough to induce 100 people in this market to offer full-time secretarial services, than the wage rate of all the secretaries (the market wage rate for this quality of secretary), will settle around $15 per hour.

How about all the secretaries who work in employments in which they are worth more than $15 per hour, shouldn’t they get more? Not if all the secretaries are of roughly equal skill levels, which we are assuming here. While the people wanting to employ secretaries for more important uses than the 100^th would be willing to pay more than $15 per hour, there is no need for them to do so. If, say, the secretary in the most important use, the secretary to the CEO of the major corporation, decided to quit because he thought that his wage rate was unfairly low, the company could just hire another secretary of the same quality at the going market price of $15 per hour (or maybe a bit higher if all the secretaries are currently employed and would need $16 per hour or so to consider changing jobs). Certainly there is no need for them to pay a wage rate to the secretary corresponding to the absolute importance of their economic contribution, which could be as high as $100 per hour or so.

Of course, the real labor market is much more complicated than the one in this simple illustration, with worker skill differences, loyalty factors, location factors, interconnectedness between the markets for workers in different occupations, different psychic desirability levels of work in different positions and companies, training costs, and much more, greatly complicating matters. Nevertheless, for our purposes, the basic principle of price determination and the simple illustration of this principle will suffice for now.

         

Predicted Effects:

1. Creates unemployment: With the economic background in mind, let us now consider what will happen when a minimum wage is imposed. Suppose the government thinks that anything below $20 an hour is too low and not sufficient to support a dignified life on. They decide to make $20 an hour the minimum wage, effectively preventing any employer from paying below $20 an hour for labor services. Returning to our secretary example, this means that the wage rate for secretaries will rise from $15 an hour to $20 an hour. The catch is that the secretaries in the least important uses are not worth a lot more to their employers than the $15 an hour they were being paid. The employers will not just pay $20 an hour for a service that they consider to be worth less than this. Barred from offering a lower wage, they will just make do without the labor service entirely, and the secretary will be out of work. Applying this across the economy, every position in which workers are worth less than $20 an hour to their employers will simply be eliminated.

Thus, it’s not that low skilled jobs will be eliminated entirely by a minimum wage. Rather, their number will be reduced by the minimum wage, as the more marginal positions requiring low skilled workers will be rendered uneconomical and will thus be eliminated. Without a minimum wage, these positions would exist and workers would be employed in them, although at a wage that the government deems to be below its preferred ‘minimum’. With a minimum wage, workers who can’t get themselves into a position where the free-market wage rate is more than $20 an hour will be thrown out of work indefinitely.  

2. Gives workers who remain employed a higher wage than otherwise: As mentioned above, imposing a minimum wage, unless it is pushed to ludicrous lengths, does not entirely eliminate low skilled jobs. Those low skilled workers who happened to be employed in positions of higher relative importance would retain their jobs, and would probably receive a higher wage for their efforts due to the imposition of the minimum wage. In our secretary example, those secretaries who weren’t thrown out of work because they occupied positions of higher importance would now receive $20 an hour rather than $15 an hour, a not insignificant increase in wage rate.

3. Less production and higher prices for consumers: Employers don’t just employ workers for the heck of it; they employ them because they value their services more than the wage rate they have to pay to secure those services. With a $20 minimum wage imposed, employers no longer have the benefit of being able to employ workers’ services which they value less than $20 per hour, in exchange for a mutually agreed-upon wage rate less than $20. Those workers are thrown into idleness; they can no longer contribute their labor services to society’s consumers (through the intermediation of capitalist employers) for a mutually beneficial price. This leads to less production of related goods and services, which in turn leads to higher prices that consumers must pay to secure these goods and services which are now scarcer as a result of the minimum wage.

Another way of thinking about this effect is to think of pricing based on costs of production. Ultimately, prices are always based on supply and demand. However, as George Reisman taught me in his economic treatise, often producers of products that can be fairly easily and quickly reproduced will not set their selling prices based on the short-term revenue optimization point that they could achieve purely based on current supply and demand conditions. Instead, they will set their prices based on their most efficient competitor’s costs of production of producing that product, plus the market’s ‘going rate’ of non-entrepreneurial/non-speculative profit/interest. Why would they do this? Because they do not want to lose market share to their existing or potential competitors. Charging at the revenue optimization point and reaping unusually large short-term profits would invite newcomers into this seemingly lucrative field and would provide an opportunity for existing competitors to undercut the price and take away market share. For example, producers of table salt, Sifto for instance, could probably reap more very short-term profits by raising the price of their product. Table salt is currently so cheap in North American markets that its price would probably have to rise quite substantially to induce a significant drop in demand for table salt in these markets. But if Sifto did so, their unusually high short-term profits would invite more competitors into the industry, and would put them at risk of losing market share to existing competitors who did not decide to raise their price, but decided to increase production to satisfy the consumers’ demand for table salt at a lower price than Sifto instead. Similar reasoning would probably apply to products such as bread, screws, machine parts, and many others[1].

Raising the minimum wage would raise the costs of production, sometimes quite significantly, of producers who rely on low skilled labor. They would be forced to do without the low skilled labor that was worth less than $20 an hour to them, and would be forced to pay the low skilled labor that remained a higher wage than they were before. Both of these things would increase the costs of production of all competing or potentially-competing companies in the industry. The imposing of the minimum wage would probably have little effect on the non-entrepreneurial ‘going rate’ of profit/interest, which we can safely assume would remain roughly the same. The result of higher costs of production and an unchanged ‘going rate’ of profit/interest would be higher prices charged to the consumers of the products which require or benefit from low skilled labor as an input.      

4. Capital migration out of the region: Capital investment and wage rates have a somewhat paradoxical relationship to one another. On one hand, low wage rates in a region, other things equal, tend to attract more capital investment to that region, as most businessmen are always trying to produce in regions where their costs of production can be the lowest, other things equal. On the other hand, capital investment in a region serves to raise real wage rates in that region in general. This is both because saved-up capital funds are what are used by businesses to pay wages to workers, and because capital investment not directed to buying labor is usually directed to securing producer goods that will help make the labor hired more productive (machinery, tools, office buildings, research & development, training programs, etc…) Because producer goods are ultimately useless without the labor to use them, labourers in a region with a relatively abundant supply of producer goods are in a better position to demand higher wages than labourers in a region with a relatively scarce supply of producer goods. The labor of those in the former region is more valuable to employers because it serves to set in motion a more productive complex of producer goods than the labor of those in the latter region. Ignoring for the moment the great difficulties of talking about the price of ‘labor in general’, the least important use of labor in the former region will probably be more valuable to employers than the least important use of labor in the latter region. This means that market real wage rates will tend to be higher in the former region than in the latter region.

Thus, capital investment is attracted to regions with lower wage rates, but the act of capital investment serves to raise wage rates in the region. Let us suppose that capital investment, attracted to a region with relatively low wage rates, resulted in a ‘natural’ raising of those wage rates. At some point, the region would get to a point where its wage rates were high enough to cease attracting capital investment due to the lowness of the region’s wage rates. Other factors in the region, such as the prevalence of law and order, respect for investors, low tax rates, the relative lack of burdensome restrictive regulations, an increasingly skilled and conscientious workforce, a greater supply of domestically-owned savings/capital funds, a good supply of valuable land and natural resources, and a relative lack of economic and political instability, amongst others, could still operate to attract capital investment to that region, but relatively low wage rates would now no longer be among those factors.

Since the primary purpose of courting capital investment is to raise real wage rates, there is no use lamenting the fact that capital investment has in fact raised them, even if it won’t be attracted as rapidly in the future due to the wage rates that are now relatively higher. The problem with imposing a minimum wage is that it is as if capital investment has done its job and raised wage rates among unskilled workers, when in fact this isn’t the case. The higher wage rates, due to the minimum wage, among unskilled workers results in attracting less capital investment to the region in which it is imposed, but the capital investment that would have been attracted by the lower wage rates, had the minimum wage not been imposed, is nowhere to be seen! Wage rates are raised not through capital investment, as they would be in a free-market environment, but through throwing unskilled people who can’t land a position where their skills are worth more to their employers than the minimum wage, out of work.           

5. Dampens a spur for low skilled workers to improve their skills and change their jobs: The wage rates set in a free labor market serve as useful signals to workers. They indicate what skills and jobs are important to the society’s employers and consumers (state of demand), and they indicate how rare the ability and willingness to perform these jobs is in that market (state of supply). If a worker is in a job that has a low free-market wage, it is a signal that either the worker’s skills or current job are relatively unimportant to employers and consumers, or that, while the job is important, too many workers are willing and able to perform these jobs satisfactorily. Usually, it is a mix of both. In either case, the relatively low wage rate is a signal from the society’s consumers (producers/employers being their intermediaries in this regard), telling the worker that he would be more valuable to them if he were doing something else.

In a free-market, this signal is not just idle hand-waving; the worker is incentivized to pay heed and to take action. If he does, he will be rewarded with a higher wage rate, and thus a higher standard of living. This action might involve moving to a new location, taking night classes to learn new skills, trying hard to show your employer that you have what it takes to assume a higher position in the company, or simply taking a look to see whether higher paying jobs are out there that you are already qualified for.

If a minimum wage is imposed, this spur is dampened for workers at the bottom end of the wage ladder. 

Those that are not thrown out of work receive an artificially higher wage for the positions they are able to retain. This causes the wage gap between these jobs and jobs that paid above the minimum wage before it was imposed to narrow. With this narrowing, workers have less of an incentive to put themselves in an employment position that is more useful to society’s consumers than the one they are in currently.      

6. General Principle: The government can intervene with price controls when it doesn’t think that free-market prices for things are ‘fair’: A government-imposed minimum wage is a price control. If one thinks that the government can beneficially impose price controls on labor, then why not on other commodities? Why shouldn’t the government set maximum prices on ‘essential’ commodities such as milk, bread, and gasoline? If government can interfere with market prices with little to no cost, as minimum wage advocates imply, then why shouldn’t they interfere with other ‘important’ prices? A minimum wage advocate would be hard pressed to make the categorical case that they shouldn’t.

Empirical Considerations:

As usual, it would be useful if we could use empirical studies to estimate the quantitative magnitudes of these qualitative effects listed. But, also as usual, due to the dazzling array of complex, non-isolatable variables affecting the labor market besides the presence or absence of a minimum wage, such studies would prove inconclusive at best, misleading at worst.

My Valuational Cost/Benefit List:

Benefits: #2.

Costs: #1, #3, #4, #5, #6.

Valuational Comments:

#1: I think that forced unemployment of people that are willing to work is a horrible fate. I would want to avoid this fate very much, and I would certainly not wish it on anyone else.

#2: Higher wages for people at the lowest end of the wage ladder, not taking into account for the moment the negative effects of the means adopted to attain this end, I think is a good thing. Putting in a long day of work and getting little in reward in return is no fun for anyone.

#3: As a consumer, I naturally prefer lower prices to higher prices for the things that I buy. Also, it should be noted that poorer consumers are generally more hurt by higher prices for the things that they buy than richer consumers are. Scarcity of consumer goods is no good for anyone, least of all the poor who have little disposable income to spend on such goods.

#4: Influxes of capital investment make a regional economy dynamic and generally lead to higher real wage rates for laborers in that economy. I would strongly prefer it if government policies did not artificially chase away potential capital investment from my region’s economy.

#5: Again, as a consumer, I am interested in lower prices and better service. Dampening the effects of the consumer’s signals to workers leads to a reduced ability of the economy to respond to consumer preferences. This must be classed as a negative effect for me.

#6: Maximum price controls have been tried by governments for thousands of years, and have always led to shortages of the good whose price was controlled and to a relative decrease in the production of that good. Free-market prices are not meaningless figures, set solely based on the ‘greed’ of capitalists. They serve important coordinating and allocational functions throughout the economy and lead producers to be more responsive to the preferences of consumers. When enough citizens accept that the government should tamper with prices whenever they see fit, we can expect that such tampering will be undertaken, and the associated economic scourges of this tampering will follow (either shortages or unsold surpluses, accompanied by uncoordinated production in general). I consider all of these things to be bad, both for myself and for society as a whole, so this general principle is a negative one in my books.

Conclusions:

Overall: I think that for this policy, the costs outweigh the benefits. Essentially, in the unskilled worker category, the unlucky are forced into unemployment and even deeper poverty, while the lucky get to keep their jobs and improve their economic position somewhat. I don’t see why we should turn these lucky unskilled workers into a kind of unskilled labor aristocracy, while excluding other unskilled workers and making their economic positions much worse off. This is especially unjustifiable when the policy causes harm to the general economy as well (effects 3-6). Thus, I would recommend that the minimum wage be completely abolished.

Alternatives?: There is no such thing as a free lunch; government can’t just tamper with free-market prices and expect to make people better off without causing unwelcome economic consequences. There is, however, such thing as a lunch that is openly bought at another’s expense. The government could force taxpayers to openly subsidize low wage workers instead of trying to impose a minimum wage rate.

I think that the least problematic way of doing so would be as follows: Have the government institute a program known as the Citizen Subsidy program. Every month, every single citizen past the age of majority would receive $500 a month, or some similar figure. This isn’t supposed to be enough to live on without working (I recommend a modest in-kind welfare social safety net for desperate unemployed people), it’s meant as a top-up for workers receiving low free-market wage rates.

Why must every citizen receive the subsidy, why not confine it to low wage workers? The first reason is to simplify the administration of the program and to guard against the bureaucratic inefficiencies that plague most discretionary or needs-based welfare systems. The second reason is to prevent the development of perverse incentives. Workers might be loath to accept a somewhat higher paying position if it means losing all or part of the subsidy. This, to say the least, is not something that I would want to see encouraged. Admittedly, a universal subsidy would be more expensive than a targeted subsidy. However, as long as it was paid for through some kind of proportional tax rather than a progressive tax, for many people the increased tax needed to pay for the universal subsidy would just be offset by them receiving the subsidy themselves, and it would have little effect on them.

I’m not sure if I would personally advocate such a subsidy or not, as it wouldn’t be without its significant drawbacks, especially on the heavier taxation side if universal, or especially on the perverse incentive side if a targeted subsidy is opted for instead. Nevertheless, if you firmly believe that artificially subsidizing low wage workers is a good idea, I would encourage you to advocate something along these lines, rather than a minimum wage. The policy of setting a minimum wage is based on the premise that government can tamper with free-market prices with little to no harmful consequences. Along with this false premise, the policy should be discarded as well.           

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[1] I learned this idea from: George Reisman, Capitalism: A Treatise On Economics (Ottawa, Illinois: Jameson Books, 1998).

Critique of Conservatism: Russell Kirk's 'Ten Conservative Principles' and 'Libertarians: the Chirping Sectaries'

            I will start by critiquing Russell Kirk’s ten key conservative principles. I will then try to counter Kirk’s critique of libertarianism:

Ten Conservative Principles[1]

1. Kirk: “First, the conservative believes that there exists an enduring moral order. That order is made for man, and man is made for it: human nature is a constant, and moral truths are permanent…

It has been said by liberal intellectuals that the conservative believes all social questions, at heart, to be questions of private morality. Properly understood, this statement is quite true. A society in which men and women are governed by belief in an enduring moral order, by a strong sense of right and wrong, by personal convictions about justice and honor, will be a good society – whatever political machinery it may utilize; while a society in which men and women are morally adrift, ignorant of norms, and intent chiefly upon gratification of appetites, will be a bad society – no matter how many people vote and no matter how liberal its formal constitution may be.” 3-4

Brian: This principle is exceedingly vague. I cannot endorse or reject it until I know what this ‘enduring moral order’ is supposed to be commanding of its adherents. If this moral order chiefly consists of respect for others’ persons and property, and politeness and respect in personal dealings with people, then strong, general adherence to it would indeed be beneficial for the preservation of society. But if this moral order chiefly consists of puritanical commands, such as prohibitions on birth control or homosexual relations, then I don’t think adhering to it would be very useful, nor would adhering to it be necessary for the preservation of society. If this moral order chiefly consists of exhortations to kill enemies and ‘infidels’ and to die gloriously in battle, a kind of moral order which many historical societies have endorsed, then adhering to it would be downright harmful to the preservation of society.

2. Kirk: “Second, the conservative adheres to custom, convention, and continuity. It is old custom that enables people to live together peaceably; the destroyers of custom demolish more than they know or desire. It is through convention – a word much abused in our time – that we contrive to avoid perpetual disputes about rights and duties: law at base is a body of conventions. Continuity is the means of linking generation to generation; it matters as much for society as it does for the individual; without it, life is meaningless….

Conservatives are champions of custom, convention, and continuity because they prefer the devil they know to the devil they don’t know. Order and justice and freedom, they believe, are the artificial products of a long social experience, the result of centuries of trial and reflection and sacrifice.” 4

Brian: Again, as with the first point, I have to know what kind of ‘customs’ we are talking about before endorsing this principle. Absurd social arrangements, such as slavery, aristocratic privileges, coercive labour unionism, protectionism, and socialism, remain absurd and harmful no matter how ‘customary’ they become, no matter how many years they go on unchallenged. The same thing applies for legal conventions and customary law: an absurd law remains absurd and harmful no matter how long it has been on the books for.

Kirk says that “life is meaningless” without institutional continuity linking generations together. But why must the meaning of life be found only in future generations? Does the present generation count for nothing? Does present enjoyment of life count for nothing? Kirk may believe it, but I doubt that he could convince me, or a good many other people, to believe it.  

Kirk says that order, justice, and freedom are the “artificial products of a long social experience”.  Maybe so, but then chaos, injustice, and slavery are also “artificial products of a long social experience”. Somewhere in that “long social experience”, thinkers and ordinary people have to stand up and say: “We want order, justice, and freedom, and here is how our social institutions need to be structured in order to get them!”. If no one said that or acted like that, but just passively waited for “long social experience” to produce a good social order for them, they would almost certainly be sorely disappointed.

3. Kirk: “Third, conservatives believe in what may be called the principle of prescription. Conservatives sense that modern people are dwarfs on the shoulders of giants, able to see farther than their ancestors only because of the great stature of those who have preceded us in time. Therefore, conservatives very often emphasize the importance of prescription – that is, of things established by immemorial usage, so that the mind of man runneth not to the contrary. There exist rights of which the chief sanction is their antiquity – including rights to property, often. Similarly, our morals are prescriptive in great part. Conservatives argue that we are unlikely, we moderns, to make any brave new discoveries in morals or politics or taste. It is perilous to weigh every passing issue on the basis of private judgment and private rationality. The individual is foolish, but the species is wise, Burke declared. In politics we do well to abide by precedent and precept and even prejudice, for the great mysterious incorporation of the human race has acquired a prescriptive wisdom far greater than any man’s petty private rationality.” 4-5

Brian:  All of this ignores the variety and inconsistency of “things established by immemorial usage” and of ancient “prescriptive wisdom”. Private property rights are indeed ancient rights, but so were the rights of slave-ownership, the restrictionist rights of craft guilds, and the dominion rights of absolute monarchies, at the time when they were abolished. Were the Europeans and North Americans of the 19^th century wrong to seek to abolish these latter three ‘ancient rights’, while leaving the former intact and even strengthening it? Perhaps some conservatives would say that they were wrong to do so. I think that they were right, because the right to private property is a right that is very useful to a peaceful and productive social order, while the latter three rights are harmful to a peaceful and productive social order. The utility of the institution or right is the key, not its antiquity.

Kirk says that it is unlikely that the moderns will make any new discoveries in morals, politics, or taste. Perhaps not, but there remains the important task of deciding which of the various older views on these things to accept as one’s own. No general consensus on morals, politics, or taste has ever emerged which modern people could adopt confidently and unthinkingly. Older generations had as many disagreements about these things as the modern generations do. Will the modern thinker accept limited-government republicanism (John Locke) or monarchical absolutism (Robert Filmer)? Ancient communitarianism (Plato) or ancient defenses of private property (Aristotle)? Old protectionism (mercantilism) or classical free-trade ideas (Adam Smith)? Roman Pagan morality or Christian morality? I could go on and on. The point is that, like it or not, each individual must use their “petty private rationality” to decide for themselves on the great issues. The writings and actions of older generations can help modern people to make these decisions in a more informed way, but because of the variety of mutually exclusive views that members of older generations held on these issues, they cannot make the decisions for us.

4. Kirk: “Fourth, conservatives are guided by their principle of prudence. Burke agrees with Plato that in the statesman, prudence is chief among virtues, Any public measure ought to be judged by its probable long-run consequences, not merely by temporary advantage or popularity. Liberals and radicals, the conservative says, are imprudent: for they dash at their objectives without giving much heed to the risk of new abuses worse than the evils they hope to sweep away.” 5

Brian: I agree with this one entirely. Many politicians and political thinkers are far too short-sighted and do not take the general principles behind their actions and ideas and the precedents set by their actions and ideas enough into account, and end up making a mess of things as a result. But notable liberals/libertarians such as Ludwig von Mises and Henry Hazlitt, among many others I am sure, have made such long-term consequences, general principles, and precedents a key part of their social thinking. I try to do so myself, as I have emphasized in previous posts. Thinking long-term like this when it comes to social policy and being a liberal/libertarian are not mutually exclusive. In fact, the staunchest and most effective liberals/libertarians have made these long-term consequences the centrepieces of their arguments in favor of a freer society.

5. Kirk: “Fifth, conservatives pay attention to the principle of variety. They feel affection for the proliferating intricacy of long-established social institutions and modes of life, as distinguished from the narrowing uniformity and deadening egalitarianism of radical systems. For the preservation of a healthy diversity in any civilization, there must survive orders and classes, differences in material condition, and many sorts of inequality. The only true forms of equality are equality at the Last Judgment and equality before a just court of law; all other attempts at levelling must lead, at best, to social stagnation.” 5

Brian: You won’t get much argument from me on this one. I don’t think anyone has ever accused libertarians of neglecting the variety of different people (their subjective value judgements and ways of life) or of clamouring for state-imposed egalitarianism. The only thing that I would say is that I don’t consider material inequality to be a good in and of itself. I think that it is necessary in order for society to be at all productive, but if, in an alternate universe, this wasn’t the case and optimal productivity coincided with material equality, then I would have no objection to material equality, provided that it happened naturally, not through the use of physical coercion. I’m not sure if Kirk would still object to it in this alternate universe, but if he did, then I would start disagreeing with him on this issue.

6. Kirk: “Sixth, conservatives are chastened by their principle of imperfectability. Human nature suffers irremediably from certain grave faults, the conservatives know. Man being imperfect, no perfect social order ever can be created. Because of human restlessness, mankind would grow rebellious under any utopian domination, and would break out once more in violent discontent – or else expire of boredom. To seek for utopia is to end in disaster, the conservative says: we are not made for perfect things. All that we reasonably can expect is a tolerably ordered, just, and free society, in which some evils, maladjustments, and suffering will continue to lurk.” 5

Brian: I agree with the general sentiment here, especially the distrust of utopian thinking. But I would say that if a problem can be solved or alleviated through relatively simple means, such as by changing or repealing a piece of legislation, then we should seek to do so forthwith. Knowledge of human ‘imperfectability’ shouldn’t act as a barrier to action in such cases, when the solution is so near at hand.  

7. Kirk: “Seventh, conservatives are persuaded that freedom and property are closely linked. Separate property from private possession, and Leviathan becomes master of all. Upon the foundation of private property, great civilizations are built. The more widespread is the possession of private property, the more stable and productive is a commonwealth.” 5

Brian: I agree entirely with this principle.

8. Kirk: “Eighth, conservatives uphold voluntary community, quite as they oppose involuntary collectivism.” 6

Brian: Again, I agree entirely.

9. Kirk: “Ninth, the conservative perceives the need for prudent restraints upon power and upon human passions….

The conservative endeavors to so limit and balance political power that anarchy or tyranny may not arise….

Knowing human nature for a mixture of good and evil, the conservative does not put his trust in mere benevolence. Constitutional restrictions, political checks and balances, adequate enforcement of the laws, the old intricate web of restraints upon will and appetite – these the conservatives approves as instruments of freedom and order. A just government maintains a healthy tension between the claims of authority and the claims of liberty.” 6-7

Brian: Being a minarchist rather than an anarchist libertarian, I agree with most of this, although I do have some quibbles and reservations. What does Kirk mean by “the old intricate web of restraints upon will and appetite”? I suspect that this is a reference to puritanical moralism and to ostracism by public opinion of those who disobey this morality. Now, libertarianism as a political philosophy has nothing to say about personal morality, or about what kinds of conduct individuals should personally approve of or disapprove of. As somewhat of a free-spirited person myself though, I don’t really see what the point of puritanical moralism is. I don’t really care what my neighbours or countrymen are doing with their spare time, who they sleep with, who they marry, how many kids they have, how nice to their friends and parents they are, etc… As long as these people don’t aggress against my person or property, or make my society poorer and more insecure by aggressing against the persons or property of others, I don’t really care what they do, unless of course I have a close personal relationship with them. Thus, if this principle comprehends the acceptance of puritanical and judgemental standards of personal morality, which I suspect it does, then I cannot accept it entirely.  

Kirk says that “A just government maintains a healthy tension between the claims of authority and the claims of liberty.” I’m not sure what exactly he means by this. Would a minarchist government (one that confined itself to providing law, police, military, and diplomatic services only) be ‘unjust’ for giving in too much to ‘the claims of liberty’? Must a ‘just’ government always compromise between libertarian principles and socialist principles, or is just staving off anarchy itself recognition enough of the due ‘claims of authority’? If the former, I reject the implication, if the latter, I accept it.

10. Kirk: “Tenth, the thinking conservative understands that permanence and change must be recognized and reconciled in a vigorous society….

He thinks that the liberal and the radical, blind to the just claims of Permanence, would endanger the heritage bequeathed to us, in an endeavor to hurry us into some dubious Terrestrial Paradise. The conservative, in short, favors reasoned and temperate progress; he is opposed to the cult of Progress, whose votaries believe that everything new necessarily is superior to everything old.” 7

Brian: Similar reasoning as my response to principle #4. Prudence and long-term thinking are undoubtedly important, but many liberals/libertarians fully recognize and incorporate this into their thought.

Obviously everything new is not necessarily superior to everything old, and no libertarian, and probably not many leftists nowadays either, would hold this position.

Libertarians: the Chirping Sectaries[2]

Kirk: “It is consummate folly to tolerate every variety of opinion, on every topic, out of devotion to an abstract “liberty”; for opinion soon finds its expression in action, and the fanatics whom we tolerated will not tolerate us when they have power.” 346

Brian: And how many dangerous political movements have been staved off due to the censorship of people’s opinions? I would guess few to none, and that a great many have been made more dangerous and more popular by the intellectual martyrdom that censorship provides for champions of these movements.

Moreover, who are going to be the people deciding which opinions to “tolerate” and which to “not tolerate”? Obviously, it will be the people with the power, meaning in most societies, government officials. So the question is: whose opinions do we have more confidence in, all-powerful government officials, or individual citizens who can be exposed, if they so choose, to different ideas through free and open discussion and debate? I don’t have much faith in most people’s ability or willingness to hold a reasonable opinion on political topics, but I have even less faith in all-powerful government officials’ willingness to hold an unbiased opinion on political topics. Officials, armed with the power of censorship, will probably tend to believe in those doctrines that lead to them accruing the most power and prestige: and then they will proceed to censor any opinion that is not in conformity with this goal. When the Roman Catholic Church had political power and the ability to forcibly censor books, they used it in just this manner.

Besides, forgetting about ordinary people for the moment, we also have to consider the genuinely thoughtful political thinkers. If all of the opinions which the government dislikes are censored, then the intellectual development of these thinkers will be stunted. They will be exposed to only one strain of thought, and will not be able to make progress in their field. Actually, this applies to all thinkers, not just to political thinkers. The censorship of the astronomer Galileo by the Roman Catholic Church illustrates the dangers that political censorship poses to the progress of science.    

Faith in government censors is what represents “consummate folly”, not belief in freedom of speech. And in reality, those are the only two options available, there is no middle ground.

Kirk: “The great line of division in modern politics – as Eric Voegelin reminds us – is not between totalitarians on the one hand and liberals (or libertarians) on the other; rather, it lies between all those who believe in some sort of transcendent moral order, on one side, and on the other side all those who take this ephemeral existence of ours for the be-all and end-all – to be devoted chiefly to producing and consuming. In this discrimination between the sheep and the goats, the libertarians must be classified with the goats – that is, as utilitarians admitting no transcendent sanctions for conduct.” 349

Brian: Firstly, not all libertarians are utilitarians. Many, most notably Murray Rothbard, believe in ‘natural law’ morality. And yet, the differences between natural law libertarians (‘the sheep’) and utilitarian libertarians such as Ludwig von Mises, Henry Hazlitt, and myself (‘the goats’), are relatively minute, especially when compared to the differences between libertarians of any sort and socialists. Kirk and Voegelin’s ‘great line of division’ is actually much less fundamental than they believe it is, the one between libertarian and totalitarian is much more fundamental.

Secondly, as a utilitarian libertarian, I see no compelling reason whatsoever to believe in a ‘transcendent moral order’. Some moralists like to defend their ‘transcendent morality’ by pointing to its positive effects, when generally accepted, for the preservation of a peaceful and prosperous society. But this is actually a long-run, rule-based utilitarian reason, not a ‘transcendent’ reason at all! For morality to be truly ‘transcendent’ and free of utilitarian elements, it must be accepted regardless of its consequences for life on earth. The only reason to do so would be if one believed in a religious deity that gives rewards in the afterlife to people who follow the deity’s ‘transcendent’ code of morality.

Thus, Kirk seems to believe that the fundamental division in politics is between those who let religion impact their political views, and those who don’t, whether because they are atheists or because they believe that religion has no place in politics. He seems to be covertly attacking atheism and secularism, without explaining why these beliefs are wrong and the religious-political beliefs are right. Until he or anyone else supplies a convincing argument or proof for why this is the case, I will happily remain a ‘goat’, thank you very much.

Kirk: “What binds society together? The libertarians reply that the cement of society (so far as they will endure any binding at all) is self-interest, closely joined to the nexus of cash payment. But the conservatives declare that society is a community of souls, joining the dead, the living, and those yet unborn; and that it coheres through what Aristotle called friendship and Christians call love of neighbor.” 349

Brian: Firstly, Kirk seems to be invoking religion again, and the same remarks I just made above apply here as well.

Secondly, what Aristotle called friendship, classical liberal thinkers called ‘sympathy’, defined as an empathetic bond between individuals that serves to transfer a certain degree of the happiness or hurt experienced by one individual, on to individuals who sympathize with this person. As the classical liberals recognized, self-interest, rightly understood, includes regard for these sympathetic bonds and sympathetic feelings. To what extent the ‘cement of society’ consists of simple material self-interest , and to what extent it consists of sympathetic fellow feeling, is an empirical, psychological question. Whatever the answer, neither utilitarian nor libertarian theory are undermined in any case, contrary to popular belief.

Kirk: “Libertarians (like anarchists and Marxists) generally believe that human nature is good, though damaged by certain social institutions. Conservatives, on the contrary, hold that “in Adam’s fall we sinned all”: human nature, though compounded of both good and evil, is irremediably flawed; so the perfection of society is impossible, all human beings being imperfect.” 349-350

Brian: No libertarian theorist I have ever read has made the assumption that human nature is generally good. If one did, the assumption would not be central to the libertarian position. Good, evil, or a mixture of the two, libertarians focus on social institutions and their respective effects, regardless of who will be manning them; not on the general merits or demerits of humanity.

Kirk: “The libertarian takes the state for the great oppressor. But the conservative finds that the state is ordained of God. In Burke’s phrases, “He who gave us our nature to be perfected by our virtue, willed also the necessary means of its perfection. He willed therefore the state – He willed its connexion with the source and original archetype of all perfection.” Without the state, man’s condition is poor, nasty, brutish, and short – as Augustine argued, many centuries before Hobbes. The libertarians confound the state with government. But government – as Burke continued – “is a contrivance of human wisdom to provide for human wants.” Among the more important of those human wants is “a sufficient restraint upon their passions. Society requires not only that the passions of individuals should be subjected, but that even in the mass and body, as well as in the individual, the inclinations of men should frequently be thwarted, their will controlled, and their passions brought into subjection. This can be done only by a power out of themselves; and not, in the exercise of its function, subject to that will and to those passions which it is its office to bridle and subdue.” In short, a primary function of government is restraint; and that is anathema to libertarians, though an article of faith to conservatives.” 350

Brian: The first part is again reliant on Christian mysticism, and will not convince the atheist or the political secularist.

The second part says that the State is necessary to prevent individuals’ lives from being “poor, nasty, brutish, and short”. Perhaps this is true of a minarchist (minimal) government, which is why I am a minarchist libertarian and not an anarchist libertarian, but beyond that I don’t think it is true. A lot more argumentation would be necessary to convince me or any other minarchist libertarian that life would still be “poor, nasty, brutish, and short” under a minarchist government. Besides, Augustine and Hobbes were both talking about a state of anarchy versus a state of government, not various shades of states of government. Since not every libertarian is an anarchist, this argument cannot be used as a blanket argument against libertarianism in general.

The third part is more interesting. With help from Edmund Burke, Kirk argues that individuals really want to be ‘restrained’ by governments, in order to be saved from their own ‘passions’. How can an individual voluntarily choose to be restrained from making a voluntary decision? The only conceivable way would be if the individual agreed, at one point in time, to be restrained from doing certain things in future periods of time. Perhaps an overweight person, in a fit of willpower, signs a contract with their personal trainer, stating that for every missed, scheduled exercise session, the overweight person must give $1000 to the personal trainer.

But wait, this perfect example of what Burke and Kirk are advocating doesn’t involve a coercive government at all, except in their standard, minimal role as enforcer of voluntary contracts. So if individuals really wanted to be restrained, why not dispense with all of the governmental restrictions, and just sign these kinds of contracts instead? The most likely answer is: Burke and Kirk are wrong, most individuals don’t actually have a voluntary preference for having their ‘will’ and their ‘passions’ restrained at a later date.

These kinds of voluntary, individualized contracts would be the only legitimate way for individuals to demonstrate that they want to be restrained. But governmental decisions regarding who to restrain and in what ways bear absolutely no resemblance to the voluntary, individualized, ‘restraint’ contract format described. The people with power decide who to restrain and in what ways, and that’s that. For these ‘hard-headed’ conservatives to imply that it works any differently is really quite naïve.    

   

       

  

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[1] Russell Kirk, “Ten Conservative Principles”, Lecture at The Heritage Foundation in Washington, D.C., March 20, 1986. First Principles Series.

[2] Russell Kirk, “Libertarians: the Chirping Sectaries”, Modern Age, Fall 1981.

Critique of Thomas Friedman's 'Hot, Flat, and Crowded'

Hot, Flat, and Crowded[1]

Part I: When the Market and Mother Nature Hit the Wall

Chapter 1: Why Citibank, Iceland’s Banks, and the Ice Banks of Antarctica All Melted Down at the Same Time

Friedman: “This subprime frenzy, though, was abetted by more than just a US government desire to promote homeownership and construction (the efforts of Fannie Mae and Freddie Mac). It was also abetted by a broader easing of credit and low interest rates – too low for too long – under the Federal Reserve leadership of Alan Greenspan in the early 2000s. This easing of credit by the Fed, in turn, was enabled by the massive amount of dollars sloshing around the global economy from all the high-saving countries, particularly the Asian Tigers, Middle East oil exporters, and China.”

Brian: I’m glad that we’re roughly on the same page in terms of our understanding of the causes of the 2008 Great Recession. Hopefully this will save us some tedious economic arguments down the line.

Friedman: “We had allowed Wall Street investors and executives to underprice risks and privatize their gains, but then force taxpayers to bail them out when the losses threatened a systemic breakdown.

Why were We the People left holding the bag? Because the economy depended on it. Key financial services companies had become too big to fail, and had we let them go down, we all would have gone down with them. You and I would have gone to our ATMs to withdraw money from our banks and nothing would have come out.”

Brian: Under a fractional reserve banking system, you are correct. But there is another way. If 100% of the depositors’ money was actually held for them by the banks in reserve, as a kind of money warehousing service, than the situation would have been completely different. No matter how many reckless financial services firms went bankrupt, ordinary depositors’ money would have been right there, unless of course they had consciously decided to lend it for investment purposes to a bank or financial company, in which case they would have known that they were taking on the risks of an investor.

 If fractional reserve banking were declared to be an inherently fraudulent activity by the government and made illegal, then a combination of 100% reserve banking for deposits and genuine lending of savings to investment arms of the banks for investments would prevail. Enthusiasts of inflation, such as most politicians and mainstream economists, wouldn’t like this non-inflationary system, but it is the only sure method of protecting innocent bank customers from the market activities of financial service firms with whom they don’t want to have any dealings or relations.   

In addition, bailouts, no matter how ‘necessary’ they might seem at the time, are bound to be harmful in the longer-run. I discuss this at length here: http://thinkingabouthumansociety.blogspot.ca/2013/04/the-government-bailout-of-aig-why-i.html

Friedman: “Consider MIT’s Joint Program on the Science and Policy of Global Change. In 2009 the program quietly updated its Integrated Global System Model, which tracks and predicts climate change from 1861 to 2100. Its revised projection indicates that if we stick with business as usual, in terms of carbon dioxide emissions, average surface temperatures on earth by 2100 will hit levels far beyond anything humans have ever experienced.”

Brian: I don’t particularly want to get into an in-depth discussion of climate change science here, but I also refuse to accept the predictions of global warming alarmists as sure facts which policy must accommodate itself to. Contrary to popular myth, the science on anthropogenic climate change is in no way ‘settled’. It is still unclear how much of our recent climate change can be attributed to human burning of fossil fuels, and how much to natural factors such as the changing phases of the Pacific Decadal Oscillation (PDO)(which was in its positive, or ‘warming’ phase, from about 1977 to 2007), or to a gradual natural warming climb out of the Little Ice Age that ended in the early 1800s. Natural changes in ocean currents, volcanic activity, and fluctuations in the sun’s radiation and ‘solar wind’ output, are also potentially big natural factors of climate change. If scientists overestimate the contribution of human carbon dioxide emissions to our recent climate changes, then their predictive models will also overestimate what the effects of carrying on with our carbon dioxide emissions will be on the climate of the future. Given this scientific uncertainty, I think that it is far too early to be leaping to policy decisions about regulating carbon dioxide emissions.  

For some interesting skeptical viewpoints on anthropogenic climate change, I would recommend: 1. NASA climate researcher Roy Spencer’s The Great Global Warming Blunder, a very readable and provocative discussion. 2. Arctic researcher Syun-Ichi Akasofu’s “Two Natural Components of the Recent Climate Change”, a scientific article which is packed with data and graphs, but which presents an important, straight-forward argument.      

Chapter Two: Dumb As We Wanna Be

Friedman: “It became political suicide for any politician to advocate what every responsible person in the country knew we needed – higher taxes, lower spending, and a reduction in entitlements.”

Brian: How about lower taxes, even lower spending, and a greater reduction in entitlements? Is that  an ‘unreasonable’ demand? Would that be ‘irresponsible’? I wish you would explain further why the higher taxes part is absolutely necessary.

Friedman: “And then came 9/11. What happened after that day could have and should have been our wake-up call. The country was ready to be enlisted for a great national rebuilding. We were ready to be a new Greatest Generation. We were ready for a “Patriot Tax” on gasoline that could have been our generation’s victory garden to help make us independent of the very people who had attacked us.”

Brian: No need for ‘Patriot Taxes’, oil sands and shale shelf energy sources in North America, provided that the environmentalists got out of the way, could make North America substantially energy-independent, if that is really a desired goal. Of course, why we should shun importing oil from willing sellers in the Middle East, just because a few rogue terrorists managed to kill a number of Americans, is beyond me. It smacks of irrational stereotyping.

Friedman: “America’s initial response (to the 1973-74 Arab oil embargo) was significant. Urged on by Presidents Gerald Ford and Jimmy Carter, the United States implemented higher fuel economy standards for American cars and trucks. In 1975, Congress passed the Energy Poilcy and Conservation Act, which established corporate average fuel economy (CAFÉ) standards that required the gradual doubling of passenger vehicle efficiency for new cars – to 27.5 miles per gallon – within ten years.

Not surprisingly, it all worked. Between 1975 and 1985, American passenger vehicle mileage went from around 13.5 miles per gallon to 27.5, while light truck mileage increased from 11.6 miles per gallon to 19.5 – all of which helped to create a global oil glut from the mid-1980s to the mid-1990s”

Brian: Conspicuously absent from this discussion are the effects of the price controls on oil and natural gas, imposed by Nixon and maintained by Ford and Carter. As any economist will tell you, price controls create artificial shortages and discourage new production of the good in question, precisely what happened with oil and gas in the 1970s. Reagan repealed the controls in 1981, and the ‘global oil glut’ soon followed. Now, perhaps improved vehicle energy efficiency played a part too, but ignoring the effects of the price controls and their repeal is misleading.

As for the vehicular fuel economy regulations, undoubtedly a lot of the gains in fuel economy would have happened without the regulations, and those that wouldn’t have would not have been worth it to implement. You don’t need regulations to force car companies to produce more fuel efficient cars. No car consumer likes paying more for gas per mile driven or likes going to the gas station more frequently, so most would have been willing to pay more upfront for more fuel efficient cars, and the producers would have obliged them of their own accord. However, with gains in fuel efficiency generally come increased costs of production for the cars, increased costs that will be reflected in the price of the car to the final consumer. For many consumers, paying the extra price upfront in order to reap savings in fuel costs later will be worth it (up to a certain point), but not for everyone. People who aren’t going to be driving their cars very often or who don’t have a lot of cash to pay upfront for the car will probably prefer cheaper, but less fuel efficient, cars, over their more expensive, but more fuel efficient, counterparts. One-size-fits-all government regulations do not take these subjective factors into account. They may also end up pushing fuel economy into a region of diminishing returns, from most consumers’ perspective, with small gains in fuel economy coming at the expense of large increases in costs of production.    

Chapter 3: The Re-Generation

Friedman: “When you talk about environmental or ecological sustainability, says Dernbach, the definition is pretty clear: “Something is environmentally or ecologically sustainable when it protects, restores, or regenerates the environment rather than degrades it.””

Brian: There is nothing ‘clear’ about this definition. Who is to decide when the ‘environment’ is being ‘restored’ and when it is being ‘degraded’? These are heavily subjective value judgements, totally dependent on what you believe ‘the environment’ should be used for. Is digging up and burning coal to produce electricity environmentally ‘degrading’? Most environmentalists would say yes. But the ability to dig up and burn coal to produce electricity enables millions of people to heat their homes and to run their life-enhancing appliances at a cheaper financial cost. Is this not improving their ‘environments’?

This idea that the state of raw nature is ‘The Environment’, and that it is this environment which must be protected, is based on subjective value judgments that heavily favor natural goods over human-produced goods. For myself and many others, the ‘natural environment’ is not something that must always be protected, but something that can be improved upon through human efforts. I greatly prefer my ‘artificial’ modern home, heated by harnessed energy, located in a vast, concrete-paved and building-strewn conglomeration of human life known as a city, to a ‘natural’ cave located in an untouched forest. The former constitutes a better environment for me to live in than the latter.

Part II: Where We Are

Chapter 4: Today’s Date: 1 E.C.E. Today’s Weather: Hot, Flat, and Crowded

Friedman: “This book focuses on five key problems that a hot, flat, and crowded world is dramatically intensifying. They are: (1) the growing demand for ever scarcer energy supplies and natural resources; (2) a massive transfer of wealth to oil-rich countries and their petrodictators; (3) disruptive climate change; (4) energy poverty, which is sharply dividing the world into electricity haves and electricity have-nots; (5) and rapidly accelerating biodiversity loss, as plants and animals go extinct at record rates.” (numbers added by Brian)

Brian: Ok, let’s go over these one by one:

1. Typically, on a free-market, when there is growing demand for something, the higher prices which this demand causes leads to an increased supply of it being produced, via the profit motive. This has been happening in the energy and natural resource sectors, but not as fast as one might hope. Why not? Well, I’ll tell you one thing that definitely doesn’t help: legions of environmentalists harassing and clamouring for restrictions on mineral mining companies, oil and gas companies, nuclear power companies, coal mining and coal power plant companies, etc… If you are worried about the scarcity of something, don’t clamour for heavy restrictions on the production of that thing.

The mining and energy industries are very heavily regulated, and sometimes even monopolized, by governments. For free-market advocates, the fact that they consequently are not as productive as one might hope they would be is not surprising. These productivity problems, as well as a lack of clearly defined property rights in energy sources and natural resource sources, that lead to artificially short-term production strategies, are the real problems with the energy and natural resource industries. There is no fundamental scarcity of ‘potentially useable’ energy and natural resources on earth: massive amounts of energy constantly flow around the earth, unharnessed by humans, and vast amounts of minerals are waiting in between the surface and the centre of the earth. Increases in productivity are needed to get at them economically; overkill environmentalist restrictions can only hamper this process.

2. Similar reasoning as above. If environmentalists and governments allowed ‘non-petrodictator’ energy producers to exploit more land and natural resources and to become more productive, than less wealth would flow to the ‘petrodictators’.

3. There may or may not be unusually disruptive climate change in the near future, and if there is, it may or may not be caused primarily by humans, as discussed above. At any rate, the best way to deal with climate change is to be as free and as wealthy as possible. Freedom and disposable resources enable people to adjust to natural changes more effectively than they could if they were poor and hampered. Freedom of movement/immigration and of real estate markets allows people to dodge some of the negative effects of climate change and to benefit more effectively from some of the positive effects. Economic freedom in general allows producers to quickly adjust their production to fit a climate-changed world better. The possession of abundant resources allows people to directly defend themselves against nature’s vagaries, whether through dam/dike building, through hurricane-proof and earthquake-proof home building, or through being able to cheaply heat or cool their living spaces with heaters and air conditioners. Advances in agricultural and greenhouse technology, along with the resources to implement them, can allow producers of agricultural products to adjust effectively to whatever climate change might occur as well.

4. The best way to alleviate poverty is to produce more. Thus, the reasoning for point #1 applies here as well.

5. ‘Record’ rates apply only to recorded periods of time. Many of the entries in the ‘Guinness Book of World Records’ might be erroneous, because perhaps somebody who should have had the record, performed the feat without it being recorded, perhaps because the feat was performed in a historical period where written records of things were scarce. The same applies to these ‘record’ rates of species extinctions. It is easy for something to be at a ‘record rate’ if the time period that has been properly recorded is relatively short. Such is the case with the recording of species extinction. Keeping meticulous records of the fortunes of all of the species in the world is a very modern phenomenon. In fact, scientists are still discovering new species at a relatively rapid rate! Thus, it is hard to take these ‘record rates’ of extinction entirely seriously, especially when we know that tons of species have come and gone, sometimes fairly rapidly, over the natural history of the earth (the dinosaurs, to note a conspicuous example).

Also, even if plant and animal species were going extinct unusually rapidly, why is that necessarily a disastrous thing for humanity? If the dairy cow or the domesticated dog were to go extinct, that would be a serious blow to many humans. But precisely because this is the case, there is very little risk that these species will go extinct. Humans tend to do very well at preserving and making more abundant species of animals that obviously serve human purposes. But if it is an obscure species of poisonous snake in the Amazon rainforest that is going extinct, why should we care? Environmentalists will no doubt talk about ‘balanced eco-systems’ and such, but only eco-systems that serve human purposes more effectively than any other ‘eco-system’ that could take their place are worth preserving. There is nothing sacred about a ‘species’ or an ‘eco-system’ as such: their utility to humanity is the only thing that matters.

I believe that I can think of five more pressing world problems than the ones that Friedman worries about. They are: 1. Persistent monetary inflation of all of the world’s currencies and the destructive boom-bust cycles that follow in inflation’s wake. 2. Governments all over the world taking a greater and greater role in their country’s economies through taxation, regulation, imposing licensing requirements, and nationalization. 3. Destructive civil wars in impoverished authoritarian countries. 4. Private property rights in land, natural resources, and environmental goods not being fully and consistently recognized, resulting in inefficient use of these goods. 5. Widespread support for the environmentalist movement’s assault on material civilization, in the name of relatively trivial benefits and the purported ‘truths’ of quite unproven and controversial scientific hypotheses.

Friedman: “Normally, high prices would prompt more investment, more drilling, and more oil. It has been slow to happen this time around, though, for several reasons, said Goldstein. First, there was a broad shortage of equipment in the oil industry – from skilled petroleum engineers to drilling rigs to tankers – to expand production. Second, countries like Russia began retroactively changing the drilling rules in their fields, squeezing out foreign producers in order to pump more oil themselves; what this did was discourage more professional and experienced global oil companies from operating there, and this in turn reduced production. Finally, America and other Western nations continued to limit the amount of acreage they were ready to offer for oil drilling for conservation reasons.”

Brian: Exactly the point I made earlier. The equipment shortage was probably due to a general capital shortage, in part caused by anti-saving and egalitarian government policies, exacerbated by the highly regulated and restricted nature of the oil industry. The skilled labor shortage was probably largely a result of government artificially subsidizing impractical courses of education, rather than allowing financial and market considerations to structure the education market more. The second factor is the Russian government’s restrictionist and socialist policies. The third factor is the US government’s policies, policies supported by environmentalists keen on restricting energy production. The answer to all of these problems is a freer market, all over the world.

Part III: How We Move Forward

Chapter 13: The Stone Age Didn’t End Because We Ran Out of Stones

Friedman: “The way to do that (create clean energy solutions that will supplant ‘dirty’ energy sources) is by creating our own price signal to trigger the market to launch those 10,000 innovations in clean energy in 10,000 garages and 10,000 laboratories. The market will give us what we want, but only if we give the market the signals it needs: a carbon tax, a gasoline tax increase, a renewable energy mandate, or a cap-and-trade system that indirectly taxes carbon emitters – or some combination of all these.”

Brian: While I appreciate your lukewarm endorsement of the efficiency of free-markets, what you are talking about is not really a free-market at all. On a free-market, a government wouldn’t decide that a certain category of market products are ‘bad’, and then tax and restrict them accordingly. Allowing them the right to do so assumes that the government knows what it is doing and that it has only the best interests of their citizens at heart, both dubious assumptions.

How high should the government make the gasoline or carbon tax? Well, it depends on what the magnitude of the negative effects of using the product will be. But actually, no one knows this magnitude, so how could the government? If the magnitude of the negative effect turns out to be relatively small, or the supposed negative effect turns out to be non-existent, then the tax would have prevented a perfectly good set of energy sources from being used to raise the well-being of the world’s consumers. Given that we are talking about energy, a resource that is very significant for every consumer and producer, this possibility should not be brushed aside lightly.

In addition, how can we trust the government to be objective when evaluating the magnitude of the alleged negative effects, and the appropriate policy responses? Most politicians and bureaucrats love it when the scope of their duties increases: it means more power and prestige for them and their institutions. What better way of increasing this scope then by accepting the assumption that the world’s energy production and consumption must be tightly regulated in order to avoid global catastrophe? Governments and their officials definitely have a skin in the game when it comes to climate and energy science: accepting the disastrous anthropogenic climate change hypothesis results in more power and authority going to the government, which will thus bias government officials in favour of this hypothesis.

On a real free-market for energy and energy production, what would probably happen is this: Coal, oil, and natural gas will continue being used, but the large and increasing demand of the world’s population for energy will push the price of energy up. This will result in more exploration and production of coal, oil, and natural gas, but it will also result in financial incentives for the serious exploration of new alternate energy technologies, and financial incentives for the expansion of existing alternate energy options, such as nuclear and geothermal energy. Energy consumers ultimately demand useable energy: not a particular form of energy such as oil or coal. Increased demand for energy will thus spur innovation and production in all forms of energy, ‘dirty’ and ‘clean’ alike.                     

   

Friedman: “If you want to bring about a mass movement toward more energy-efficient cars, windows, buildings, power generation systems, lighting, and heating, the simplest way is to make sure that the true cost of using any and all hydrocarbon-based fuels is reflected in their price to consumers – the true climate costs, the true environmental costs, and the true geopolitical costs.”

Brian: The only ‘true’ cost or price of something is the market cost or price. This is because the market process, through the mechanisms of supply and demand, can translate billions of subjective valuations from the world’s consumers into a single money price or money cost. The government, on the other hand, can do no such thing. At best, the government can arbitrarily impose the value judgments of its politicians and officials onto the unwilling consumers, forcing them to pay a higher price for the goods or services that they want to consume.      

Friedman: “Big industrial players like GE need some price certainty if they are going to make big long-term bets on clean power, and to those market dogmatists who say that the government should not be in the business of fixing floor prices or other incentives to stimulate clean power, (Jeffrey) Immelt (CEO of General Electric) says: Get real. “Don’t worship false idols, The government has its hand in every industry. If we have to have them, I’d prefer they were productive rather than destructive.”

Brian: As a market dogmatist myself, I would ask: what makes government any less of a ‘false idol’ to worship than the free-market? We don’t ‘have to have’ government meddling in every industry, there were many periods of history within the last 200 years where governments meddled far less with industry. In fact, this was the case in most periods of American history. Why accept a political outcome as a given when we can try to change it? And if you are so pessimistic about changing political outcomes, what makes you think that you will be able to convince the government to intervene ‘productively’ rather than ‘destructively’?

Friedman: “We need to stop fooling ourselves that by rejecting a gasoline tax increase or a serious price on carbon we are actually saving our citizens money. It is a complete illusion – the epitome of short-sighted thinking. OPEC and the market are imposing their own taxes. America, you are paying a tax today. It is a tax every time you heat your home, power your small business, or drive your car. It is a burden on every transaction you make as a human being. I want to cut your taxes. Read my lips: I want to cut your taxes.”

Brian: The answer to ‘OPEC taxes’ is to encourage energy production, all energy production (including coal, oil, and natural gas), in non-OPEC countries. That will cause the price of energy to go down. Government taking a cut of economic transactions has never saved any consumer money; how could it? If you think that the tax is necessary to stop the ‘negative externalities’ of pollution and anthropogenic climate change then fine, stick to saying that. I disagree with you, but at least you’re being honest about what you’re going for. But to claim that putting a tax on the most effective energy sources that the world currently has is going to somehow save consumers money in the time span which they care most about (generally the short and medium terms) is just not true.

      

    

   

   

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[1] Thomas Friedman, Hot, Flat, and Crowded (New York: Penguin Books, 2009).