Watson my mind today: culture change

That, and spring time: that mystical time of year when a young student’s fancy turns to their neglected grades and wonders if there is anything they can do once the semester is over to raise them.

Culture is an emergent order. It cannot be owned, so you can’t have a “right” to a culture. It can’t be controlled, and while it can be influenced, it’s a complex system so beware lest your efforts backfire.

— Change doesn’t come, until it comes quickly. This serves as another reminder of the importance of keeping true ideals alive even when they are unpopular and they seem doomed to obscurity.

— It is also a warning about other changes, such as the growing anti-natalism of the left, brought in through environmentalism.

Caplan’s review of Moller’s Governing Least. “Instead of focusing on the rights of the victims of coercion, Moller emphasizes the effrontery of the advocates of coercion.” Even if “exceptions abound” to the “common-sense morality … that rights to person and property are not absolute … Moller sternly emphasizes … that these exceptions come with supplemental moral burdens attached.” Highly recommended.

— Responding to Ambassador Araud’s claim that the culture of neoliberalism and free trade are dead, Sumner says “Intellectuals focus too much on interesting rhetoric and too little on mundane reality.”

— On the importance of a culture that allows people to repent and change, that allows someone to apologize, make amends, and receive public forgiveness.

Nightcap

  1. U.S. environmentalism is a success story Patrick Allitt, Liberty Forum
  2. Don’t blame Karl Marx for “Cultural Marxism” Brian Doherty, Reason
  3. Texas and the white-washing of the American Revolution Michael Oberg, Age of Revolutions
  4. How would we recognize an alien if we saw one? Samuel Levin, Aeon

On 7 million deaths from air pollution

ATTN published a video of An-huld (the really cool guy who made my childhood by being in all my favorite action movies like Predator* and who ended up being the governor of California). In that short clip, Schwarznegger starts by saying that 7 million individuals die from pollution-related illnesses.

That number is correct. But it is misleading.

People see pollution as “all and the same”. But some forms of pollution increase with development (sulfur emissions and some would argue that too much CO2 emissions is pollution as it causes climate change). However, others drop dramatically – especially heavy particules (Pm10) which are a great cause of smog. Julian Simon (the late cornucopian economist who is one my greatest intellectual influence) pointed out this issue and noted that the deadliest forms of pollution are those that relate to underdevelopment.

Back in 2003, Jack Hollander published the Real Environmental Crisis: Why Poverty, Not Affluence is the Environment’s Number One Enemy. Hollander pointed out that simply from the combustion of organic matter (read: firewood and animal manure – literally burning fecal matter) indoors for the purposes of heating, cooking and lighting was responsible for close to 2 millions deaths.

Since then, the WHO came out with a study pointing out that around 3 billion people cook and heat their homes with open fires and stoves that rely on biomass or anthracite-coal. They put the number of premature deaths directly resulting from this at over 4 million people. This is close to 60% of the figure cited by the former President of California (yes, I know he was governor – see here). In other words, 60% of the people who die prematurely as a result of strokes, ischaemic heart diseases, chronic obstructive pulmonary diseases and lung cancers can be attributed to indoor air pollution. That means pollution resulting from the fact that you are so poor that you have to burn anything at hand at the cost of your health.

True, richer countries pollute and there are policy solutions (I have often argued that governments are better at polluting than at reducing pollution, but that is another debate) that should be adopted. But, these forms of pollution do not harm human life as much as those that come with poverty.

* By the way, when you watch Predator, do you realize that there are two future American governors in that movie? I mean, imagine that when Predator came out, some dude from the future told you that two of the main actors would end governing American states. Pretty freaky!

“Statogenic” Climate Change?

Is climate change government-made? For some years, I have been saying to my colleagues that climate change is real. Nonetheless, I am not an alarmist and I do not believe that stating that there is a problem is a blank cheque for any policy. Unlike many of my colleagues who believe that climate change is “anthropogenic”, I argue that it is “statogenic” in the sense that government policies over the last few decades basically amplified the problem.

Obviously, there is a social cost to pollution – an externality not embedded in the price system. On that basis, many have proposed the need for a carbon tax to “internalize the externality”. The logic is that anything that brings the “market price” closer to the “social cost” is an improvement.

Rarely do they consider the possibility that governments have “pushed” the market price away from the “social cost” (Note: I really hate that term as it has been subverted to mean more than what economists use it for). Consider the example of road pricing. In my part of Canada (Quebec), road pricing was eliminated in the 1970s. By eliminating road pricing, the government incentivized the greater use of vehicles and, basically, the greater burning of fossil fuels. Thus, by definition, the return of road pricing would bring the market price and the social cost closer together (and it might do so more efficiently than a carbon tax). Thus, there can be “statogenic” climate change because governments encourage indirectly the greater use of fossil fuels.

How big is that “statogenic” climate change? I think it is pretty “yuge.” For the last few months, I have been involved in a research project with Joanna Szurmak and Pierre Desrochers of the University of Toronto regarding environmental indicators in the debates between Paul Ehrlich and Julian Simon (see Joanna’s podcast with Garrett Petersen here at Economics Detective Radio). In that paper, we mention the fact that roughly a quarter of the world consumption of fossil fuels is subsidized directly or indirectly (through price controls setting local prices below world prices). That is a large share of total consumption and, according to an OECD paper, 14% of the effort needed to attain the most ambitious climate change mitigation plan could be made by eliminating those subsidies.

Now imagine that estimate was made in 2011. These policies have existed since the 1970s! One paper from the World Bank from the 1990s argued that eliminating them back in the 1980s would have reduced greenhouse gas emissions by 5% to 9%. Imagine a level lower by 9% (just for the sake of illustration) and imagine that the growth rate of greenhouse gases would have been reduced by 9% as well. Using CAIT data, we can see how this oversimplified scenario (which is by no means a general equilibrium scenario – which is the only way to measure the overall lower levels) means in terms of lower levels of GHGs. Relative to the observed data, a 9% drop back in 1990 with a 9% reduction in the growth rate of GHGs mean that the level of GHGs in 2012 in a world without subsidies would have been more than 12% lower relative to what they were in a world of subsidies.

subsidies

Again, this is an oversimplification. However, it works against my claim. The use of sophisticated methods is likely to yield much larger differences over time. Think about it for a second – alone the policy of fossil fuel subsidies explains a lot even with the oversimplification. Now, imagine adding the fact that many countries do not practice road pricing; that some countries tax the resale of used goods forcing the production of more goods; that they discourage construction in urban environments forcing a greater population sprawl; that trade barriers in agriculture prevent us from concentrating production where it is the most efficient; and the list goes on!

When people say “anthropogenic” climate change, I hear “incentives-driven” climate change or “statogenic.”

Why Rising Prices May Indicate Abundance

I am currently writing a piece with Pierre Desrochers (University of Toronto at Mississauga) regarding environmental trends and economic theory for the conference of the Association for Private Economic Education (see here). In the process of writing up the first draft of the article, I had to revisit another article I wrote (with Desrochers) and I found a passage which now offers me a greater value than when I initially wrote it. In that piece, me and Desrochers basically argued that rising prices for certain environmental goods may not always indicate rising scarcity. In fact, we argued that prices could increase even if a resource grew in abundance.  Here is the passage from our article currently undergoing revise and resubmit:

Thirdly, technological innovations that increase productivity might drive up the price of a commodity without this truly reflecting the scarcity of the resource. Whale oil is a case in point. The decline of the whaling industry in the United States began around 1850 at which point real prices began to increase (Bardi 2007). However, economic historians agree that this was not because of resource depletion or overfishing (Davis, Gallman and Hutchins 1988). Brook Kaiser (2013) thus found that the increasing demand for illuminants created pressures on prices, which in turn motivated the development of substitutes like petroleum-derived kerosene. However, whale bone and oil prices did not fall as kerosene production expanded and, in spite of falling demand, prices stayed high and even increased. The answer to this conundrum is opportunity cost as the important surge in American labor productivity was greater than the observed increase in productivity in the whaling industry. This meant that the opportunity cost of using workers, capital and other resources in the whaling industry was great. These workers, capital goods and other resources were progressively reallocated to other industries. In the process, the whaling industry faced higher costs relative to productivity. While marginal players in the whaling industry exited, the supply of inputs to the whaling industry decreased and prices had to be increased [by the remaining firms in order for economy-wide equilibrium to be achieved]. Hence, prices in that situation are not reflective of depletion or expansion of resource stock.

 

Critics of Markets have Intervention Denial

There is a meme, an infectious idea, that has spread like a mental plague among advocates of greater governmental intervention. This idea is “intervention denial,” the claim that the US and other developed economies have had complete economic freedom. The critics of markets usually use deliberately mind-numbing language such as “capitalism,” although sometimes they do claim more starkly that today’s economies are a “free market” and practice “free banking” and “free trade.”

Many examples of intervention denial can be found by searching for the submeme “unbridled capitalism” as well as “greed” combined with “capitalism” or statements such as “people over profits.” For example, there is a web article titled “Unbridled Capitalism and the Blight of Greed” which defines “capitalism” as “the economic system in which the pursuit of wealth remains in the control of individuals, free from government regulation or interference.” The article states that “Capitalism, after all, suffers from a fatal flaw – Greed.” Intervention denial has infected well-meaning people in high places, such as the Pope, who declared, “Unbridled capitalism has taught the logic of profit at any cost.”

“Denial” in this context means the refusal to believe in evidence. For example, Holocaust denial is the refusal to accept the enormous evidence of mass murders by the Nazis. There are science denials of various sorts. Intervention denial is one of the most destructive memes in the mental universe human beings live in, because intervention denial blocks effective solutions to social problems.

Consider the claim that the US has had destructive “free banking.” This false meme originated in historians who called the US banking system prior to the civil war “free banking,” even though the banks were tightly controlled by state governments, such as prohibiting banks from establishing branches beyond the state. In true free-market money and banking, there is no restriction or imposed cost on any currency, account, or financial institution so long as its operation is honest and peaceful.

The intervention deniers claim that the USA has a free market in money and banking, disregarding the obvious facts that the US financial system is tightly regulated by the Federal Reserve (“the Fed”), the FDIC, the SEC, and the US Treasury Department. These institutions and Congress bailed out the financial system after the interventions caused the Depression of 2008, as they did with previous busts. The US dollar and interest rates are controlled by the central planning of the Fed. This is the system that intervention deniers call a “free market.”

In a truly free market, there would be no restriction, tax, subsidy, or mandate that alters honest and peaceful human action. Those who claim the US economy is “unbridled” talk as though there were no regulations nor any taxation, let alone subsidies. The extent and effects of regulations on the US economy can be read in the study “Ten Thousand Commandments” published by the Competitive Enterprise Institute, as well as the regulations data base of the Mercatus Center at George Mason University. The economic damage done by intervention can also be read in the on-going study “Economic Freedom of the World,” at freetheworld.com.

How can an economy be “unbridled” if enterprise, consumption, and produced wealth are all afflicted with heavy taxation? Intervention deniers talk as though there were no income tax, federal excise taxes, state sales taxes, value-added taxes, and taxes on buildings and equipment. A truly free market would also not have any subsidies, such as the billions of dollars now going into the big farms, along with other corporate welfare.

All these interventions – taxes, subsidies, restrictions, and mandates – distort prices, wages, interest rates, profits, and quantities. The social problems we can observe: unemployment, low wages, unaffordable housing, slow growth, recessions, pollution, can be traced back to government intervention. Consider pollution, for example. Intervention deniers claim that “capitalism” and “greed” result in pollution and environmental destruction. But a truly free market is free of subsidies. When firms and their customers do not pay the full social cost of the products, as the social cost of pollution is imposed on others, that is an implicit subsidy. In a truly free market, with full enforcement of property rights, pollution is treated as a trespass, an invasion of others’ property, requiring full compensation. The problem is not that firms and markets are unbridled, but that ecological destruction is subsidized. The subsidies combine with a legal system that bridles the population with a legal inability to sue the polluters for damages.

There is indeed a bridle to a free market: laws prohibiting force and fraud. A pure market economy consists of voluntary human action. The bridle is on thieves, not on peaceful and honest producers, traders, and consumers.

When interventions are pointed out to the deniers, they respond that these taxes, restrictions, subsidies, and mandates are of little significance. This is similar to Holocaust deniers who respond that perhaps a few Jews and Gypsies were murdered by the Nazis, but not on the large scale that they deny. Intervention deniers do not deny the existence of the Federal Reserve system, but they claim it is a private free-market organization. Deniers of all sorts reject data and other evidence, use undefined terms such as “capitalism” and “greed,” and point to their favored authors, articles, and data as though these present unbridled truth.

“Greed” means wanting and taking more than one morally deserves. A person morally deserves that which is earned by labor and received from voluntary gifts. The honest acquisition of wealth may be avarice, but not greed. Thieves are greedy, and those who indirectly steal by getting government to do or protect their forced taking are also greedy. Intervention denial is ultimately a refusal to think it through, to fully understand the ethics, politics, and economics of human life.

A vision for environmentalists

The sun is setting and people start settling in for bed instead of staying up late and watching TV. As fast as battery technology advances, it’s imperfect so we deal with it by using less electricity at night. Similarly, on windy days, people stay inside, but leave once the wind calms down and it’s nicer to be outside. This is a world where people are in tune with the weather and adjust their behavior accordingly.

How can we get such a world? Education won’t be enough (though it will be necessary) because, let’s face it, people are creatures of habit, and lazy people (i.e. 80%+ of the population) would rather leave any given habit alone. We could try to mandate behavior, but that will be costly and the Law of Unintended Consequences promises ironic blow-back.*

Luckily there’s a fairly simple way to effectively nudge people in the direction we (environmentalist-types) would like to see: flexible prices! In a world where a lot of electricity is generated by solar and wind** market determined prices would automatically encourage people to conserve resources and set the pace of their lives to match natural rhythms. Will it be enough? Probably not, but it will certainly be an essential step in the right direction.


* I recently came across the following in The Complete Walker:

I’m tempted to suggest they [trowels] be made obligatory equipment for everyone who backpacks into a national park or forest. I resist the temptation, though–not only because (human nature being what it is, thank God) any such ordinance would drive many worthy people in precisely the undesired direction but also because blanket decrees are foreign to whatever it is a man goes out into wilderness to seek, and bureaucratic decrees are worst of all because they tend to accumulate and perpetuate and harden when they’re administered, as they so often are, by people who revel in enforcing petty ukases. Anyways, a rule that’s impossible to enforce is a bad rule. (p. 698)

** Obviously the likelihood of such a world is a whole ‘nuther can of worms. Let’s leave that for another post.