Notes on Social Contract Theory

1) It is an analogy. As such, it is fun to take out and play with, but the map is not the territory.

When dealing with Social Contract Theory, you will no doubt encounter the standard example of the restaurant[1]. You don't sign a contract with the restaurant, but most people would consider your order and consumption of food to be sufficient evidence that you are willing to enter into an implied contract. Also, the taking of the order and delivery of the food are sufficient evidence that the restaurant is willing to enter into the same contract. Note that each controls the contract at the appropriate stage of negotiation: the customer orders only what he wants, and pays only for that (or, in the case of a cover charge, decides whether he wants to enter or not). After he orders, the restaurant decides whether or not to fill the order. This would be so whether it was on the moon, in the desert, anywhere. You nearly never have to resort to a policeman, a judge, or any other state apparatus. In fact, I would suggest that it is so automatic that people pay even when they could get away with not paying (really busy restaurants, for example). And, it seems reasonably universal.

But the decision to enter a restaurant or not, to order or not, to pay or not, are nothing like deciding to live in a country. I can choose one of several restaurants at no more cost than the time it takes to make the decision. My choice is not between a restaurant in this town or one in a location that requires me to move my family and stuff hundreds or perhaps thousands of miles away to a place that probably has a similar restaurant situation. Also, the restaurant doesn't explicitly charge me for stuff eaten by other patrons far in excess of my own bill (though they may subsidize some food at "happy hour"), nor do they tell me that my only option is to order the filet minon when I would be perfectly happy with a soda and crackers. And even if they did those things, I could choose to go next door.

Besides these arguments against the validity of the restaurant scenario as equivalent to the country scenario, we now have the bizarre situation of an analogy (the restaurant) used to justify another analogy (the social contract) used to justify an idealized version of reality (a government as contractual "fee for service" provider). Let's back up a second.

The government here is treated as an actor with which you the citizen is engaged in a market transaction. This particular market transaction is riddled with institutional failure:

• The government is a monopoly.
• It is so large that you must face a wealth of principal-agent problems - there is little likelihood that what you want and what they want are aligned, and no way for you to supervise efficiently
  
• Moral hazard (or opportunistic breach): when you have committed enough assets to the agreement, they unilaterally change their terms and your best option is to accept the new terms even though the transaction is less than efficient, i.e. there is a net loss
  
• asymmetric information - there is no way you can know if they are really providing what you contracted for
• There are externalities to the transaction, i.e. every time the government delivers to the majority, the minority is deprived of what they want
• wealth effects, where wealthier "customers" are able to negotiate better deals than everyone else
  
• Network effects - you and all of your associates chose this, and now *all* must leave in order for it to be worthwhile for one to leave
  

Oddly, no remedies are suggested by the people who use the restaurant analogy even though they are frequently second best cheerleaders, i.e. people who justify increasing government intervention on the basis of the mere existence of institutional failure. Indeed, these problems with institutional failure of the state are frequently denied or justified, frequently by resorting to yet more analogies. In almost any other context, they would argue strongly against the strength of the "revealed preference" argument, but in this case, they resort to it exclusively without even attempting a comparative analysis.

Now, it's fun to say, "okay, moving is expensive, but you do have a choice and the market doesn't have to produce exactly what you want in order to still be a market." True enough, but then, I always have the option of ignoring the restaurant altogether and eating at home, a choice involving neither expense not already incurred nor impossible wants. Not so with the government: I don't have the option of ignoring them with no other expenses to be incurred.

In many ways, the use of the restaurant analogy demonstrates James' rules for arguing with a libertarian (though I'd note that libertarians are not immune from these). For example, the analogy stops with comparing a non-explicit contract in a restaurant with living in a country. But what else works in analogy-space?

• I can choose any of a number of restaurants at no additional cost (the transaction costs are zero).
• I can choose not to eat at a restaurant at all.
• Restaurants' sovereignty ends at their door.
  
• Restaurants differentiate from each other, offering me a real choice.
• However, there are no restaurants that sell, for example, toys instead of food.
  

Mapping this onto real-space, we get

• I can choose any number of countries without incurring any transaction costs ... no, the analogy fails.
• I can choose an anarchist region ... no.
• Governments' sovereignty ends wherever they say it ends ... no.
  
• There are real choices between governments ... yes!
• There are no governments that aren't really governments ... yes.
  

Unfortunately, these don't all go the way intended by the person invoking the restaurant analogy; the analogy fails in the wrong places, and succeeds in unfortunate ways for the invoker. The point of choosing an analogy to argue an analogy instead of arguing the real world is that the real world argument leads social compact fans down roads they don't want to travel, and the social compact similarly leads to results they don't want. They have shopped around until they found an argument that leads only to the results they want, but if you try to point out other problems with this analogy, you are likely to face a good deal of sophistry that only takes you further from the real world (for example, you might learn that, contrary to my experience, regulated insurance rates are never raised and public utilities are examples of markets).

2) Besides being an analogy, the social contract is inconsistently defined. The original idea was that citizens contract with one another: we will give up the right to use retributional force and some small fee in exchange for protection from criminals. The contract was between citizens, and the government was created by that act. It is more frequently asserted by modern authors that the contract is between the citizens and the government in the form of "we will pay taxes and you will give us stuff". Who is the government? And how did it acquire the bargaining position? Both questions cannot be answered with either the classical contract or the modern contract; you get the classical form for the first question, bait & switch to the modern form for the second question.

Then there is the problem of the act of making the contract: on one hand, it is asserted that some founding document (Magna Carta, Declaration of Independence, Articles of Confederation, Constitution) is the contract, an explicit contract. All fine and well, but then we face the problem of how this could be legally binding on future generations. No problem, say social contractualists, because now we shift to the implicit contract which is upheld simply by the person's presence in the sovereign territory or by some petty and symbolic act, such as pledging an oath of allegiance. Do we continue to abide by the original document? Not really, because now -- say the contractualists -- the original contract is irrelevant and outdated. Original intent is unknowable, so we must have a "living constitution" (another lovely analogy). Again, you are offered one form, which is now on one hand denied to be relevant while on the other hand asserting that every oath affirms its relevance; people substantively pledge an oath to a nonexistent contract.

What about people who would, in the world preferred by people making these arguments, not be able to enter into such agreements because they lack the ability to understand them, e.g. children, people with mental disabilities, etc.? "Too bad," comes the answer: in fact, if your parents chose citizenship for you, then you're stuck with it. "You aren't against parents deciding for their children are you?" comes the disingenuous argument from people who in fact are against parents -- or anyone else, for that matter -- deciding for themselves (after all, they have obligations to the collective under the terms of the contract). They aren't likely to take that analogy into the child's transition to adulthood, or deal with the issues of institutional failure now confronted by the child who has invested a lifetime of capital development (learning the language, culture, laws, etc.) and now has to face an opportunistic breach by the government which no longer abides by the original documents and will not give him the opportunity to renegotiate the deal.

3) So, what are your choices? We are facing a situation where you must exploit your "voice" or "exit" options. Voice, as noted by Buchanan, Tullock, and Olson (Mancur), is fraught with problems, especially in a "restaurant" the size of the US. Exit, in the form of "voting with your feet", is not the same as it means in every other circumstance, where you simply stop participating in the activity, because exit in this case means having to physically relocate to a place that has your preferred government (including "none"). Returning to the restaurant analogy, restaurants know about voice and exit and do their best to facilitate the move from other restaurants by differentiating from the others and advertising the fact, or by incorporating suggestions from their customers. Moving to another nation, even for those who can afford the expense, is at best a decision to choose between other variations on the same franchise. To the extent that this tells us something generally about governments and their benefits, this is the argument of functionalism: institutions exist because they serve a purpose.

Functionalism seems as riddled with holes. Among other things: If things exist because there is a purpose for them, how does change come about? Where do new purposes come from? Or is it possible that there are some needs that are not meant by an existing institution? Is it not therefore possible that some institutions exist without an actual need because needs go away as well as arise? Also, cannot there be a difference between purposes as stated and purposes in fact? The stated purpose for Davis-Bacon was fairness: the purpose in fact was to prevent low bidders who hired African-Americans from being able to win contracts. The stated purpose for farm subsidies is to preserve the family farm; the purpose in fact is to sustain factory farms. The stated purpose for government was to protect citizens from criminals; the purpose in fact is to facilitate behavior that might otherwise be criminal (dress it up in all of the demagoguery you want). Is it possible that an existing institution is only one possible answer to the need? And that something besides need -- say, power -- may sometimes come into play in selecting among the possible institutions? Or are we to confine our inquiries within a Panglossian functionalism?

One further aspect of this is occasionally introduced in an effort to trap the novice. That is the assertion that the "market" for nations is an ideal free market. There is no government to control the market for countries of residence. This is a transparent trick that confirms the notion of governments as organized criminal gangs who control territory by a quasi-stable mutual arrangement between the criminal gangs. But note again the reality behind the analogy: governments are not stall-keepers, each hawking his own wares to mobs of customers in search of a nation. And while there may not be an overarching government ready to supply force to dictate choice, each government is itself ready to supply that force. Restaurants are not toy stores, governments are not not-governments. The analogy uses the trick of suppressing the frame of reference to try to distract from the fact that a government is a government whether or not there is another government above it. You might as well argue that businessmen who hand over cash to strangers threatening arson are not really being extorted, they are voluntarily choosing to give money to firebugs. But that would be answering a bad analogy with another one.

4) I think there is entirely too much question begging required to support social contract theory.

• If the contract is between the state and citizens, where does the state get its right to negotiate? From the social contract? That's circular.
• If the contract is between citizens and citizens, where do they get their right to negotiate for others? And where does the state get its right to change the contract unilaterally, given that under this scheme it is the result of, not a party to, the contract?
  
• If the contract is an explicit one, such as the Constitution, why are we no longer honoring many of the provisions? Because there is an implicit contract? If so, how do we know what is required of either party or even who they are?
  

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[1] See for example Steve Kanga's essay.

Resurrecting the Granary of Rome

It was such a good book title, I had to use it as a post title (link).

Although this isn't what I would normally consider "my" kind of book, I'm glad I picked it up. Mainly, the initial appeal was that I went to high school with the author, though I can't claim to have known her well.

The book has a certain amount of resonance with me, having just completed Tim Egan's The Worst Hard Times, a book about farmers in the Dust Bowl. Diana's [ahem] Dr. Davis' thesis in RtGoR is that the French colonists created a narrative in which Algeria was once a vast green sea of forests and grain, but that the nomads (read: barbaric Arabs) had ruined it with their primitive farming and especially herding methods. This "declensionist narrative" was used to justify the obvious outcome: the French were morally obligated to re-civilise Algeria and restore the region to its former glory.

The trouble was that it wasn't true.

There were three topics in the book that intrigued me. The first was the discussion of various types of property recognized by the indigenous Algerians, including communal property used to rotate grazing animals to allow for leaving some land fallow. The second was the interrelationship between deforestation and dessicationist [1] theories that instructed 19th century environmentalism and their foundation in Christian mythology. The third was the idea of environmentalism as social control.

The first is interesting to me as an example of alternative social organization. Davis describes briefly the concepts of melk, achaba, habous, and arsh [2]. The first is private property, the second is a "pasture contract" exchanging grazing rights for labor, and the third is land reserved for religious insttitutions. The fourth, the idea of communal property (mostly pasture but some cultivation) is curious: if the system is stable, it challenges my notions of the sustainability of commons found in narratives such as this description of the pilgrims' attempts to establish communal agriculture. Perhaps the tragedy is not as inevitable as Hardin would have us believe. Under some circumstances -- perhaps only those of small, nomadic, strictly religious tribes -- communal property may be sustainable and productive.

The second theme is interesting to me because of an embarrassing moment I suffered shortly after university. I had a friend there who was into environmental issues, and he preached that North America had once been entirely covered in forest [3]. I remember the look of bemused disbelief when I professed this at work one day, and realized how silly it was. It is one of the most striking memories I have about how I had acquired what I thought was knowledge, only to discover that it was pseudo-knowledge I had bought hook, line, and sinker based on no more than the strength of conviction of the source. On another occasion, I ran into a co-worker who believed that England had recently been completely barren of forests, the mirror image of my error. It would have been awfully difficult to build half-timbered houses, hide in the Sherwood forest, build pipes out of wood [4], build the world's most fearsome navy in the 19th century, or any number of other things if there were no trees on the island.

Indeed, both ideas are born of the same myth, the idea that the world was once covered in forests (Eden), but since man's fall from grace, the forest has gradually given way to hot deserts (reminiscent of what biblical location?). Because they contribute to this decline through their use of fire as an agricultural tool, natives (Algerians, North American Indians) must be deprived of their traditional ways of life and, not incidentally, of their property. Call them reservations, cantonments, or concentration camps, nomadic peoples must be controlled, "attached" to the land, and turned into farmers if possible and imprisoned if not. In Algeria, they also forced them to use money by forcing them to pay taxes in cash rather than in kind. Having deprived them of their traditional, nomadic, pastoral ways, and having also forced them out of barter and into the cash system, many had no choice but to enter the workforce as a laborer for the new French masters. That is my synopsis of Davis' thesis on environmentalism as social control; I related similar arguments earlier under this post.

The parallels between those conservation-as-state-expansion efforts and the intent of modern Global Warming enthusiasts are too obvious to overlook. Of course environmentalism is about social control. Although there are thoughtful believers who would like to see genuine threats to our future existence mitigated, there are others who latch onto any fad as a means of advancing state power. Sometimes called "watermelons" -- Green on the outside, Red on the inside -- such people move from one cause to another in hopes of finding the magic lever for bringing about a technocratic utopia. It seems to escape their notice that their causes are frequently the cover story for the simultaneous expansion of state-capitalism (which Davis rightly identifies by its simpler name, capitalism). Algeria went from a land of traditional herding and farming to a colony of small farmers to a corporation-dominated extension of France. Likewise, the American Plains transitioned from the land of the buffalo to a land of small land-grant farmers to ADM's central production facility. Both changes happened under cover of conservationist narratives - as it happens, those providing moral cover with a Christian-fall-from-Eden myth were almost literally Baptists to the corporate-colonial Bootleggers.

This revisionist history seems to me to be a great companion to recent responses to Jared Diamond's version of the Rapa Nui myth. Diamond claimed that the decline of Rapa Nui (Easter Island) was due to stupid and greedy human tendencies to destroy their own environment. In his version, they cut down all of their trees in a fit of one-upsmanship, with devastating consequences. The revisionists are finding two alternatives to the story: one is that rats caused the deforestation and that there was no long period of stability followed by collapse. Of course, the rats probably arrived at the island with the natives, but at least the humans intentional actions are off the hook. A second version (pdf) points out that the first Europeans verified trees on the island, were greeted by natives bearing palm leaves, and saw natives living in palm-thatched huts. Shortly after their arrival, the trees disappeared and the natives went into decline; Benny Peiser argues that this was no coincidence. His version, sometimes called The Rape of Rapa Nui, is a direct, though compressed, version of the Algerian story.




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[1] Despite Dr. Davis' dissection of the dessicationist theory, I am under the impression that recent research has indeed shown a relationship between deforestation in the Amazon and decreasing rainfall. Without pulling up lots of research and trying to figure out which findings are most reliable, all I can do is point out that (a) her reference was old (though she cited more recent research on the dessicationist narrative, I think the only physical science paper cited in refutation of the dessicationist theory was from 1982), and (b) her argument still seems correct. That is, I don't believe that the nomads destroyed so much vegetation that they created the Sahara; it seems rather more likely that they adapted to an existing fact. In a future edition, I would like to see her present and then answer stronger versions of the dessicationist theory.

[2] She also notes beylick and mokhzen, properties of the Ottoman state, and muwat, unproductive land that could be cleared, cultivated, and claimed.

[3] It's still a tempting myth given misleading maps like these - what does "virgin" mean? A recent National Geographic described in detail the number of modifications the natives had been making to their environment before the European arrival. The map creators are either unaware of natives' use of fire or unconcerned by it. The latter is consistent with the Noble Savage myth. It is perhaps notable that Rousseau was a popularizer of the myth, and Frenchmen would have been familiar with it even as they conquered the savages in Algeria. In fact, could this explain why they favored the sedate Berbers over the nomadic Arabs?

[4] This is a reference to something I recall reading in T. S. Ashton in which the poor were supposedly confined to neighborhoods where greedy developers couldn't even be bothered to use iron pipe. Ashton found that developers' greed wasn't the problem. It seemed that the neighborhoods in question had been built in the early 19th century, when England was busy fighting someone named Bonaparte. Iron was scarce and expensive, so the inhabitant-builders used wood for their own sewer pipes.

[5] As I noted in the review of Egan's book, Roosevelt's pet conservation method was to introduce forests to the Plains. Not only did that not work, but it made things worse as the trees soaked up what little groundwater there was. The Algerian experience was similar: in the 1870s, Francois Trottier tried to introduce eucalyptus trees throughout the country. The trees interfered with natural springs and soon enough they were removed and forgotten. The first repetition is tragedy, the second is farce.

Coase is not magic; neither are agencies

Given that my original response to Megan included a very tepid mention of Coase -- and that not even a central argument -- and that I tried to calm the overenthusiastic commenters on the first MR post, I don't think her post "Coase is not magic..." was aimed at me specifically. However, it is worth noting what is wrong with it. She says,

Coase requires low transaction costs, which is a stumbling block between two multi-party resource users, but maybe not insurmountable. It also requires perfect information. That is harder. But the real problem is that farmers are not profit-maximizers along every variable that they manage.
...
If your first sentence doesn't overcome the problem that farmers are not profit-maximizers in water use, DO NOT write a second sentence explaining a theory that depends on that assumption.

1) I reject Megan's premise: Coasian bargaining does not require profit maximizing farmers. If we were to accept these conditions for the operation of incentives, then there are many more policies we should reject.

One of my favorite measures of whether energy is too expensive is to note the presence of Christmas lights in poor neighborhoods. When they are on all night, electricity must be cheap. Likewise, when the local high school parking lot is filled with gas guzzlers which they use to drive 500 yards to Sonic, gasoline must be cheap. The people engaging in these and other behaviors (e.g. failure to install CFLs) are clearly not profit maximizers by Megan's definition (they are rejecting free methods for saving money on energy like turning off Christmas lights at bedtime, or not hanging them in the first place). So what good will it do to promise them a little more money to install solar or buy a Prius? If the rise in gasoline prices by $2 in a few years won't change their habits, what good will a little carbon tax do?

I doubt that Megan or for that matter anyone else is going to accept the idea that those people won't change their habits in the face of a tax or subsidy. The point is that people will change their behavior on the margin if not on average. This has nothing to do with their ability to maximize along every variable. It has much to do with their response to incentives.

Incidentally, I'm not convinced that farmers are as hard-headed or superstitious as implied. We have evidence that farmers are capable of quite sophisticated maximization and bargaining. Steven Cheung ("Fable of the Bees: An Economic Investigation") and David Johnson ("Meade, Bees, and Externalities") reported in 1973 that it had been common practice for nearly a century for farmers to pay bee keepers for pollination when they needed those services (to enhance yield), but for the keepers to pay to put their bees in a field in order to promote honey production in other seasons. I have also read that some farmers engage in fairly sophisticated hedging in the commodities markets using Scholes-Black option-pricing schemes.

2) Nor does Coasian bargaining require zero transaction costs or perfect information. These may be requirements of the "Coase Theory" as popularized by Stigler in his textbook, but I find no such argument made by Coase in the original article to which these discussions refer, "The Problem of Social Cost".

As Alex correctly points out, such conditions are sufficient for Coasian bargaining to yield an efficient result, but they are not necessary conditions. I doubt whether there are any markets in which there are zero transaction costs or perfect information, yet markets in general seem to work well. The best treatment of this subject, once again, is David Friedman's from Law's Order, webbed here (you'll want Chapter 4). He divides the explanation up into three parts: Nothing works, Everything works, It all depends.

Nothing Works is the explanation of the world in which the allocation of rights seem to be handed out in an arbitrary manner despite the fact that it is the presence of both parties that causes the problem. The polluter is as responsible -- but not more -- than the people living downstream because if they didn't live there, it wouldn't be called pollution. Then Coase introduces the part which Megan and Barkley Rosser (see his comments here) seem to have in mind: in the absence of transaction costs, you could give the property rights to either party and it would be negotiated to an equitable outcome (Everything Works). However, this only covers about one-third of the original essay, because Coase then moves on to relax the assumption about transaction costs. In the presence of transaction costs (the real world), it all depends on initial allocation of rights and the relative magnitude and direction of the transaction costs (which are not symmetrical).

At its heart, Coase's point (as distinguished from the Coase Theory) is about (a) property rights and especially (b) transaction costs and their interaction with both disputes and the regulatory/judicial environment. One-third of the way into the essay, Coase points out,

The argument has proceeded up to this point on the assumption that there were no costs involved in carrying out market transactions. This is, of course, a very unrealistic assumption.
...
Once the costs of carrying out market transactions are taken into account it is clear that such a rearrangement of rights will only be undertaken when the increase in the value of production consequent upon the rearrangement is greater than the costs which would be involved in bringing it about. When it is less, the granting of an injunction (or the knowledge that it would be granted) or the liability to pay damages may result in an activity being discontinued (or may prevent its being started) which would be undertaken if market transactions were costless. In these conditions the initial delimitation of legal rights does have an effect on the efficiency with which the economic system operates.

That seems a far cry from "requiring no [or low] transaction costs". It says that the bargaining will depend on the relative costs and the initial allocation, but Coase himself is at this point emphasizing the effect of transaction costs, not assuming it away.

3) In my original response, I was reacting to Megan's table-banging defense of bureaucrats (something Bernard Yomtov seems to have overlooked) by pointing out that (1) the state had created the problem by forgetting earlier agreements, (2) that all attempts to "balance competing needs" had been all-or-nothing, winner-takes-all decisions that disregarded earlier settlements, (3) the logic of politics and bureaucracy drove those decisions and serves to perpetuate the bureaucracy rather than creating solutions, and that (4) contra the so-called libertarians commenting on Megan's site, a libertarian response would almost certainly not favor the farmers. I listed several interesting arrangements that would inform a truly balanced, dynamic solution. Without saying it, I was implying that the required balance might be achieved by allocating the property rights to the fishermen and/or tribe. For one thing, this has the intuitive appeal that it restores the rights to the initial holders. I believe it also holds some promise for the situation. Curiously, the "Coasian" initial rights allocation assumed by Megan and many other commenters including the Coase cheerleaders have all been the same, and opposite to those I implied.

Under farmers' water, I agree with Megan that the farmers may be too conservative in selling and the fishermen too uncertain about how much to buy and how high to value it. However, under fishermen's water, while the fishermen might also be too conservative in selling water (resulting in the extreme in the outcome ESA advocates defend), the farmers ought to be able to calculate fairly precisely how much water to buy and how much it is worth. In reading about corn, cotton, and soy, I have found that there are fairly well-known relationships between local conditions (temperature), water, and crop yield. Undoubtedly, many farmers would choose not to farm at all under conditions in which they have to buy water at market (and hopefully they would have to buy electricity at market, too). Some farmers would buy the water at market and probably squander some of it. And some farmers would choose to farm under conditions in which they would maximize yield from every drop: this gets Megan the agribusinesses with Cadillac water systems she prefers.

As I noted in my first response, there is historic precedent for this arrangement. As Richard Stroup reports in the article to which I linked but I doubt anyone read,

In England and Scotland, for example, unlike in the United States, the right to fish for sport and commerce is a privately owned, transferable right. This means that owners of fishing rights can obtain damages and injunctions against polluters of streams. Owners of these rights vigorously defend them, even though the owners are often small anglers' clubs whose members have modest means. They have formed an association that is ready to go to court when their fishing rights are violated by polluters.

Although the US is normally associated with strong property rights protections, I find it interesting that we don't have such arrangements. There is probably a historical curiosity involved, but why haven't our legislators or bureaucrats noted the benefits of the arrangement and taken action to import it?

(What follows is conjecture that is relevant, but perhaps not entirely clear.)

I believe this issue illustrates a common problem: bureaucrats are too unimaginative. They think that by weighing lots of opinions and arriving Solomon-like at a decision that they are "balancing the needs" and that this is very creative. This isn't substantively more creative than what teenagers would do in adjudicating a schoolyard fight between pre-teens by picking their favorite and enforcing it through threat of violence. A really creative solution would be to figure out how to strengthen existing self-governing institutions or establish new ones that don't require the constant attention of some state agency.

I have a house and a yard; people rarely trespass. It isn't just because of the threat of police action; professional criminals know how to get in and out without getting caught and random break-ins are rarely solved. Besides, simple trespass (walking across my yard) could be accomplished without even my knowledge. The secret is that everyone knows, understands, and accepts the difference between that which is their property and that which isn't. The idea is self-enforcing and scales rather well.

In David Friedman's "A Positive Account of Property Rights", he explains how bilateral agreements to behave civilly may be described as a series of Schelling Points (Schelling Points all the way down, so to speak). Among them is arguably private property rights. I have conjectured that policy decisions (regulations) are not only Schelling Points, but because they generate similar ideas about how to proceed, they are Schelling Means (I think the literature would probably still call them Points). Regulations are a Schelling Means that generate additional Schelling Points that strengthen the state without intending to do so. In common usage, people are quick to say, "There ought to be a law..." because force is the first solution that comes to mind and the state sanctions force through legislation. Few people are happy with the results when the state grows out of control (fascism/communism) or comes under the control of less-than-stellar politicians (corruptarchy), but this is what happens when we rely on agency-enforced regulations for every problem, perceived or real.

Contrast those results with the institutions of civil society that generate Schelling Points that strengthen society. These would include property, trade unions, family, banking, mutual aid societies, education, money, agriculture, and common law. These are obviously not easy to create from whole cloth and doing so is an act of immense creativity. Forming voluntary associations to create institutions to address problems was a characteristic of Tocquevillian America, abandoned in the Progressive Era. Our goal should be to build Civil rather than State Schelling Means; we can expect a fight from those most interested in preserving or extending the State Schelling Means.

Libertarian Evolution

Tyler's opinion on water rights and law unfortunately confirms my opinion on The Libertarian Transition: it will have the same difficulty as Evolution Theorists: how do you get to a flying animal from one that does not? Wing stubs?*

How do you get to a free market with well-defined property rights and functional institutions from one with ill-defined property rights and dysfunctional institutions (or one big dysfunctional institution) without the legal equivalent of wing stubs? I don't think you can, so the question then becomes - what does a property law wing stub look like? And how do you prevent the little guy from getting screwed (worse than he already is right now, that is) in the process?

* I can hear Joe Pesci screaming at the guy about being a fast grit cook: "Are you kiddin' me? Is that all you got?"

Communal Property

I noticed in two recent, separate posts that libertarians are accused of not understanding the concept of communal goods (here*, via Radley, and in the comments of Megan's fromthearchives post). In the first, libertarians are also ridiculed for "not minding government funded roads". And in the comments to that post, they are also ridiculed for actually discussing private roads as an alternative to government funded roads.

Huh?

Now, I realize that people don't realize that not all libertarians agree, and nor is there agreement among all of the people with whom libertarians disagree. But still it shouldn't be that difficult to realize that some libertarians accept public roads and so therefore probably understand and accept that concept of communal property. Is it too much to put those two snipes together and realize, "oh yeah, nevermind"? It would only take a little deeper thought to realize that other libertarians understand something that only the Deep Green left seems to understand about communal property: it isn't always and everywhere good!

I probably need to back up and point out that many on the left (and right) who speak about "communal goods" with such pious tones probably mean "the type of property of which I approve", like parks and military power and such, but they probably haven't thought about it much further than that. There is a symmetry, with one side thinking "private property mostly good, communal property mostly bad" and the other the opposite. Neither of these strikes me as sophisticated analysis.

Deep greens and libertarians have recognized that communal property is frequently used for private gain. An old joke is that BLM stands for Bureau of Livestock and Mining; these were the guys who invented chaining, the act of dragging a chain between two bulldozers to clear out small trees and make land more amenable to cattle. The Forest Service is the federal agency within the Agriculture Department in charge of building roads used for transporting equipment and logs up and down mountains in order to clear cut enjoy our communal crop of old-growth. And the nation's roads are the communal property means by which we consume oil and produce air pollution, time-wasting congestion, and sprawl.

Sure, the oil-users pay road taxes at the pump, but you don't suppose that all of it goes to roads, do you? The last time I saw a figure (Gabriel Roth's Roads in a Market Economy), about half of fuel taxes intended for roads actually makes it to roads. But you don't suppose that means that we are short of roads, do you? Of course not; as M1EK points out for the Austin area (start at the bottom), large portions of the roads are supported by bonds that are repaid out of sales and property taxes.**

No quarter is given to libertarians on issues such as roads: use them, support the status quo, advocate change, it doesn't matter: you are either a hypocrite or a crackpot, no middle ground is given. I find that odd, given my ideal transportation system. I don't know what to say about Pandagon's commenters who defend public roads; they are being consistent with their support for public property, but inconsistent with almost every one of their other principles. Here I should think M1EK would join my team and wonder how in the world they can make statements such as "The US interstate highway system, warts and all, is a gem that most of the world envies."*** Maybe if you live in Afghanistan; Germany certainly doesn't. The French wouldn't admit to it even if they did envy it (which they probably don't). And even an American who has sat in rush hour traffic is probably doing the opposite of envy, even if they can't comprehend what a real alternative would look like.

One of the commenters makes a valiant attempt at claiming that roads are not a public good. Perhaps not a pure public good, but they meet most of the criteria. And like many communal goods, they show the signs of the tragedy of the commons. Most libertarians are familiar with the general idea that commons, including such diverse examples as National Parks and fish stocks, may give rise to a tragedy in which it is in no user's interest to conserve. The difference between the left and libertarians lies in their choices over what actions they prefer to avert the tragedy. Both private and state action may lead to unsatisfactory consequences: underdistribution on one hand and overdistribution on the other.

By that, I mean that privatization of a commons always has the problem that one person gets title to the good though it is not clear how that person and no other should get it. Because he is first? That seems arbitrary. Because he is mixing his labor? That seems slightly less arbitrary until you consider that his first arrival now prevents others who would mix their labor with the land if given the chance. But the other end of the spectrum, political control, results in overdistribution: too many people trying to do too many things with the property and none of them having full responsibility for the outcome. You can try to solve that problem with majoritarian rule, but that also seems arbitrary: first one to 50% + 1 wins!

I would tend to look for the approach most likely to lead to the least worst outcome in a dynamic environment. The worst outcome would be permanent assignment to the first arbitrary winner who happens to be particularly inept. The best outcome would be that use is shared among all users according to the utility they derive from the good, an admittedly utilitarian argument to which I would solicit Will Wilkinson's anti-utilitarian response. In my opinion, private institutions have proven more adept at seeking the optimum use. Megan's requirement that I prove that the average farmer be a profit maximizer is a red herring; all we need is for the marginal farmer to be attracted to selling his water rights. A job, especially for a farmer, is not only about income maximization; sometimes it's about doing things your own way, including choosing when and how to leave it. The average anyone is not a profit maximizer, and yet we find that supply and demand generally work; otherwise, things like CAFE, carbon taxes, and tax rebates are futile efforts in a world where people could choose Toyotas over SUVs and until recently have not.

*I only get one hit on that bingo card, so I guess I don't win the prize.

**Incidentally, M1EK writes interesting posts about transit and urban development issues, but his over-the-top, self-described "bile" interferes with the message. His case for hybrids over turbodiesels generally ends up in lots of arm-waving and glossed-over points while accusing his interlocutors of failing to compare fairly (i.e. claiming that the Golf is substantially smaller so doesn't compare to the Civic when the Civic is actually the smaller car in both passenger and cargo capacity, claiming that all tests that show the Jetta having higher mileage are unfair or outliers, claiming that the Prius is midsize and the Jetta is a compact, etc.). In my opinion, the entire debate is silly: it's like the musclehead "Camaro vs. Mustang" debates of yore. At the end of the day, we should simply be happy that consumers have choices for high mileage cars. His comments on Econbrowser and other places can be very snipey. And yet you get the idea from reading his blog that he's probably a nice guy in real life. Can we blame the vulgar libertarians for blurring issues so badly that M1EK is driven into such states?

***The rest of that comment is hillariouser: "The US military shows how socialized health care can be provided for large numbers of people at a reasonable cost. (It’s when the poor soldiers fall into the hands of the VA that the care - and my point - fall apart.)" (1) It is no different than any employer-provided healthcare, except perhaps in scale (and that not much more than the largest private employers). That is to say, it sucks. Quit the military and see how far it gets you. (2) Can you put "The US military shows how ... at a reasonable cost" in a sentence and keep a straight face? (3) Yes, the parenthetical portion pretty much summarizes it.

Student Government

UPDATE: Welcome fromthearchives and MR readers. Please note that nothing untoward was meant by the poor choice of words in the first sentence below. Second, please note that I have no reason to believe that Megan would not mind abuses of power that were aligned with her beliefs; I was throwing her in with lots of other partisans who do have that problem, it was unfair, and I have apologized.
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I do not understand Tyler's attentions to Megan-non-McArdle. I had originally drafted a well-rounded criticism of both Megan and her anonymous, "libertarian" interlocutor, but in doing so I realized that what was really needed was a harsh rebuke of her impassioned but misguided defense of bureaucracy. Megan's position is that bureaucrats "BALANCE COMPETING NEEDS" [her overemphasis]. This is untrue, and belief in it is the stem of much wrongdoing.

1) Government employees created the problem in the first place.

According to this article, "Starting in the 1920s, the U.S. Bureau of Reclamation drained most of Tule and Lower Klamath lakes for agriculture and built an irrigation canal to send Upper Klamath Lake water to farms in the neighboring Tule Lake basin."

The government not only promised land to settlers, they promised water to them and water and fishing "rights" to the Native Americans before them. This article summarizes,

Yet according to some, the government had earlier also promised farmers irrigation water "forever" when it made Klamath Basin land grants between 1908 and the 1940s.

Further, in an 1864 treaty with the Klamath Native American tribes, the government guaranteed water and suckerfish fishing rights downriver in exchange for their land upriver. When making land grants, the government did not tell the farmers of the tribe's rights.

Politicians and bureaucrats, having "no dog in this fight" as Megan says, simply blow with the wind, giving "rights" away to anyone who petitions strongly enough. One doubts whether private property rights would have been so poorly protected, but then she basically says that she does not think people ought to be trusted with a role in resolving disputes because they will defend their own interests.

Then, those farmers got subsidized electricity. We know because of the furor set off when it was proposed that the subsidies be taken away:

Rates will go from 0.6 cents to more than 6 cents per kilowatt-hour - a tenfold increase. [and that's still less than I pay!]

The Tulelake Irrigation District in Northern California, for example, has been told that its annual power bill is expected to rise from about $70,000 in 2003 to $1.05 million in 2006, said Ed Danosky, general manager.

Farmers are screaming about economic disaster and broken promises.

"People are going to suffer," said Steve Kandra, president of the Klamath Water Users Association, who said he believes many will resort to more wasteful irrigation flooding that uses a lot less juice.

But others see market-based power rates for irrigators as the much-needed catalyst for resolving entrenched conflicts between agriculture and fish. The irony is that by leaving it to market forces rather than government, they say, fish and farmers could end up healthier.

Especially in the hillier portions of the basin in Oregon, where sprinkler irrigation is dominant and flood irrigation impractical, high power rates can be an incentive to forgo farming on marginal lands.

By first abrogating the rights granted to the Natives, then spending taxpayer money to "reclaim" the valley for agriculture, then encouraging people to move there, then subsidizing their electricity (and God knows what else), thus bringing many competing interests into the valley, bureaucrats established the conditions for conflict.

2. Megan is very adamant about the balance claim; her caps lock key frequently gets stuck when discussing it. Unfortunately, the idea of measuring and balancing needs is meaningless. It has great emotional appeal, but doesn't describe what is really happening. At best, bureaucrats are making judgments about relative costs, but there can be no doubt that they are applying their own standards for such things as discount rates, which constituencies to poll, and how much weight to attach to them. They are not measuring the needs of fishermen, farmers, or Natives and comparing them on a calibrated needs scale. As with the global warming debate, we seem to have lots of physical science experts looking at a problem and then making a social science policy recommendation.

Balance, in any meaningful sense, means that each side gives a little and gets a little. A balanced solution would have involved give and take, bargaining, and compromise; I propose private mechanisms for such below. However, from what I can tell, the recent sequence of decisions had anything except balance in that sense. First, the Fish & Wildlife Service's biological opinions and those of judges reviewing the case have been in favor of fish, Natives, and fishermen, full stop. Then, the reversal was in favor of farmers, full stop.

In this way, bureaucratic decisions don't solve conflicts, they create the conditions for eternal conflict. One side is in, the other is out, and the side left out has no recourse but to politics. This is the unstated goal of much public policy: simultaneously remove traditional decentralized mechanisms for problem solving while replacing them with a central mechanism which puts politicians and bureaucrats in the role of Solomon. That is exactly what Megan means when she says that people with a stake in the conflict should not be allowed to decide it: bargaining should be banned and replaced with a rational, technocratic authority.

3. My original draft defended Megan and her co-workers from the association with totalitarian bureaucrats, but I realized in researching the background of how the conflict came about that bureaucrats are in fact the source of the wrongdoing in question. They don't realize it; they actually believe their own propaganda about working for the common good. But as I have just argued, they create the conditions for conflict, then they "resolve" the conflict in such a way that it guarantees it will continue, and meanwhile they eradicate all of the mechanisms which would allow the conflict to be amicably resolved for everyone.

People worry incessantly about the problems of artificial monopolies in private markets, but don't seem to recognize the analogous process in the "market" for law, a market in which the main player is also the referee and league commissioner. Bureaucrats do have a dog in this fight: their existence must be justified. They have interests at stake just as much as the farmers or fishermen. And yet they claim to be honest brokers.

From her comments, Megan seems to be aware of Hannah Arendt's "banality of evil", but she does not seem to have absorbed it in a way that she can apply it. Although I'm sure there were good invoice inspectors and dam inspectors in every totalitarian regime, the pseudo-libertarian commenter was wrong to liken this particular office to one charged with the task of making sure work-camp trains were running on schedule, but that's really beside the point, isn't it? Megan makes a nice show of arguing how her particular office and the office in question in her original article are filled with people trying to do the right thing, but that is also beside the point.

The civil employees are working within a system in which the rules -- not the laws she cites, but the rules of the game -- are already set and their job is merely to be the agents of the people who set the rules.* Sure, there's a little slop in the system to let everyone believe this is a transparent democracy, but get real. Someone has already decided that your telemetry geek should measure this and not that; it serves an interest. The public meetings serve to give the public the impression that cheap talk is worth something; at the end of the day, you decide against one group and for another. Someone has dictated a long list of acquisition regulations that ensures that the invoice checker is only going to see certain kinds of invoices and look for certain kinds of data. But those are just the surface conditions.

The subsurface conditions have been in place for generations: promises were made, reclamation projects were funded, subsidies were provided. Megan makes no mention of those inconvenient facts or their implications. Second, note that the salmon industry has already gotten their settlement (here and here). Now, Megan is outraged that an elected official has the audacity to intervene on behalf of a constituency group? That is what politicians do. Note that I am not defending Cheney; doubtless what he did was as cynical as anything else this administration does. Jane's Law holds.

If ultimately successful at rationalizing all decision-making in this way, a central government will have completely displaced private institutions and made the populace entirely dependent on faceless but ostensibly well-meaning technocrats. That is the problem of progressive wonkism and centralization that I have written about. And while the Fish & Wildlife service is not as dangerous as the office of Communications Assistance for Law Enforcement, passive acceptance of centralization is part of a broader problem.**

4. Megan keeps using that word "libertarian": I do not think it means what she and her sympathetic commenters thinks it means. It certainly does not mean someone who does not understand communal goods (who are Eric S. Raymond and Jimbo Wales, what is the noosphere, and how would they be relevant to this discussion?). And I'm not sure I can think of a single libertarian who would automatically side with those farmers who were essentially benefiting from at least two previous government interventions.

In fact, a libertarian response to this would have covered at a minimum the following issues:

• native property rights (wouldn't the 1864 treaty have priority over everything else?)
  
• actual fishing rights which are defensible and transferable, as opposed to fishing licenses
  
• Groups like Trout Unlimited have been promoting the idea of in-stream rights for years. Many states have laws oriented towards farming or ranching that dictate that non-use or in-stream use of water rights results in the forfeit of those "rights". Where TU has been successful at changing the status quo, they can buy water rights and then leave the water in the river so their favorite game can flourish.
  
• Stop subsidizing the farmers' inputs such as electricity: see above.
  
• Bargaining between the fishermen and the farmers. Unfortunately, while I found several articles dealing with proposals to buy farmers out, I found none that discussed direct bargaining between the two groups. Buying the farmers out is something Richard Epstein, another quasi-libertarian, would get behind. Some sources claim that by buying out just the most marginal farms in Klamath, it might be possible to leave the remaining farms and restore enough water to the river to meet the needs of fishermen. Direct bargaining between the two groups is something in which Ronald Coase might be interested. However, contra several quasi-libertarian commenters who have joined the fray since the original post, there are large transaction costs problems to be sorted out, so the Coase Theorem does not "guarantee" an efficient solution regardless of who gets the rights. Sorry.
  

Interestingly, we don't seem to have any politicians or bureaucrats trying to figure out the best way to assign property to minimize transaction cost problems so that the conflict can be resolved by the actors themselves. Why do you suppose that is?

5. Megan claims to be upset by a rogue agent hijacking government agencies for his own agenda. I'll grant her that this seems to be just that. But as I noted in this post, the left is full of people who are currently upset that NASA is not headed by a rogue agent for their interests and that the ideological purity tests are not in their favor. Must I really spend time looking up and finding all the ways that other, non-Bush administrations have applied their own purity tests? Really?? And no, don't bore me with the anecdote about the token right-to-lifer picked by Clinton to be the Second Assistant Vice-Chair of the Office of the Undersecretary for Wilderness Area Parking Lot Stripe Paint Standards. You know that in general, on average, every president picks people who broadly agree with him.

C'mon, Megan. Your real problem here is that the rogue isn't working for your team; you would be perfectly happy with a fellow traveler rogue who uses all of the right catch-phrases and paeans to the correct totems. You will happily look the other way when they violate laws with which you happen to disagree; you may even defend their behavior. Elk Hills? Serbia? Mazen al-Najjar and Nasser Ahmed? Carnivore? Echelon? Jane's Law holds.

As you mature as a civil servant, you will learn to operate within those laws with which you agree, in opposition to those with which you disagree, and in complete ignorance of many more. Hayek's theory about information in society is far more relevant to this discussion than The Road to Serfdom. It would be better if politicians and civil servants actually learned about the former, had a little more humility about their own work, and tried to think of ways to decentralize decision-making by using some of the methods bulleted above instead of thinking of themselves as hard-working, enlightened, public-interested, unbiased, angelic promoters of sweetness and light. "Civil Servant" is a misleading title intended to frame our perception: "Government Employee" is probably better.

At the same time, it would be better if citizens spent more time thinking about how to pull power back from the central authorities, to resolve conflicts ourselves, and to build or rebuild local, community-based institutions rather than actively supporting powerful, central authorities who claim to be able to do these things for us.


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* Civil servants Government employees aren't entirely passive in the process: they also shape and interpret and the laws in order to preserve or expand their own authority. Megan defends the Endangered Species Act elsewhere with an ad populum argument. While popular among the voting public, it has been less so among technical experts. In this way, Megan lines up support for her favored policies no matter what: they are either popular with the public and must be kept and enforced despite the objections of technical experts, or they are popular with technical experts and must be kept and enforced despite the public outcry. This is just one of the many techniques she will perfect as she continues her career.

** Thanks to Arnold Kling, I rediscovered Unqualified Reservations and this excellent and relevant article. Sorry, Arnold, Bryan set me straight.

Sustainability Conference II

Sustainability Conference I

The attention given to solar was completely unrealistic. I happened upon Kunstler's blog; he accused Democrats of as much "magical thinking" as Republicans in this post. WRT solar power, he's right. There was no realistic discussion of this: a few people were obviously interested in it, and a few had done enough research to know the reality, but did not seem to have been dissuaded.

1) The keynote speaker said the cost of solar is going down. Bzzt. As I noted earlier, it has been going up in lockstep with oil prices, though it seems to be plateauing. If each dollar buys less solar panel, given a fixed or declining amount of money left over after other purchases (which is what the End of Suburbia was preaching), you aren't going to be able to buy as much solar in the future. My suspicion is that there are two causes for the rise in price: increasing demand with flat or slowly increasing supply, and subsidies. The former was driven by the increase in fossil fuels in 2003-2006, and may eventually correct itself. The latter is self-fueling (see below).

2) How much power does the average user use? The US national average in 2001 was 888 kW-h/month. Mine is something like 600 kW-h per month. If I had a 1 kW solar array and got 6 hours insolation (direct solar exposure) per day for 30 days, I could generate 180 kW-h per month. That's 1/3 of what I need, 2/3 if I double the size of the system. And I live in New Mexico where we get 6-7 hours of insolation a day (and we have something like 260 cloud-free days per year); the calculus is much tougher if I live in NYC or Seattle where they get far less insolation.

3) Two costs were given at the conference. One was $16,000 for a 1.5 kW system (roughly $10/W). Another was that the typical system costs $0.25 - $0.40 / kW-h to operate. Someone asked if that included sell-back (net-metering). The answer was obscure (I don't think the speaker heard it correctly), but the proper answer should have been: no, but it doesn't matter much. You can only sell back at the rates you pay for electricity, which is about $0.10/kW-h, so it's still 2.5-4 times the cost of commercial supply, i.e. it's no free lunch. Also, you can only sell back to the electric company up to the amount you use. Look at it this way: if you are currently paying $60/month for electricity, you will be paying $90/month for the loan for the system after accounting for rebates and sell-backs. You will also still have that monthly bill from the electricity company, but it will only consist of the subscriber fee plus tax.

Note that these were for grid-tie systems. An off-the-grid system will run at least twice as much, and the batteries require extra care (a well-ventilated area to dissipate the hydrogen generated during storage) and replacement on a regular basis (10-20 years). Incidentally, "grid-tie" and "net-metering" means that the PV system produces more than you use through most of the day, produces just about what you need in the afternoon/evening, and you rely on the grid at night and in the morning; which means someone still has to run a power plant.

3a) Let's look at this. The 1500 W system will be operational in a location that gets about 6 hours of insolation per day. That comes to 65700 kW-hours in the 20 year lifetime of the system. That means the cost of electricity is about $0.24/kW-h, rather toward the low end of the other prediction. This doesn't take into account system degradation, line losses, and so on, which would all drive the cost per kW-h higher. Take the $6,000 tax rebate back and it still comes to $0.15/kW-h. This system was enough to cover the speaker's own daily use.

3b) One thing that occurred to me during the movie I discussed in the previous article (link at top) -- and was later pointed out by one of the builders in the panel session -- was that in the coming era of higher energy costs (remember, this is their basic assumption), the system would be more and more valuable. In other words, if electricity costs increased to something on the order of $0.20/kW-h, the system would be viable at the low end of the calculations above. It would definitely pay for itself quicker if energy costs rose above $0.25/kW-h. That's an interesting bet, especially if you switch to a plug-in hybrid.

4) One of the builders, a self-described long-time left-wing activist, made a point of saying how the Bush Administration had "hammered down" any subsidies for solar power.

4a) Let's review the Clinton Administration environmental initiatives:

• Signatory to Kyoto, never submitted to the Senate for ratification, never did anything about it.
• Some 11th hour rules made in 2000 (first directed in 1996) on arsenic in drinking water changing the maximum exposure level.
• Propose a “Million Solar Rooftop” program, but never pressed it. That's about it.
  

This chart from here shows that Clinton Administration funding for Climate Change programs basically increased from 603 million to 1.1 billion. Not impressive.

Funding for Technology Programs to Combat Climate Change (in millions of dollars)
1993	1994	1995	1996	1997	1998	1999	2000 Estimated	2001 Proposed
603	796	960	788	764	825	1,009	1,095	1,432

This isn't to say that the Bush Administration is exactly the Teddy Roosevelt Administration (or even the Nixon Administration) in terms of its environmental activity, but Clinton only topped him in rhetoric. However, from what I can find, current Climate Change spending is somewhere in the $3-4 billion dollar range. Clinton: 40% increase in 8 years, Bush 400% in 6 years. Of course, since you can't actually pin those numbers down to find out exactly what we're getting for the "investment", I'd guess we had a case of Clinton = Bush = 99% BS. I say that because I suspect that both administrations counted obvious boondoggles (such as ethanol from corn programs) as Climate Change remediation.

I also found that the Bush rhetoric has been a regular but undiscovered drumbeat. This article's author thinks the rhetoric is new, despite earlier press releases like this, this, and this. I think Kunstler is right to be cynical.

4b) Let's review the politics and economics of subsidies. Subsidies are sometimes known as "corporate welfare", which, as we all know, both Republicans and Democrats are against. It is a mystery how they keep getting passed, init? In the solar industry, the subsidies happen to help out little Mom & Pop companies like British Petroleum, Canon, Kyocera, Mitsubishi, Sharp, and GE Energy. Also keep in mind that the subsidies are not secret: the suppliers know about them, too. They know that the bargaining limit for prices will go up by the amount of the subsidy, so they can basically leave production levels where they were before the subsidy even as they raise prices by the amount of the subsidy. The subsidy is no benefit to the consumer when it all goes to the manufacturer, so this merely becomes transfer from taxpayers to PV manufacturers. This is probably one reason for the rise in PV prices, especially in Europe. Still in favor of them?

Conclusion:

I believe we would be much better off with fossil fuel energy prices that more closely reflected the social costs. That's what Mankiw's Pigou Club promises, but it's also what a cap & trade program would bring. Both Kyoto and the 1990 Clean Air Act contain forms of cap & trade programs; the SO2 program in the 1990 Clean Air Act is thought to be very successful (which Administration signed that?) at reducing Acid Rain (resulting in things like this). Raising the cost of production of coal-fired or natural-gas-fired electricity by requiring providers to buy CO2 permits does a much better job of encouraging alternative solutions for two reasons:

First, people might not choose solar. They might choose to cut down on energy consumption with, for example, more insulation, better house design, more efficient vehicles, and/or better urban design. This would be a much better way of balancing our needs with the supplies and AGW forecasts because it would stretch existing supplies. This is the soft energy path favored by Amory Lovins. It is also an example of the principle of substitution noted by Julian Simon, and an example of adaptation recently suggested by Roger Pielke in Nature. Cutting energy use could also be combined with the adoption of alternative energies, enabling us to get there easier. In other words, rather than replacing my entire 600 kW-h usage with solar, I could perhaps cut my energy usage by half and then buy a 1500 W system that meets all of my needs.

Second, making fossil fuels more expensive would not subsidize and therefore support the least efficient providers of solar energy. If there are, say, three providers, the most efficient (least cost) provider would sell all he could make at a price that the competitors could not match up to the point at which consumers would turn to the next least cost provider. Once demand rises that high, the least cost provider would raise his prices to those of the competitor and pocket the extra income because the only alternative consumers have is not the least cost provider. If demand is high enough that the two most efficient providers cannot meet it all, they will raise their prices to meet those of the highest cost provider. As demand continues to increase, the least cost provider will see higher returns, and can therefore command more investment to expand his facility to the point that he might put the least efficient (highest cost) provider out of business. In such an environment, the highest cost provider has an incentive to try to improve his processes to match those of the least cost supplier; either that or risk going out of business altogether (which is fine, since it leaves the two lower cost providers in business at the prices commanded by the second lowest-cost provider). The subsidy thwarts the entire scheme by allowing even the highest cost provider to raise prices in order to capture some of the subsidy from the consumer. It is thus an incentive to capture market share and a disincentive to do it by increased efficiency at using inputs. More investment will go toward marketing than engineering and production management.

Unfortunately, the default setting of people at these conferences is

Democrats good, Republicans bad (and libertarians evil embodied)

Or, alternatively

Command and Control, Tax and Spend, Policymaking Government Good, Market-based Reform Bad

If they could perhaps be bumped off their default settings, I think I could stand listening to the rest of what they had to say. Unfortunately, they wanted to start the second half of the conference worshipping Cuba as the example of the path we should take with another film called The Power of Community. Sorry, I am actually offended by cults of tyrannical, murderous, autocratic personalities.

NOTE: Now that I'm looking up the Cuba film, I'm sorry I missed it. Apparently, one of the responses to the loss of their patron, the Soviet Union, and the subsequent collapse of their system was to establish farms with property rights (property rights in a broad sense - it is owned by a local community) and private markets (at which said community trades). The same thing that brought China out of the Cultural Revolution. Private property saves the day again?

Still, it's limited freedom within an overall oppressive atmosphere. One rooftop farm has this description: "Running free on the floor are gerbils, which eat the waste from the rabbits, and become an important protein source themselves." Yummy, can't wait. Most reviews of the film are the same fawning fluff, but only in a picture caption on this did I find a reference to the private markets. And abelardlindsay comments on The Oil Drum post about the film that Cuba is much less efficient at turning energy into wealth than its neighbors.