A Bold Conjecture

I have the germ of an idea that I need to present in three parts today, with an example in the near future. The three parts are An Interpretation, a Reinterpretation, and The Question Begged.

If we look at political economic history, we find that the state, especially the national government of the US, has evolved from a very simple set of rules (the Constitution was a few pages) to a very complex set of interlocking and sometimes contradictory rules, interpretations, agencies, and so on (the CFR is several volumes, best measured in linear inches rather than pages). The growth is due to the fact that at every stage, the rules created conditions for new problems which have to be addressed by new rules. For example, the rules which allowed transnational railroads to prosper led to the industrialization described by Chandler (energy + transportation => scale economy), creating the conditions for labor exploitation and unrest, followed by a new round of rules to constrain the industrialists and protect the workers, creating ... and so on. The explanation provided by the defenders of state intervention is that each of these changes has been largely beneficial, and that the few negative consequences may easily be managed by a new round of regulations that are also largely beneficial. They lay claim to pragmatism and empiricism, setting those in opposition to dogmatism or ideology, noting that they simply want to use the best means for achieving the best ends. We are all better off, so those policies were beneficial.

We could reinterpret this by working backwards. Today, we are better off than a generation ago, and a generation ago was better off than the previous generation, and so on. Thus, in order to get the improvements that we need today, it was good that they enacted those policies a few years ago. In order to get to the preconditions for today's prosperity, the need for previous policy choices are obvious. Thus, we should be grateful for those policies and for the idea of state intervention in general. For example, we need the current transportation system, so it was good that the state built roads. And to get the cars that ply those roads, we needed the railroads, so it was good that national regulations to govern railroads were put in place.

But this begs a question: What do they mean by "need"? In one sense, their argument is circular: in order to have the existing set of social, economic, and political mechanisms that we need to perpetuate the existing system, we had to have made those choices in the past. But why do we need the existing system? Indeed, why did the people in the 19th century need the railroad choices? "Need" means that a person or society can not continue to exist without those things. If anything, the fact that society had existed and evolved for thousand of years to that point without those institutions or policies is proof that those things were not needed in any meaningful sense of the word.

When the word "need" is used or implied, red flags should be raised. Who needs (or needed) it? Why? And is (was) the proposed policy the only way to achieve the need? And what, exactly, is needed? Remember this the next time you encounter one of the world's Polanyist, William Jamesist, pragmatic empiricists, who suddenly seem to have shed their pragmatism in favor of some Platonic ideal toward which their programs are working. Did society "need" the specific policies that were involved in the creation of transnational railroads? The railroad owners would appear to have needed them more than society at large; people wanting to farm profitably further west, further from water routes, markets, and hungry customers needed them; politicians wanting to influence the type of farmer in order to influence the type of state (pro- or anti-slavery) needed them; people wanting to enlarge the market for their manufactured goods and thereby increase profits (McCormick, for example) needed them; but those groups do not come close to comprising a majority of the citizens of the country. And if they had not gotten those policies -- laws regarding incorporation, bankruptcy, interstate regulation, subsidization and land transfers -- they still would have had other options, most of which would simply have been more expensive in the short run, but perhaps less so in the long run. For example, prior to the massive build-out of railroads, private roads and canals were all the rage. Fogel, in his response to Rostow, even noted that a horseless carriage existed in 1830 and that "not only the fundamental internal combustion engine theory, but even that of the diesel engine was published as early as 1824," citing D. C. Field's "Mechanical Road Vehicles" and Orville Charles Cramer's "Internal Combustion Engine" in A History of Technology (Charles Singer, ed., 1958) and Encyclopedia Britannica, (1961), respectively (see also Samuel Morey). As these predated the discovery of oil, they would have led to the creation of a more local, environmentally friendly, efficient (in the sense of having fewer externalities) transportation system and if a national system had evolved, it would have been more organic, i.e. the economies of scale would have driven the system rather than the system driving the economies of scale.

Bold enough?

Road conditions

A recent article on NPR stated that it would take $2 billion over the next decade to repair roads in Maine and "[t]he congressionally appointed National Surface Transportation Policy and Revenue Study Commission estimates that the cost of needed repairs is $220 billion -- at a minimum -- per year" to repair all of the nation's roads. This is seen as a crisis that requires federal subsidization and massive increases in federal and state funding. They are therefore starting to look at increasing gasoline taxes.

The last substantial increase in federal gasoline taxes took place in 1993. Given that we "only" used about 142 billion gallons of gasoline in 2006 (and similarly for 2007; high prices have caused a stagnation of fuel consumption), that means the federal government "only" collected about $26 billion. Given that the aggregate state collection is similar (state fuel taxes vary considerably, but average right around $0.18 as I recall), then "only" about $50 billion or so of the $220 billion is being collected. Your fuel taxes therefore need to climb from a combination of around $0.36 per gallon to something more in the neighborhood of $1.62, an increase of $1.26 per gallon.

May I suggest something else? What about supporting tolls? Though perhaps not very practical for intracity driving, they are eminently practical for freeway and bridge traffic. But first, there is a substantial obstacle to overcome: the belief, widely held in the US, that driving cars is a right and that roads should always be free. Clearly, we understand that roads and bridges are not really free, but the costs are hidden rather than explicit [1]. Tolls are a way of making those costs explicit.

As an exercise in noting how bad the anti-toll and especially anti-private infrastructure bias is, I will cite the Forbes article cited recently in the comments at MR as an example. The Ambassador Bridge is a privately built, privately owned bridge from Canada to the US near Detroit. It is the most popular bridge in the Great Lakes region: 3.3 million cross on the Ambassador vs. 3.6 million on the other four bridges combined. On 9/11, local government officials closed off the nearby car tunnel, and traffic subsequently backed up on the Ambassador. Truck wait times went to 12 hours because of the lack of border Patrol and Customs inspectors.

The tone of the article is as follows: Because some private person had the foresight to build a bridge at that location 75 years ago, and because it is the most popular truck crossing today, and because the state has not built a competing bridge nearby, somehow the owner is a bad guy. And because 9/11 brought about panic and security precautions that caused backups, the owner is a bad guy. And most of all, because he doubled toll rates for trucks and quadrupled them for cars in the past 25 years, he is a bad guy. Bottom line: private infrastructure is bad [2].

The point about toll raises is misleading. If there are four hour weight times at rush hour, this is a sure signal that the tolls are not high enough; perhaps they should consider higher tolls during the rush hour, the same way commuter trains do. If cars are Teh Bad because of pollution and AGW, then tolls should be higher everywhere, not just at the bridge (that's essentially what a carbon tax is). Here's the Environmental Defense Fund on the subject. Furthermore, bridge and road tolls have increased nearly everywhere in the past few years, not just on this private bridge. The tolls on the publicly operated San Francisco Bay Bridge were $1 in 1988, but are currently $4. That's a quadrupling in twenty years, quicker than the cited period of 25 years for the Ambassador. And London has famously begun charging congestion tolls to enter the gridlocked inner zones.

I think we can all agree that we rely on the transportation infrastructure and that we would like for it to be properly maintained. That is essentially a public good (not a pure public good, though). Every unavoidable pot-hole creates potential additional maintenance for the car owner. We would also like to see traffic reduced to the point that we don't experience delays and frustration. But fuel taxes are just one of several responses. Tolls that are reinvested in the roads are a better way of both directing the money to the most used infrastructure and directing the traffic to the best infrastructure. For example, if you had to raise tolls on a freeway to keep up the maintenance due to heavy truck usage to the point that shippers began shifting more of their traffic to more efficient railroads, that would be a good thing, no?

Oh, you did remember that railroads in the US are (for the most part) privately operated and maintained, didn't you?


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[1] Note the parallel to education: we all know that school buildings, teachers, and books cost money, but the phrase "free education" is used without irony. May I also suggest a small, means-tested toll at public schools? You can call it whatever you want -- "tuition" or "user fee" -- so long as you collect it.

[2] Don't tell the people who believe that private infrastructure is impossible. They prefer the impossibility theorem to the malevolence theorem, but will fall back to the latter when it suits them.

I am not evil, either

No posting for the past week or so while I've been in the Dragon's Lair. Meanwhile, our exploits have been chronicled here and here (and probably more since then).

A few notes about those posts: Tyler is a really nice guy. Kathleen and I met him just as we were getting married, which became the subject of an MR post. I am afraid we made nuisances of ourselves during this visit, managing to disrupt the entire building so badly that Robin came out to investigate the source of the commotion. Tyler was busy preparing for a trip and very graciously put up with the disruption.

Though Bryan made an attempt at taking the geek crown, I think my photo in the Smithsonian deserves at least honorable mention. Kathleen says he looks too young to vote; I think that probably doesn't matter, given his recent publication.

Robin's job in life appears to be to question everything. No, I mean everything. I think he's up to it, too. It's an honorable pursuit.

And despite his normally polemic posts, Alex may be the quietest of the bunch. Too bad.

All of the stuff we really wanted to see at the Smithsonian was in closed sections (Arts & Industry and American History), so we settled on the few American History artifacts temporarily displayed in the Air & Space Museum. We also went to the Native American museum. It's been a long time since I've been to the first, and the second was built since then. I was surprised to see:

• The actual piece of Woolworth's counter from the 1960 sit-in
  
• A stump from Spotsylvania. Wow.
  
• General Sherman's hat (looks like it went through hell)
  
• General Custer's coat (some odd stains on it)

If stuck in Washington and in need of vegetarian food, be sure to check out the Native American museum. The choices and quality were very good, though it was a little pricey. Peasant food is almost always vegetarian because it is hard to catch, cook, and store meat; this may be therefore a very historically accurate depiction (there were also fish, fowl, and buffalo menu choices).

The Museums of Industry and Arts and of American History are both closed. The SI staff indicated that there is no definitive plan to reopen them. They blamed it on a lack of funds; I'm not sure what to make of that given that recent SI chief Lawrence Small was both a record fund raiser for the Institution and a record, er, spender.

The DC metro bus system is not bad, or were we just lucky that our hotel lay on the same route as the Library of Congress, our primary destination? The freeway system in Northern Virginia and DC is a complete mess. The light rail system in Baltimore is okay, but not great.

At one point, we were on a road headed into a cluster of indistinct concrete buildings. I was thinking, and then my wife said, that it looked like something out of Brazil (the movie, not the place). Washington is freakish: you can walk from the high rent district to a neighborhood populated by people who probably do not have permanent addresses within a few minutes, yet all the while knowing that over $2 trillion is controlled nearby.

The Library of Congress is bizarre. We were both issued library cards. There were bold signs warning us that they were not souvenirs. No library employee ever wanted to look at them thereafter.

You cannot visit the stacks: you must find what you are looking for through the card catalog, then submit a request (in triplicate, with carbon paper), then wait for it to be delivered if it can be found. It may take a day. Several of the books my wife requested were not found even though they were not shown to be "charged" (you can't check them out). The librarians shrugged it off: they're probably either gone or misplaced. Gone? You have to go through security both entering and exiting; the security is tougher coming in then going out. Misplaced? This was blamed on the contract workers down in the bowels. Most people would generally accept the idea that the library staff who hired the contractors would have some oversight responsibility -- metrics, incentive alignment, and such -- but I think those quaint ideas exited in the Viet Nam era or earlier. I pointed out that a particularly old pamphlet was in bad shape and should probably be restored, or at least stored in a larger folder - yeah, the librarian said, but there's nothing that can be done. Don't they have a restoration department? What exactly is the point of the LoC if not to preserve these artifacts?

In Baltimore, I went to one and only one tourist attraction: The B&O Museum's Allegheny, a 2-6-6-6 monster of a steam locomotive. Well, that and a bunch of other stuff at the B&O museum. And there's some other stuff in Baltimore, I suppose.

Running on glue and tar

My wife and I have been discussing where the world is going to go in the post-Peak Oil era. I for one am optimistic, but concerned about the transitional period. I think that we (humanity) will develop a variety of responses to the problem(s), and that we will be better off in the end, but I am concerned about the rate at which the transition will occur. There may be upheaval and pain in the interim, regardless of who is in the White House or what policies we follow to get there.

In the comments on Matthew Yglesias recent post on gouging, we see a response to higher fuel prices that I think is indicative of lazy, uncreative thinking. Simply keep piling on one supposed remedy after another. This is creative thinking in much the same way that fixing your mistakes after rushing through a job is productive work. (for my previous thoughts on gouging, see here, here, and here).

Some things seem to escape the attention of people who think like this. For example, the crimes committed by a gas station owner can be determined by looking at his prices compared to his competitors' as follows:

• higher: gouging
• lower: predatory intent
• equal: collusion

In this environment, it might be worthwhile to keep a lawyer on staff, nicht war? And since the laws are subject to change, a lobbyist might be useful. If everyone has to have lawyers and lobbyists, that creates a competitive advantage for larger businesses. I think I can assume that people who are against gouging are also against large businesses, so why don't they understand or acknowledge these problems?

---------------------------------

Then, I was reading about heterodoxy, Cowen, and Veblen, looked up Veblen, got side-tracked by Giffen Goods, and finally came across an essay in The Nation by Sasha Abramsky entitled, "Running on Fumes". He raises the idea that gasoline is a Giffen Good, one that poorer people will come to spend more on even as its price rises because they are locked into it.

Sasha says,

Indeed, the very fact that some commentators, such as the Cato Institute's Jerry Taylor, so glibly assume (or, at least, assumed pre-Katrina) that an oil price shock can be painlessly absorbed shows just how invisible the country's poor have become to much of its pundit class.

Since Taylor's offending comments are neither quoted nor referenced, I can only guess that Taylor said something like, "let the price mechanism work" in response to calls for price controls. The month prior to Abramsky's piece, Taylor wrote about fuel prices in NRO. I would recommend reading both before proceeding with the rest of this post.

Back?

It is of course debatable whether the price mechanism will work well with regards to energy. In the comments on James Hamilton's Peak Oil in America post, Stuart Staniford claims that recent empirical research indicates a short-term price elasticity of -0.05. An older survey indicates that the long term price elasticity is around -0.8 and the short term is around -0.2. In any case, this is for a general population, not the poor, so it is only indirectly relevant to the point. If these two articles can be taken as accurate, the indicated decrease in elasticity (magnitude) indicates that it will be harder to curtail gasoline use as price goes up than it was in 1979-1983; I would assume that it would be harder for the driving poor, but perhaps not so much for the urban poor who have access to other options. (I graph oil use vs. oil price here, but have not updated it since October 2005. Note how much reduction was achieved 1979-1983.)

Near his conclusion, Mr. Abramsky claims that the decline of the rural area about which he is writing is preventable, but

prevention involves the sort of innovation the Bush Administration, besotted as it is with laissez-faire triumphalism (not to mention oil-industry campaign cash), has been reluctant to embrace.

Did you just experience a self-administered lacto-nasal enema upon reading -- in a single sentence -- that the Bush Administration favors laissez-faire policies and that laissez-faire and oil-industry campaign cash are not mutually exclusive?

Indeed, this seems to be common in discussions of gouging, Peak Oil, current pricing, and related issues. Are Mr. Abramsky and the commenters on Matthew Yglesias' blog really claiming that the oil industry enjoys laissez-faire trade policy? That seems so absurd on its face that I cannot believe it needs rebuttal.

The oil industry came of age in the Progressive Era. Oil production had steadily increased and prices decreased for the entire history of the industry through the antitrust prosecution of Standard Oil. As the automobile caught on and demand heated up, Progressives were excited to be able to subsidize a competitor to railroads. Then, as the US got involved in World War I, businessmen eager to be freed from antitrust regulation jumped at the invitation to participate in the Commodities Section of the Petroleum War Services Committee and the Oil Division of the United States Fuel Administration. Dominick Armentano points out in Antitrust and Monopoly, that A. C. Bedford, president of Standard Oil of New Jersey, was appointed as chairman of the War Services Committee. Their experience of cooperation and "supervised competition", and the concurrent worldwide embrace of central planning (think about what was happening in Russia, Germany, Italy, and even England in the period between wars), paved the way to the corporative-creating National Industrial Recovery Act. When that was struck down, the Connally Hot Oil Act of 1935 was passed without hearings to maintain stability in the oil industry. It allocated state production quotas and provided a means to enforce restrictions on interstate transshipment in excess of those quotas.

The military has been tied in to oil production or at least the Middle East arguably since Eisenhower placed troops in Lebanon in 1958 and Kennedy defended Saudi interests in 1963. More recently, in 1980 Jimmy Carter announced the Carter Doctrine, stating that the US would defend its oil interests there. You have the obvious Bush wars since then, with Clinton lobbing a few bombs and establishing bases in Saudi Arabia in between.

In addition to regulatory and military support, we also have regulatory intervention and distortion. As James Hamilton has pointed out, one reason for the increase in gas prices during the tight markets in 2005 was the fact that the national market is segmented by EPA requirements and refineries cannot easily switch between the various boutique fuels favored by - you guessed it - Mr. Abramsky's fellow travelers. Finally, we have people who insist that we need to increase gas taxes so that we, like Eurotopia, will have gasoline prices near $10 per gallon.

Any guesses as to whether The Nation favors those higher fuel prices? I searched for "carbon tax" on their site and got 78 hits; the first one says, "A carbon tax would be simple --" The author goes on to add that

And as Charles Komanoff of the Carbon Tax Center argues, at least part of the proceeds of the tax could be rebated to poor and middle-income households through the income tax system, neutralizing any inequities. The unrebated balance could be used to subsidize alternative energy research and production. Given the historical successes of government funding of basic research in computing and medicine, there's every reason to believe the products of this work would be very promising.

Another two-fer: not only do we learn that the simple tax now has lots of other little simple ancillaries, like using the simple income tax system to rebate for gas, but we also discover that the government's funding of basic research has a proven track record. They don't explain exactly how we figure out the difference in rebates between subway-riding New Yorkers and rural Californians, so perhaps it is not as simple as they first insist. Nor do they actually compare the government's track record in conducting research to anything else, like privately funded applied research. Now, I think it's possible that government gives the private sector a good run in basic research, but recall that the human genome was first decoded by a private company in 1/10 the time and budget as that proposed by a government agency. But the private sector is much better at applied research, which is what was meant by "subsidize alternative energy research and production." So they call for applied research based on the government's track record in basic research? Nice sleight of hand.

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A greater protest must be registered over Mr. Abramsky's nearly complete silence on the century of other Progressive policies that have pushed the poor out of town and into the oil-based lifestyle. Once again, we can refer to Gabriel Kolko's Railroads and Regulation and The Triumph of Conservatism for an understanding of the politics underlying regulation in the Progressive Era. The tongue-in-cheek, short version is that competition was largely working for everyone except the capitalists themselves. Competition was forcing costs down so far that they were all headed for bankruptcy, so they tried cooperative arrangements. When those failed, they turned to the federal government to act as the cartelizing agent. Though Kolko doesn't specifically address it, it is easy to see that the electric power industry faced the same logic of high capital costs, low marginal production costs, and the resulting expansion, competition, system building, bankruptcy, and "need" for regulatory intervention. This eliminated the "destructive competition" in rails & utilities by constraining competition and innovation. The whole point of regulatory oversight was not consumer protection, as the unsophisticated, narcissistic state-worshipper would have you think, but rather stabilization for the industries so they could go back to peace, quiet, and regular dividends. That is why deregulation and people like Craig McCaw and Michael Milken were so upsetting to AT&T in the 1970s and 1980s, and why electric utilities are so resistant to deregulation today.

The same public who first wanted to give land grants and rights of way to railroads and canals in order to get rid of private turnpikes, and then wanted to constrain railroads because the average voter didn't understand the logic of the capital-intensive industry they had spawned, and now didn't like the fact that their regulations created a de jure cartel, wanted roads. They joined the Good Roads movement and fought for public subsidies for bicycles and then cars. When Louis Brandeis brought Harrington Emerson to the stand in the 1910 Eastern Freight Rate Cases to argue that every industry could be rationalized with and every consumer benefited by Taylor's Scientific Management, the public caught the bug for the Efficiency Movement and Technocracy Movement. They wanted to centrally manage everything. The goal was, as Herbert Croly put it, to produce "Jeffersonian ends with Hamiltonian means".

As outlined above, the Progressives in WWI and FDR's cabinet in the Depression and WWII supported a state-industrial oil policy to further rationalize oil production and distribution. In conjunction with the Good Roads and subsidization of the automobile (which gave rise to the Golden Age of manufacture and its corresponding anomie and unionism which many Progressives yearn for), the stage was set for moving out of high density urban areas and to the suburbs.

The push to suburbia has also been helped over the years with some uniquely Progressive policies. Rent control in New York City, for example (I once read that poverty-stricken Walter Cronkite lives in a rent-controlled building). The aforementioned utility subsidization, including the TVA and REA, which replaced farmer-owned windmills with investor-owner utilities. More recently, to "preserve their character" (a euphemism for "preserve their property values"), many cities (bastions of Right Wingerdom, like San Francisco) have banned urban development, forcing people out of town to find affordable housing. To pay for a wide variety of programs, some of which used to be privately provided by the working classes for themselves, cities have raised property and sales taxes (Santa Fe, for example: there's a reason you need to make $10/hour to live there, and it mostly has to do with California millionaires moving into the City Different; most of them are not exactly Goldwater Republicans). While the upper and middle classes were leaving the city to live in clean, quiet neighborhoods, these policies were all pushing the poor even further out of town.

In the specific case Mr. Abramsky addresses in his essay, the size of those towns probably needs to be smaller. They were dependent on mineral extraction and timber, both repeatedly attacked by people like Mr. Abramsky, but probably not by Jerry Taylor. Indeed, it's probably a safe bet that when people like Jerry Taylor raised the issue about the impact of stopping resource extraction on the workers, people like Mr. Abramsky glibly dismissed it, saying that the economy could easily absorb the jobs lost. But I will go further than either of them and point out something both should agree to (if they want to be logically consistent with their probable core values): continuing to live in a non-agricultural rural area is inherently energy intensive, and we should not continue to subsidize it if we really think Peak Oil is a concern.

I recently came across a site (probably something on Gristmill dealing with global warming) that claimed all of the skeptics of (Kyoto?) never provide any suggested solutions of their own. Does Mr. Abramsky offer a suggested solution for the poor people he exploits for his article? He offers a vague mention of mass transit, a system that works well in high density areas like Europe and the Northeast Corridor, but probably not in Northern California. He seems to imply that George Bush is personally responsible for the lack of mass transit despite the fact that ridership is higher than it was under Clinton.

Abramsky makes a quick offer to help them pay for oil, thus furthering the addiction that has them in this situation in the first place, and contributing to a 150 year legacy of trapping people in a state-underwritten prison. The latest insult in that legacy has been the ethanol subsidy, a Carter-era program with bipartisan support for all the wrong reasons: it reduces imports, it supports "family farmers", and it is "renewable". First used to replace lead (Pb) and reduce pollution, it actually increases certain types of pollution. The subsidies for "family" corn farmers mostly end up in the pockets of ADM. And the renewability, touted by Progressives, is having growing implications for poor people. As I noted in my review of Joshua Tickell's From the Fryer to the Fuel Tank, "Some bio-cheerleaders ... claim that a large scale shift to biofuels won't affect food prices, but that is almost certainly wrong. The amount of land required to make a dent into our petro-fuel usage would easily require both the fallow fields and some land currently used for food production. Demand up, price up, QED." Given recent headlines, I'm going to claim prescience, but I think every clear-headed person could figure this out on their own. Even Noam Chomsky figured it out in hindsight.

Finally, Abramsky also mentions the possibility of subsidizing efficient vehicles, something that has been going on for several years with mixed results*. In other words, we get some paeans to Progressive programs and a demonstration of how much good Mr. Abramsky can do with other people's money to prove that he cares. Some of his explanations are wrong, some suggested solutions are demonstrable failures, and one at least will probably make things worse (subsidizing oil? Really?!). At no time does Abramsky recognize or even seem to be aware of the contribution of his intellectual predecessors to the creation of the problems of today's poor. Instead, he turns the tables, claiming that those problems were caused by people like Jerry Taylor and policies like laissez faire and implying that anyone who doesn't accept his vaguely defined solutions is responsible for the misery and possibly death of the poor. "Laissez faire means you don't care."

Now, Mr. Abramsky is correct to question the effect on the poor, but he has come to exactly the wrong conclusion. His essay is nothing but rhetorical sleight of hand intended to impugn Jerry Taylor and anyone who dares suggest that the price mechanism is a better mechanism than any other so far identified to coordinate oil supply with oil demand. Mr. Abramsky is like George Washington's doctors who kept letting his blood, and upon remarking how sick he appeared -- probably the result of too much blood letting -- tried more blood letting.

Note that I did not say the price mechanism is the best means. Again, thinking negatively (what is that? perhaps not what you think), there may be a solution of which I have not heard yet, but until then the price mechanism is the least worst solution. Price controls are predicted by theory to create shortages, and the theory is confirmed by empirical data. A shorthand way of explaining this is the gas lines in the 70s and in Baghdad today. Surely, if the poor need gasoline, then some at high prices is better than none at any price? Ridiculing the least worst answer, or insulting the person who acknowledges it, is like accusing your doctor of murder for informing you that you will inevitably die.

Furthermore, Mr. Abramsky never seriously looks at the total effect of the price mechanism. It not only curtails demand, but it stimulates supply. Note the implications of this chart in The Economist, from the article "Venture Capitals". Furthermore, note an idea from this episode of Nova: "If you look at companies, like SunEdison, who are helping retailers put up solar panels on their roofs, you're suddenly seeing a linkage of the capital markets -- which have traditionally been very reluctant to get into solar energy -- with the retail sector. That's how you do things in America. You link the technology to the capital, and that's where the rubber hits the road." In America, the capital markets respond to a problem, while in other countries, the politicians respond. The former have to spend their own or their clients' money and are held accountable, the latter not so much.

"So what", you might say, "I don't care who produces the solution, so long as there is one. And so long as it benefits the least well off."

Well, here's so what. I'm vaguely familiar with the theory of functionalism. It says that institutions exist because a society needs them; institutions serve a purpose, a function. When I first heard of it, I immediately thought that it seems circular and lacks a mechanism to describe change; this appears to be an ongoing criticism of the theory. In any case, proponents of this theory use it to justify the existence of government agencies: obviously we must need them if they exist. If you evil bastard libertarians abolish some of those agencies, people will suffer.

That is true as far as it goes. It doesn't go far enough, though. There are two problems with it.

First, I have always believed that there are two problems faced by people who desire change: one is describing a desirable and reasonably realistic future. That is what I like about Kirkpatrick Sale. The second is to describe the path, how to get from here to there. The problem with simply saying "abolish such-and-such program" is that it doesn't describe what we reasonably expect to replace the functionality of that program or how the private institution that replaces the program will spontaneously evolve. For one thing, we don't know what it will look like or how it will evolve: if we did, we'd be in favor of planning. For another, "spontaneous" does not mean "instantaneous", and "evolve" does not mean "appear out of thin air".** So they are right to think that people would suffer if all we were saying is "abolish such-and-such", but we aren't: we are saying, "abolish such-and-such and allow some time for a better solution to evolve." Clearly, though, we need to do a better job of understanding and then explaining how institutions evolve.

The second problem with the functionalist-statist analysis is that it is usually based on an ignorance of history. Remember, if the existence of an institution implies a need for it, what answered that need before the government agency? This is a problem with the change mechanism in functionalism - if the agency sprung from nothingness, either the need must not have existed before, or the agency didn't spring from nothingness. So how does functionalism account for how or why would such a change occur? No answer seems to be forthcoming (but I admittedly have only a kindergartener's view of functionalism). In many cases, though, the solution to the riddle is that a private institution answered the need until it was co-opted by the government. As David Beito has documented, that was the case with much social insurance. The victor (the government) also gets to write the history and teach it in the schools it owns, so few people know about institutional arrangements that probably haven't existed for generations.

Let me bring this full circle.

Sasha Abramsky and others are claiming that laissez faire is not the answer to the problems posed by high gasoline prices for poor people, they are claiming it is the problem. I'm going to consider this patently false until someone can successfully convince me that oil policy is and has been laissez faire. Even stipulating to that claim, though, their recommended solutions of subsidizing the addiction would only prolong the problem and -- given that agencies rarely die once created -- would make the problem worse if oil prices should fall. They are refusing to face the possible fact that this area of California, like the Corps of Engineers' New Orleans, should not be as heavily populated as they were in the cheap-energy past. However, had laissez faire actually been practiced instead of the heady policy brew we have endured for the past 100+ years - regulating railroads and utilities, protecting them against innovators, encouraging suburban expansion, promoting efficiency in energy production at the expense of efficiency in distribution, reliability, and end use, then perhaps the poor people described in Mr. Abramsky's story wouldn't be locked into the lifestyle they are. People like Mr. Abramsky spent taxpayer money on the system that got them into this mess, now he has 100 ideas on how to spend more to keep them in the manner they have come to expect: poor, dependent, and hopeless. Ecologists refer to this approach of endlessly proposing the same solutions to the unintended consequences caused by an earlier round of similar interventions as "parachuting cats."

Given the power to enact their vision, they would systematically destroy every last vestige of spontaneous, private order in an effort to build community values. But such governments have a tendency to collapse of their own weight. When they do, the survivors look around and note that the community was kept together only by the fear of the increasingly necessary police state. There is no community spirit in such a place. Look at what the inhabitants of Russia have been enduring after the collapse of their system. Listen to this article on NPR about the lack of community values in Albania. No, really, listen to it. Generations of socialist theory have wiped out everything they knew about civil society. In America, de Tocqueville marveled at the Association phenomena; in Russia, people wished for their neighbors' barns to burn down.

That is why I prefer private to public institutions. I don't believe in market "magic"; too often have I been a disappointed consumer. Private solutions may not be perfect, but neither are state institutions. Too often have I also stood in DMV lines.

Cooperatives and associations are more democratic than an agency run by career bureaucrats. Furthermore, even Hirschman now acknowledges that Voice works only when Exit is a viable option. As a result, on average, private institutions are flexible and responsive and will evolve; public agencies are rigid and arrogant and will stagnate.***

Nobody resents an association they neither belong to nor pay for, even when that institution stands for something they loathe, but everyone hates paying for those parts of the government they oppose (agriculture? military?). Those who oppose democracy distrust private organizations and vote to suppress them (think Red Scare, Alien and Sedition, Palmer Raids, Radio Caracas Television). Those who genuflect to democracy cannot understand why people would vote for what they would call "undemocratic" programs and politicians. To comfort themselves, they develop theories of conspiracy, brainwashing & propaganda, or false class consciousness. They then begin to support politicians who promise to thwart those poor demented creatures, the opposition; in the end, the democrats line up to vote for the fascists, who proceed to replace private institutions with state institutions. The democrats are surprised when the anti-democrats take control of the machine and use it in surprising ways, perhaps even contrary to its original intent.

A public policy and agency require no imagination or creativity; simply - and I mean simply - propose a blunt mechanism for addressing whatever problem vexes you, then either declare victory or ask for more money and authority. The clever politician does both at once. Opponents can always be demonized as unpatriotic, asocial, and dangerous. A private institution requires work, creativity, conviction, persuasion, and innovation. It promotes civic values. Think Wikipedia, an institution created by libertarians (yes, Virginia, Jimbo Wales is one of those people). That is why I think that government is the intellectually lazy man's solution, and why it endangers the poor man whom he seeks to save.



* Yes, the Prius is great, but I get 46+ mpg with my non-hybrid. Somehow, the powers that be decided that hybrid was better than diesel, even though diesel fuel can be made easily from waste oil and renewable oil. I would argue that this is rather short-sighted, but not atypical. Also, several years ago I remember reading about the skyrocketing price of Suburbans in Arizona due to a shortage of them; apparently, the state was subsidizing a version with an alternative fuel modification (LNG or propane), but you could still run it on gasoline, so people were driving in from out of state and taking ownership of a friggin' Suburban at taxpayer expense for the purpose of saving gas. Personally, I think that if there is a role for the government here, it is to fund an E-prize as Lovins et al describe in The Oil Endgame. Remember, however, that the E-prize is named after the Ansari X-prize, a privately funded prize that has been moderately successful.

** In case you think I'm exaggerating about the strawmen used by anti-libertarians, look at what this says about libertarianism: "Libertarians believe (like Marxists believed back when there actually were Marxists) that if the government just shriveled away, a paradise would naturally spring into existence." Spring? It took hundreds of years to kill some institutions that themselves had to evolve over hundreds of years; only a fool would think they could be replaced overnight. Similarly, only a fool would think that "stroke of the pen, law of the land" equates to "problem solved". They are generally surprised to find out about "unintended consequences". Other than that, Midas' claim that things claimed by libertarians have never existed exposes the breathtaking ignorance of actual history usually found in people who read only popular history books. He could try starting with Homage to Catalonia or The Machinery of Freedom and work his way up from there.

*** Size is also important: I will take a small, decentralized public institution to a large corporation. Centralization and the distance between the top of the hierarchy and the end users or customers are also factors.

The Box II

"In the next post, I'll comment on The Box and its relevance to this argument. " Ooops, I forgot.

Anyhow, The Box was, for me, a thoroughly enjoyable history of the recent history of the shipping container. Yawn? Well, okay, for about 99% of the population. The approach was thorough, though, and it seemed that the author, economist and a former editor for The Economist Marc Levinson, tried to be as even-handed as possible.

The first thing that struck me about the impact of the shipping container was the public policy impact on it. Before the shipping container, shipping, trucking, and railroading were heavily regulated by the ICC. Rates were set not only according to weight and distance, but also according to contents. Thus, the cost of shipping 1000 pounds of tires would be different than, say, 1000 pounds of grain, and not just because of density differences. This apparently goes back to the complaints made by shippers in the late 19th century, and made sense to regulators in that era. Also, prior to the container, shippers were allowed to charge less than truckers because ships took longer. So if a ship already had a stated rate for, say, wheat, between two ports, truckers were not allowed to charge less (or something like that - Levinson didn't attempt to explain the intricacies of ICC regulation). Further, shipping between American ports was restricted to American flagged ships, and international shipping was heavily regulated and subsidized - to qualify for the subsidy, you had to use American built ships, and the subsidy supposedly helped make up for the more expensive American crew. One final government involvement in the era just prior to the shipping container's introduction: many of the ships currently in use in 1956 were WWII surplus ships, built on the cheap and available for next to nothing. It was relatively easy to get into the business, as very little capital was required, and ships could ply from port to port picking up freight as they went.

Enter the shipping container, ca 1956.

But wait: the container requires different infrastructure. The story of the shipping container is also the story of ports where governments chose to support the companies investing in the container. In New York City, the story is governed by the decision of the Port of New York Authority (now the Port Authority of New York), which was looking to expand its bureaucratic territory. The piers on the New York side had all the business they could want, and politicians to defend the turf. The only reason they remained viable was the fact that the ICC required railroads to charge the same for freight delivered on either side of the port, in effect a requirement to throw in the trans-Hudson part of the journey for free. That was not trivial, since it involved either removing freight from trains and loading it on barges, crossing, and then re-loading into warehouses to wait for a ship.

Much of the story revolves around boy genius Malcom (not Malcolm, he dropped the second l to differentiate from his father) McLean, who started in the trucking business. Shipping something from a factory via truck to a railroad and then (via truck again) to a port, loading it on a ship, and reversing the process at the far end cost plenty. It cost time in transit, storage, and management; it cost labor at each change of mode; it was extremely expensive because of pilferage and breakage because of the frequent handling and the subsequent insurance; and of course the shipping cost money. Malcom realized the problem and the potential money to be made from rationalizing the shipping process.

The first container ships required their own cranes because standard dock cranes were not capable of lifting the containers, much less taking advantage of their standardization and the potential savings in ship loading times. Thereafter, however, the cranes became part of the port infrastructure, along with rail sidings, truck terminals, deeper and wider ports, and computer controls. The industry, in other words, became more capital intensive, and some of that capital came from state and local governments. Those who made the commitment, such as the Port Authority in New Jersey and Port Elizabeth, became the winners, while those who didn't, such as New York City, did not.

The government did not only take sides in the wars between technologies and shipping companies. As it became clear that automation was going to cost not only cushy jobs, but real ones too, the various unions found themselves at odds not only with shippers, but with governments as well. The City of Los Angeles chose sides when longshoreman at first refused to unload Matson's shipping container ships by threatening to take over the port and make their jobs civil service, prevented by law from striking. The Federal government stepped in repeatedly on the side of shippers against the East Coast union strikes. Eventually, the Longshoreman's unions on both coasts struck deals with shippers, trading generous contributions to retirement and unemployment funds in return for acceptance of the technology and more productive work rules. I'm not sure which side I come down on in that dispute: yes, there were aspects of the trade that sound cushy, such as rules that allowed each of the two teams working a ship to take a half day off with pay, and the day laborer aspect meant that senior union members could work or take the day off as they desired. On the other hand, the corrupt day labor culture enabled organized crime and allowed rampant pilferage to persist, not to mention the fact that jobs were described as incredibly dangerous and literally back breaking. In the old paradigm, workers had to live in slums near the docks to make themselves available; today, the crane operators are guaranteed a regular 40-hour-per-week job, and can afford to live anywhere, but have to get permission to take off. In any event, government was neither impartial referee nor friend of labor in these struggles.

So this ends up being a very complex story in which government starts out standing against change in the status quo that had persisted since roughly the 1920s, and then steps in to tip the playing field toward the shipping container. Levinson argues that the shipping container may not have been the only factor, but it certainly was *a* factor in accelerating the globalization of the economy. Before the shipping container, it was extraordinarily expensive to ship anything overseas; today, it may be less expensive to ship goods overseas by rail and ship than across the state by truck. Remove time and distance as factors or advantages, and suddenly labor costs become the more important factor.

Two final factors radically altered the trajectory of shipping. The first was Viet Nam. The Army suddenly found itself in a situation where it needed lots of supplies shipped in to a place with no infrastructure or railroads. McLean was the man on the spot, winning the contract by offering to build all of the necessary port infrastructure. The remarkable increase in efficiency forced the federal government into the pro-container camp, but also had an unexpected effect. With the Army picking up the ship's entire journey, westbound and eastbound, but only shipping freight west, this left Malcom with a *pure* profit opportunity: ships returning from Asia in the late 1960s with no cargo. A stop in Japan for loads of televisions and automobiles solved that problem. Incidentally, by rationalizing shipping by making it predictable and fast, the container contributed to the development of the inventory-free manufacturing method of Just In Time.

The other final factor was the phasing out of the WWII surplus ships and the phasing in of dedicated container ships in the middle of the first oil embargo era. The shipping industry switched from labor-intensive to capital-intensive. The enormous ships, some of which no longer fit in the Panama Canal, have to keep moving just to keep paying for their own financing. The cost of shipping plummeted, and the size of ships continues to expand. The Molucca Straits have overtaken the Panama Canal as the limiting factor on size.

Because of the plummet in shipping costs, the resulting increase in dependence on shipping, the pressures of the oil embargoes, and the changes in finance and capital requirements, the shipping industries were "deregulated" in the late 1970s. That deregulation was, of course, not complete. Levinson notes some exceptions, and I found that some of the rules were still in effect when I tried to ship something to Hawai'i a few years back.

The argument in Part I, Railroads, The Box, and Scale, was that W. W. Rostow was either engaging in circular reasoning or deriving ought from is when he claimed that because railroads - especially government funded railroads - were an important part of the history of all advanced economies, they must be. Substituting the more generic term capital-intense transportation for the specific form (railroads), Levinson's history of the shipping container would seem to support Rostow's claim. Many of the Asian Tiger economies - Japan, South Korea, Hong Kong, Singapore - invested heavily in port infrastructure to bring the shipping container to their shores; they were literal cargo cults. To the extent that it worked, they have reaped the benefits.

But Levinson provides some counterexamples. England adapted to the shipping container very poorly, and to the extent that they did, it was because of a private port at Felixstowe; England has arguably done quite well for itself in the past 30 years. Further, much of the investment in American ports was private, though government has also played a substantial role. And again, the Rostow argument only makes sense when you accept that people are unequivocally better off when they adopt capital intensity. Yes, the increase in measurable wealth is notable, but I am curious about the intangibles and the change in quality of life, pace, direct control of one's life that result from acceptance of the modern.

Railroads, The Box, and Scale

Having just finished Marc Levinson's The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, I thought I would check up on a few notes he makes at the beginning regarding the place of the railroad in history. I made a start at this topic in this post, which I originally wrote in reaction to Kevin Carson's first chapter in a book on anarchist organizational theory. Specifically, Levinson notes that W. W. Rostow asserted the primacy of railroads on economic development in his Stages of Economic Development: A Non-Communist Manifesto. However, he notes that Chandler assigns a different role to railroads, and that both Robert Fogel (Railroads and American Economic Growth) and Albert Fishlow (American Railroads and the Transformation of the Ante-Bellum Economy) reject Rostow's view.

Rostow's book is an attempt to argue that Marx's principles were wrong. Rather than all social, economic, and political order following from the economic order, Rostow argues that there is a dialogue among those institutions. He identifies stages of growth from a traditional society through take-off into maturity and high consumption. It is in the preconditions for take-off and take-off phases that we are interested because there he claims that railroads are important.

First, Rostow claims that society's attitudes about (1) fundamental and applied science, (1) initiation of change in production methods, (3) risk taking, and (4) conditions and methods of work must all change. Then he notes two problems: you need an increase in the productivity of agriculture and extraction, and you need "social overhead capital". The productivity in agriculture and mining are necessary for 3 reasons: (1) you need to feed everyone that moves to the city, (2) you need to drive demand for goods (both consumer and equipment), and (3) you need to provide surplus capital to be saved/invested. Rostow claims that the social overhead capital has three characteristics (yes, he likes to have concise lists of everything, an unfortunate trait that I share and sometimes wish I didn't): (1) they have a long payoff period, (2) they have to be delivered in complete packages (i.e. a railroad from Chicago to San Francisco is no good only half complete), and (3) the returns to the community through "indirect chains" are greater than the returns to the entrepreneurs. About this, he concludes,

"Taken together, these three characteristics of social overhead capital -- the long periods of gestation and pay-off, the lumpiness, and the indirect routes of pay-off -- decree that governments must generally play an extremely important role in the process of building social overhead capital; which means governments must generally play an extremely important role in the precondition period." (p. 25)

In support of this, he cites the period 1815-1840 which saw the support of the Erie Canal by the State of NY and "great American continental railway networks [which] were built with enormous federal subsidies in the form of land grants."

Later, when discussing the actual take-off period, Rostow returns to the emphasis on the railroad.

"The introduction of the railroad has been historically the most powerful single initiator of take-offs. It was decisive in the United States, Francee, Germany, Canada, and Russia; it has played an extremely important part in the Swedish, Japanese, and other cases." (p. 55)

As usual, he finds three kinds of impact: (1) by lowering transport costs. railroads (performed the Smithian function of widening the market" (p/55), (2) railroads were a prerequisite to the development of the export sector (which is necessary to provide further expansion capital), and (3) railroads required the development of secondary sectors of coal, iron, and engineering.

I have (you guessed it) two comments on this. First, Rostow is looking back at the process and deriving ought from is (was). That is, he looks at the American and other national movements toward industrialization and "maturity" and sees the railroads, notes the importance of railroads and the government aid to them, and determines that this was necessary then and will be for any other country to achieve that same results. Note that he does not say, "governments played an important part", but rather he says, "governments must play an important part." Rostow does not acknowledge the fact that prior to railroads many turnpikes were privately operated and owned, nor does he account for Hill's Great Northern which received no federal subsidies. In fact, the first two of the three characteristics of social overhead capital are false: short haul railroads were very useful, it was the federally subsidized transcontinentals that were the problem. As Hill noted, the Union Pacific was an apple tree without branches, built that way because that was what Uncle Sam was buying (mostly because the North wanted California on their side). All of the other railroads were built in small bits to serve farmers and miners along the way, only being put together later. The third characteristic, that they paid the entrepreneurs off indirectly, is simply bizarre. Last I understood it, Vanderbilt and Hill were very wealthy men.

Second, Rostow is engaged in circular reasoning. Is he really saying that in order to bring about a capital-intensive social, political, and economic arrangement, we must have capital intensity arranged by a state designed to marshal capital? It begs the question,- why do we want such a society? That he is suggesting that requires no guessing. He specifically says that he wants workers moving to the city, which requires advances in agriculture in mining. Those advances are capital-thirsty in nature. And once you have the population in urban areas, it requires capital investments (wagons, rails, warehouses, stores) to get the food to them. And what are the workers going to do in those cities, by the way? Operate machinery. So yes, it does require capital in order to create a capital-intensive society, by but he never directly confronts why we would want to do that in the first place; at best, he makes the point that real incomes rose during the take-off and subsequently. But even if we want a capital-intensive society, why must the state be involved? He only seems to be saying it should because it did.

In the next post, I'll comment on The Box and its relevance to this argument.

Paying attention to the politician behind the curtain

In response to a post Kos put up on the Cato blog, many writers pointed out that the corporations he fears are mostly that large because of, not in spite of, government. What none or few have stated is how government has aided and abetted corporations. The answer is that they have given both legal and financial aid, especially by spreading risk and cost in transportation, communication, and energy, but also in other areas.

How has the state (or states) done so? And how do these influence the size and scope of industry?

1) Legal:
a) Incorporation, protection from liability. Tempting to say that this would shield owners from lawsuits, but it is at least a little likely that the system has created entities that are large enough to draw lawyers. In other words, the size of corporations invites lawyers; if they were smaller, the legal profession would not have started using industry as a pinata*, and that part of the legal system would not have grown as large as it has.

b) Rights of way. In my experience, there are Democrats particularly and a few nondenominational real-estate-agent-slash-city-commissioners that think that this is one of the most useful aspects of government because it addresses the market failure of The Holdout Problem. The holdout interferes with the efficient operation of railroads and highways, the former being a favorite of the post-industrial left and the latter being a subject of dispute that involved David Friedman and Steve Kangas, in which David questioned whether the problem was as serious as it was claimed.

This is interesting, since the industrial left saw Railroad Tycoons as evil embodied. They moved on to embrace the Good Roads Movement as the antidote. Now, they condemn the roads and want more light rail transport, showing how conservative the Left has become. It is only the libertarians adopting the radical position of wanting to turn roads into pay-per-use roads (public/private is almost inconsequential). It is the Left now advocating eminent domain to take over houses for shopping malls. Governor Bill Richardson, D-NM, is involved in both of these issues: advocating light rail and vetoing anti-Kelo legislation.

In the most egregious cases, states and the federal government granted not just rights of way to land which still had to be paid for, but land titles free and clear. That is more of a financial than a legal aid, and is covered below.

c) Regulatory cover. This is the primary reason for which railroads decided to bring the federal government into play in their domain. The states wanted to enforce a myriad of local rules, so railroads wanted the federal government to come in and trump those rules. Complying with one set of rules is cheaper than many, giving an advantage to a few larger rail systems than many small ones. Furthermore, once someone is compliant with federal law, it becomes more difficult to claim that they should have done something differently. Further, a single regulatory board is easier to capture than multiple boards. And once an oversite agency is captured, it is easier to pass laws that restrict competition. This is not a clear-cut issue: many of the states' laws existed to promote the interests of local political entrepreneurs. As I recall, Cincinatti had something like 14 railroads coming into it, but they were not allowed to tie together or exchange freight cars, so everything (freight and passengers) had to be unloaded, carted, and reloaded to the great delight of hoteliers, teamsters, and porters.

d) Patents - I'm ambivalent about this, but thought I should include it to be thorough. Yes, granting patents is a government support for certain industries, especially the early communications industry (AT&T). However, at the time the patents started to fall, the communications industry started to take off like gangbusters (see, for example, this white paper).

e) Charter for lottery: This is not exactly something that would come up as a problem in a libertarian or anarchist environment. You want to run a lottery, go ahead. But this is something I've come across in early railroad histories.

2) Financial
a) Land grants (railroads) - As promised above, the state and federal governments granted land to railroads outright. With the transcontinental railroads, the land was granted in a checkerboard pattern, and the rails sold some of theirs to finance the building of the road. Other railroads may have received outright grants of the whole line (I'm thinking here of the Erie and other canals which may have been granted land outright, but I could be wrong). The exception is the Great Northern, but even they started out with a state land grant to the St. Paul and Pacific, which failed before Hill acquired it.

b) Other financing - The Union Pacific was given government loans which they had to pay back. This is what most people think of when they think about subsidies to Rails in the 19th century. The government loaned money to the Union Pacific, leading to all kinds of shenanigans, such as building pointless spurs to increase mileage (they were financed by mile built), and kickback schemes that led to the Credit Mobilier scandal. Of course, it's entirely possible that this was as harmful as useful to the actual operation of the rails. The Great Northern was the most financially stable of all of them, owing to the fact that it built up the railroad's customer base as it went. The Union Pacific was said to be like an apple tree without branches, though that overlooks the useless branches.

c) Tax and other breaks? - I'm not sure what example would be most appropriate here, though I believe there may have been some related to the creation of the early rail and communications networks. Perhaps not -- the federal government was much smaller and was funded differently back then. Modern examples might include the breaks given to SUV owners, especially in Arizona for alternative fuel-powered vehicles, or those given to hybrid owners and thus securing a greater market share for those technologies instead of diesel (which are capable of burning biomass fuels). My turbodiesel gets the same gas mileage as a Prius (49 mpg last tank), yet they get a break and I don't, which is just a microcosmic example of how government policy picks winners.

d) Infrastructure: Roads - Roads are provided without charge at the point of use, giving the automobile industry a competitive advantage over rail. Surprisingly, most roads prior to the railroad era were toll roads, many of which were private (see for example, Ben Klein's list of online papers, especially Private Roads: Learning from the 19th Century, and Gabriel Roth, Roads in a Market Economy). After the rail era, the Good Roads movement and then the car companies themselves went on to advocate government spending on road infrastructure at the expense of other modes. There was even a myth that GM had bought up the electric tram companies in order to force them to use GM's buses (related in Kirkpatrick Sale's Human Scale), but this is disputed.

e) Infrastructure: Armed forces - The Great Northern didn't receive funding or land from the federal government, but they did receive some protection from or bargaining power with Indians when going through one of the reservations (the Nez Perce, IIRC). The shipping industry received substantial aid from the Navy as early as Jefferson's war on the Barbary pirates (1805, though not a resounding success: at that time we still free-rode on Great Britain the way the rest of the world does on us at present). And of course the oil industry receives some benefit (though it's not as substantial as the Left thinks it is) from the Army. Without the US Army, settlers would have had to negotiate their way across the west, and it is doubtful whether things would have turned out quite the same way.

f) Risk - The corporation was essentially a form of risk relief for business owners. Without it, they might still have purchased insurance. Incorporation is a less expensive way of building a large company. However, Carnegie and Rockefeller both built rather large concerns without incorporation (a limited liability partnership and a trust).

Discussion

The transport sector benefits from those in a multitude of ways. The Navy protects shipping and the Army protected the transcontinental railroads and the telegraph lines (though both were also known to use private security, also). The owners were able to take on risky ventures by sharing the risk with bond holders, stock holders, employees, passengers, freight shippers through incorporation, and with citizens generally through regulation, infrastructure, eminent domain, and so on. The federal government made grade crossings a problem of roads rather than the railroads, and then built the automobile roads securing the spreading of risk among citizens. The transcontinentals were the recipients of federal land grants and bonds (except for the Great Northern), while all railroads were probably recipients of state land grants and maybe a few state bond issues. There were certainly cases where local, state, and federal governments have exercised their right of eminent domain for the rails and later for cars.

The communication sector benefited from patent protection and then from right-of-way grants. AT&T was shielded from competition from 1914 to 1984, 70 years during which they had no competitors and were encouraged to build out a large system. The modern system benefited (very little) from DoD (DARPA) investment into the original Internet, which still rides on some of the original AT&T-era infrastructure (MCI was permitted to build out a long haul long distance system that became the backbone of a large share of the Internet traffic).

The energy sector, as I have been arguing (see my comments on the Environmental Economics blog and here), has also benefited from similar support. Like AT&T's Vail, early electricity entrepreneur Samuel Insull agreed to accept government oversight in exchange for protection from competitors. Undoubtedly, the incorporation helped them to grow as public stock companies, and most cities as well as other levels of government will invoke eminent domain in order to run utility lines according to the desires of the electric power companies. Electric utility companies benefit the most from the regulatory cover afforded to their pollution, being the main contributor to CO2, SO2, and Hg pollution. They undoubtedly have received a number of tax grants. REA enforced the idea that rural areas should be powered by AC grids, not local sources (e.g. the windmills that used to dominate the pre-FDR landscape). Today, the system is huge, vulnerable (to terrorists as well as natural and system failure disasters), and inefficient. AC was technically superior to DC for transmission, but not necessarily for local use. Even still, some 67% of electricity is wasted as heat at the plant or in transmission and distribution, which makes me wonder about possible diseconomies of scale in that industry.

Counterargument

Given that all of these are true, one question with two parts remains: How important were these effects really? The first part is, how much did the federal and state aid really come to in terms of percentage of private actions and finance? The second part is, how much of an effect did that have relative to how things might have been without it? If it is not clear to what extent the government contributed to the rise of the transportation and communication companies, it is even harder to determine to what extent they in turn led to the rise of subsequent industry. To what extent were they relying on rails, for example? Singer and Ford built tidewater factories and used ships and barges. Perhaps that is implicitly included in the argument because government aided water shipping in one form or another?

Even if I concede for the sake of argument that the transcontinentals were entirely paid for by the US government, does that mean that industry would not have risen to the size it has today? I see very little contribution to the Industrial Revolution coming out of California. I furthermore doubt whether the California consumer market was that large, which was an argument against funding the transcontinentals in the first place (the real reason for funding them was not economic, but political: keep California on the side of the Union). So even if they hadn't been built, I suspect that many things would have gone as they did. In fact, the country remained quite regional at least until the WWI era, so there is reason to doubt the government financing had that much effect. Most industry was located in the Northeast, and things remained that way until just within the past 70 years, so I find some doubt as to whether the transcontinental railroads built in the 1860s, 140 years ago, had that much effect.

McCormick moved his works from Virginia to Chicago almost 16 years after first demonstrating the "Virginia Reaper". How much did they benefit from the train and telegraph? I'd say not much. since he was obviously moving closer to his market. Perhaps they would have grown regional building facilities rather than national facilities, but the business would have grown with or without the railroad and the telegraph since it was a product that could be horse-drawn by design. The same is true of other industries, such as the automobile: there were many manufacturers before consolidation of Chevrolet and then GM, and even after. Perhaps they would have stayed regional until later, but is it possible that they still would have consolidated? What about the bicycle, a favorite of the neo-luddite movement -- why is the bicycle not included with the other predecessors of The Modern? It was built regionally, and served as a forerunner to the automobile – how did the railroads permit the rise of the bicycle, and then lead to the consolidation (if there has been one)? Not only did bicycle manufacture introduce metal stamping, but it gave people the idea that a personal transport was both feasible and desirable. Indeed, Ford's first vehicle was a quadricycle.

I think we tend to overstate the impact that certain industries had because we are judging from our perspective rather than the perspective of those times. Horses didn't disappear the moment the railroads appeared, and railroads didn't disappear the moment the automobile arrived. Although many railroads were started in the 1840s for the purpose of getting coal from the Appalachian hills to urban centers, the railroads themselves didn't switch to coal from wood until the last quarter of the 19th century. People used to write letters even after the telegraph. It has only been in the past 20 years (perhaps the last 10 or even 5) that instant ordering from stock has been adopted in the retail business, so how much benefit were we getting even from the phone? At one time, consolidation in the rail, then the steel, and then the oil industry had the country in an uproar. Today, those are minor industries.

Without incorporation, a cottage industry in personal liability insurance may have permitted similar advances. However, the costs would have been more internalized with the private insurance. Such insurance actually exists today: personal liability for doctors, nurses, and other professionals. I think stories about these costs driving doctors out of practice because of lawsuits should be discounted: the other possibility is that they are driven by interest costs (when rates fall, the insurance companies raise prices to keep profits steady) or by doctors trying to make a case for political action on their behalf. And here again, why is the insurance industry so consolidated (is it?)? Is it because of laws or economies of scale?

Kevin Carson offers a broad perspective of the traditional view of bigness here in the form of a draft chapter of a new book.

As to whether Democratic or Republican administrations abet corporations more -- as massive not passive argues (via the Mutualist blog) -- that's a puerile debate. For one thing, as I've repeatedly tried to get people to understand, the president only controls 1/3 of the mechanisms of the government. For another, Gabriel Kolko should be required reading for people interested in this kind of thing. Nevertheless,

• Civil Rights Act of 1866 - Johnson, R
• Civil Rights Act of 1871 - Grant, R
• Civil Rights Act of 1875 - Grant, R (boy, those Republicans sure were pro-civil rights!)
  
• Interstate Commerce Act (1877) (creating regional rail cartels) - Cleveland, D
• Sherman Antitrust (1890) - Benjamin Harrison, R
• Federal Reserve Act (1913) (made the government the lender of last resort and created a banking cartel) - Wilson, D
• Clayton Antitrust and Federal Trade Commission (both 1914) (requested by business organizations to quell stiff competition) - signed by Wilson, D
• Jim Crow Laws - Almost entirely created by Southern Democrats who dominated state legislatures and governorships, but made federal by Wilson, D (man, this guy Wilson is a really evil guy, eh?)
• National Industrial Recovery Act (1933) (attempt to cartelize all industries, based on Mussolini's corporatives) - Roosevelt, D
• Connolly Hot Oil Act (1935) (attempt to cartelize oil industry by establishing regional cartels) - Roosevelt, D
• Civil Aeronautics Board, (1940) (creating air transport cartels) - Roosevelt, D (man, this guy Roosevelt is really pro business, eh?)
• Civil Rights Act of 1957 (notably filibustered by Strom Thurmond (D)) - Eisenhower, R
• Civil Rights Act of 1960 - Eisenhower, R
• Clean Air Act (1963) - Johnson, D
• Civil Rights Act of 1964 - Johnson, D
• Clean Air Act (1966) - Johnson, D
• Civil Rights Act of 1968 - Johnson, D (Wow, what a great president. As a Democrat, he also would keep us out of an Iraq-like quagmire)
• Clean Air Act (1970) - Nixon, R
• OSHA (1970) - Nixon, R
• EPA (1970) - Nixon, R (hmmm, this Nixon guy sounds like he meets all of the standards of a Democratic activist, and he got out of Viet Nam)
• Clean Air Act (1977) - Carter, D
• Superfund (CERCLA) (1980) - Carter, D
• Natural gas deregulation (1978 and 1980) - Carter, D
• Transportation deregulation (1980) - Carter, D
• S&L deregulation (1980 and 1982) - Carter, D and Reagan, R (wow, this Carter guy sounds really pro-business with all this deregulation!)
• Superfund Amendments and Reauthorization Act (SARA) (1986) - Reagan, R
• Clean Air Act (1990) - Bush, R
• Civil Rights Act of 1991 - Bush, R (this Bush guy is a real left-wing go-getter, eh?)

Just looking at recent scandals,

• WorldCom scandal, 1999-2002, prosecuted 2002-2005, received no-bid contract with DoD in 2003 (bonus - what legal loophole created the opportunity? Hint: It wasn't something that would normally be thought of as pro-business, or pro-white-owned business, anyhow)
  
• Enron scandal, 1990s to 2001, prosecuted 2002-2006
• Tyco, 1993-1999, prosecuted 2004
  

and corruption and bribery prosecutions of

• Dan Rostenkowski (D)
• Webster Hubbel (D)
• Jim McDougal (?)
• Jim Guy Tucker (D)
• Hazel O'Leary (D)
• Mike Espy (D)
• Ron Brown (D)
• Tom Delay (R)
• William Jefferson (D)

You could go on for a long time with lists like these and probably never find a trend. I still find it hard to believe that anyone believes that people can be found either innocent or guilty, pro-business or populist, on the basis of the letter that comes after their name.

* How the devil do you put in non-English characters so they can be read by other browsers? Neither Word nor Writely seem to use generally accepted letters.