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?
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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.
Labels: Baptists_Bootleggers, decentralization, energy, Peak_Oil, police-state, private action, railroads, regulation, state-capitalism, subsidization
