Archive for January, 2009

Bruce Bartlett: Conservatives should accept the need for more taxes, and focus on limiting the damage

January 29th, 2009 No comments

Bruce Bartlett, who worked in both the Reagan and Pappy Bush administrations and was a trenchant critic of the recent Bush administration, has a new article in the Politico that argues that conservatives should resign themselves to rising welfare costs that have been bequeathed to the Obama administration (with further damaging increases as the Bush administration and now Obama and Dems implement plans to deal with the economic crisis) and should focus instead on finding least-damaging ways to raise the taxes needed to close the fiscal deficit.

Bartlett’s key point is as follows – it almost sounds like Bartlett is arguing for a shift from taxes on income, capital and labor to consumption taxes (query: carbon taxes?):

I think conservatives would better spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and individual liberty, rather than fighting a losing battle to slash popular spending programs. But this will require them to accept the necessity of higher revenues.

It is simply unrealistic to think that tax cuts will continue to be a viable political strategy when the budget deficit exceeds $1 trillion, as it will this year. Nor is it realistic to think that taxes can be kept at 19 percent of GDP when spending is projected to grow by about 50 percent of GDP over the next generation, according to both the Congressional Budget Office and the Government Accountability Office. And that’s without any new spending programs being enacted. 

If conservatives refuse to participate in the debate over how revenues will be raised, then liberals will do it on their own, which will likely give us much higher tax rates and a tax system that is more harmful to growth than necessary to fund the government. Instead of opposing any tax hike, I think it makes more sense for conservatives to figure out how best to raise the additional revenue that will be raised in any event. 

In the end, the welfare state is not going away, and it will be paid for one way or another. The sooner conservatives accept that fact, the sooner they will regain political power.

Libertarian law prof. Jonathan Adler warns of CO2 regulatory runaway train that Bush bequeathed to Obama; recommends rebated carbon taxes

January 28th, 2009 No comments

Libertarian law professor Jonathan H. Adler, of Case University, The Volokk Conspiracy law blog and NRO contributing editor,  has a post up at NRO explaining why conservatives ought to be pushing for  a “revenue-neutral carbon tax” as the best way to head off what he sees as a looming train wreck of damaging regulatory actions by the EPA, that he argues are mandated by a recent Supreme Court ruling that. 

Here is Jon’s summary of his post:

I have an article up today explaining how the EPA is required to begin regulating greenhouse gases as a consequence of Massachusetts v. EPA.  Of potential note, the new EPA Administrator agrees, telling EPA staff in a memo that she will fulfill the agency’s “obligation” to regulate GHGs under the Clean Air Act while the Obama Administration develops new climate legislation.

Regulating greenhouse gases under existing law will be a disaster, but what’s the alternative?  I’ve endorsed the idea of a revenue-neutral carbon tax.  My friend Chris Horner thinks this is preemptive surrender, but what’s his alternative?  Absent new legislation, EPA is poised to regulate cars, trucks, factories, power plants, and much, much more.  The number of facilities covered by the PSD program alone will increase ten-fold or more without a legislative fix.  I know Horner would like a clean Clean Air Act revision, simply excising greenhouse gases.  But assumig that’s impossible — or, perhaps, once that measure fails — what is his Plan B?

Adler has posted slightly longer summary at The Volokh Conspiracy.

Categories: adler, carbon pricing, EPA Tags:

A blinded Alan Blinder fails to see any Fed missteps in creating, anticipating or responding to the financial crisis

January 27th, 2009 No comments

In the January 24 New York Times, Alan S. Blinder, professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve, argues that our  worst postwar recession does not represent a fundamental failure of the American capitalist system, but is a result of a series of avoidable human errors.  Sounds balanced and reflective? Unfortunately, Blinder’s piece, “Six Errors on the Path to the Financial Crisis”, is remarkably shallow and myopic.

Despite purporting to explain, a la Richard Clarke after September 11, “why we failed and what … we need to do to ensure that nothing like that ever happens again”,  Blinder has deliberately omitted  “mistakes that became clear only in hindsight” and limited himself to mistakes “where prominent voices advocated a different course at the time”.  The most glaring omission?  Blinder has completely dodged mentioning the critical role of Fed chairman Alan Greenspan, who deliberately created the housing bubble as a favor to Pres. George Bush by lowering interest rates at the beginning of Bush’s first administration.  Similarly, Blinder fails to address any of the dangers in the Fed’s current inflationary and bubble-creating policies.

Blinder also barely scratches the surface in analyzing the factors that he does identify:

1.  “Wild Derivatives”:  Blinder suggests that derivatives should have been more closely regulated as requested by the CFTC in 1998.  Why not note that the supposed need for more regulation arose directly from the moral hazards for shareholders and managers created by prior regulatory interventions – the provision of deposit insurance to banks, the SEC’s attempts to require full financial disclosure from “public”, listed companies, and by the grant of limited liability itself?

2.  “Sky-High Leverage”:  Blinder rightly notes that a second error came in 2004, when the SEC let securities firms raise their leverage sharply.  But Blinder fails to cite any “prominent voices” who opposed the relaxation of leverage limits (which shot up from 12 to 1 to more like 33 to 1) – where was the Fed?  Further, his question – “What were the S.E.C. and the heads of the firms thinking?” – ignores the obvious:  the securities firms had recently gone private and so managing directors so were risking shareholders’ capital, not their own, and so had every incentive to to try to capture phenomenal profits – and bonuses – resulting from the bubble and made even more available through higher leverage, and let shareholders suffer the losses when the bubble burst.  The great political pull of Wall Street with the Bush administration, and particularly with former Treasury Secretary (and former Goldman Sachs head) Hank Paulson, has meant that US citizens as well as shareholders have been left holding the bag from Wall Street losses (with the exception of Lehman).

But the problem of moral hazard and disincentives was one the Fed was not only long aware, but itself contributed to, such as when it forced the massive bailout of hedge fund Long-term Capital Management.  Blinder himself in 2005, when commenting on a paper that discussed misincentives and systemic risks resulting from the disintermediation of banks and leverage of securities firms, specifically noted these malincentives – which were present not only for traders but for the funds and securities firms they worked for as well:

The way a lot of these funds operate, you can become richer than Croesus on the upside, and on the downside you just get your salary. These are extremely convex returns.

I’ve wondered for years why this is so. You don’t need to have public regulatory concerns to worry about it. Take the perspective from inside a big company. The traders don’t own the capital. The traders are taking all this risk and putting the company’s capital at enormous risk. I dont quite understand why the incentives are as they are.

I remember a discussion I had with-I won’t name him-one of the principals of the LTCM, while it was riding high. He agreed with me that the skewed incentives are a problem. But they weren’t solving it, obviously.

3.  The “Subprime Surge”:  Blinder blames the “insanity” of the rapid growth of subprime lending into a large and dangerous market on (1) “bank regulators [who] were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor,” and (2) the argument that “many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator.”

For Blinder, every problem seems to one caused by either incompetent regulation or not enough of it.  Solution?  Easy!  Godlike regulators who have all powers needed and who never make mistakes.

And why not also blame politicians and Congress for the prominent roles of Fannie Mae and Freddie Mac in providing support to the subprime market by buying securitized subprime assets?

4.  “Fiddling on Foreclosures”:  Here Blinder is not blaming rising foreclosures for the financial crisis, but is blaming Congress and the Treasury (due to an excess of “Free-market ideology, denial and an unwillingness to commit taxpayer funds”) for failing to bail out those who took out loans beyond their means to repay them.  Are we better off, Mr. Binder, if our leaders shift all risks to taxpayers and the foreign nations that fund our deficits?

5.  “Letting Lehman Go”:  Says Blinder:  “After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.”  Blinder doesn’t  justify his conclusion, and how can he?  If the financial system is a house of cards, is bailing out every failing financial institution a cure, or simply a postponement of an inevitable reckoning?  Perhaps a lesson more fairly drawn is that the willingness of the Treasury and Fed to bail out some institutions but not others, pursuant to what is evidently and ad hoc and opaque process, paralyzes private decision-making.

6.  “TARP’s Detour”:  Blinder criticizes Paulson for using TARP funds to recapitalize failing firms rather than to revitalize markets by purchasing troubled assets.  But his real complaint is just that Paulson, having received the necessary God-like powers to through hundreds of billions around as he pleased, didn’t act in ways that Blinder would have.  Guess only Blinder should have received those God-like powers!

Blinder of course is right to note that our politicians and bureaucrats have screwed up the economy.  But he fails to see that it is intervention itself, and the massive shifting of risks that both result from and fuel it, that is the deep underlying problem.  The blind hubris displayed by his failure to direct any blame towards the Fed is ample testimony to his shallow and self-righteous perspective.  Blinder or the Fed asleep at the switch?  Never!  Give us more switches!

"Lemon Socialism" – liberal Obama advisor Robert Reich regrets the bailouts, but wants massive stimulus

January 26th, 2009 No comments

An opinion piece at TPM Cafe by liberal economist Robert Reich the Harvard (now Berkeley) econ. prof. who is a member of Pres. Barack Obama‘s economic advisory team and was Labor Secretary under Bill Clinton –  has caught my eye.  In it, Reich correctly, on behalf of the American taxpayer, expresses buyer’s remorse with respect to all of the bailouts – and lemon industries – that the Bush administration, via Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke and a complaisant US Congress, have bestowed on the American people and the Obama administration.

It’s nice to see a liberal economist who regrets the bailouts and opposes further TARP expenditures; too bad he doesn’t see that a massive stimulus program and other government economic micromanagement is a great way to turn the rest of the economy into “lemon socialism”.  

Categories: bailouts, Robert Reich, socialism Tags:

For crashing fisheries, a coalition of mainline US enviro groups calls for …. property rights!

January 15th, 2009 No comments

In a recent post, Andy Revkin, a New York Times reporter who blogs on energy and environmental issues at his “Dot Earth” blog, asks “When whale species, like the minke, are no longer rare, can they be both admired and eaten — as North Americans do with bison — or is it simply wrong to kill whales at all?”

In a comment in response, I noted that as whales are unowned, the problem of how to manage whale stocks shares much in common with the problem of ocean fisheries – viz., open access tragedies of the commons, and politicized management – further noted that the main US environmental groups have very clearly recognized, somewhat surprisingly, that implementing property rights systems is vital to ensuring the long-term protection of fisheries.

Mainline enviros pushing for property rights?  Has the world gone crazy?

I copy below my comment, which quotes the key fisheries statement by the enviro coalition (emphasis added):

Andy, of course the real problem with whales, bluefin tuna and most other ocean resources is that no one owns them, so catching them for one dinner plate or another is frequently a classic tragedy of the commons or, if governments regulate catch, a race to catch within season all while trying to make sure limits are not set too low.

This is the reason why whaling stocks crashed and whalers agreed to a moratorium. The fact that whales remain unowned but further takings are decided by a committee of nations is what ties the dispute to a political process – a process that frankly serves no one’s long-term interest and is a distraction from the more important problems of protecting crashing ocean fisheries in general.

The clear way forward is in establishing rights to the particular stock of whales or fish, so that those who value the resource can invest in protecting it. This holds true just as much for whales as for fish.

This is what the organization Defying Ocean’s End (cofounded by Conservation International, The Nature Conservancy, Natural Resources Defense Council, The Ocean Conservancy, Wildlife Conservation Society, The World Conservation Union, and World Wildlife Fund) has to say about protecting fish:…

“Overfishing, high bycatch rates, the use of gear types that damage habitat (like trawls and dredges), and the large subsidies supporting fisheries (totally over $15 billion per year) are all symptoms of an underlying problem. In most fisheries that are exhibiting declines in landings and revenues, overfishing, bycatch, and habitat damage, actions that result in the symptoms are actually rational given the way the fisheries are managed. In these fisheries, secure privileges to catch certain amounts of fish are not specified, so naturally individual fishermen compete to maximize their individual shares of the catch. No incentives for conservation exist in this situation, because every fish conserved can be caught by another fisherman. The competition to maximize catch often results in a fishery “arms race”, resulting in the purchase of multiple vessels, the use of powerful engines and large vessels, and the use of highly efficient gear like trawls. Capital costs for vessels and gear increase as a result. At the same time, the competition to maximize catch often results in supply gluts, as most fishermen land large catches at the same time during seasons that become shorter and shorter due to the excessive number of vessels participating in the fishery. Prices paid to fishermen are reduced by the glut, and the quality of fish supplied to consumers declines as well (from fresh to frozen). The non-market costs associated with this kind of behavior — such as habitat damage, overfishing, and bycatch — are passed on to the fishery and onto society as a whole.

“Most of the solutions that have been implemented or proposed to fix the world’s fisheries center on command-and-control measures: regulators or courts telling fishermen how to fish through the imposition of controls on effort (e.g., fishing vessel length, engine horsepower, gear restrictions, etc.). Prescriptions like these work against strong economic incentives for maximizing catch, which are not addressed by such measures, and are of course usually resisted by fishermen. Often, prescriptions create incentives for “work-arounds” and set up a cat-and-mouse game between fishermen and regulators – for example, if regulators impose a restriction on vessel size, fishermen may purchase two vessels to maintain high catch levels.

As in most natural resource problems, more effective solutions will address the fundamental drivers of unsustainable fisheries. In this case, the key necessary reform will be to designate secure catch privileges. It is important to understand that such privileges can be allocated to different kinds of entities in different ways, and indeed, they should be tailored to specific fisheries and communities to fit with local customs, traditions, values, and social structure.”

FWIW, I’ve blogged on whales and fishing any number of times:……

The problem of crashing fisheries is a far greater one than what to do about whales, so it is a real shame that the environmental community, Japan (which consumes much of the world’s fish) and other nations cannot see fit to bury the hatchet – at least on whale populations that are growing (perhaps by applying a property rights regime that would allocate ownership rights not only to whaling fleets but to conservation groups) – and work together on setting up sustainable, property-rights based harvesting regimes on imperilled ocean fisheries.

Zimbabwation: Coining a New Term for the Coming Economic Disaster

January 14th, 2009 No comments

Bob Murphy asks what we should call the upcoming severe recession and inflation:

I think we are in store for a very severe recession (i.e. depression)
and very big price increases. It will be stagflation but worse. So we
need a catchy term. The two contenders I’ve come up with are infression and depflation, but the first is hard to pronounce and the latter is very easily confused with deflation. Any thoughts? Should I just punt and go with hyper-stagflation?

My suggestion: Zimbabwation, which makes it clear that our troubles have misgovernance (with a heavy dose of ruling class theft) as its root cause.

Rent-seeking: CEI’s Chris Horner comes clean and acknowledges that climate denialists and alarmists are peas in the same pod

January 14th, 2009 2 comments

In an earth-shaking ūüėČ essay in today’s Human Events, CEI‘s Chris Horner comes clean and acknowledges that climate denialists and alarmists are peas in the same rent-seeking pod. 

We have encountered Horner,  former lawyer and now full-time scourge of envirofascists on behalf of the firms that fund the Competitive Enterprise Institute (and author of “Red Hot Lies: How Global Warming Alarmists Use Threats, Fraud, and Deception to Keep You Misinformed), a number of times here previously.  I consider Chris to be very knowledgeable and insightful, but it seems to me that his passion paints him into a corner as a spokesman for one side of the commercial interests seeking to influence policy, hinders a broader self-awareness, and leaves him with little ability to reach out to persuade others.

Says Horner:

Further, the premise behind most alarmist slurs, of the “tobacco scientist” variety and the ritual claims of “ties” to “big oil” or “industry,” is that a scientist’s convictions and those of other dissenters are for sale. Yet it is illogical to assume that dissenters can be bought but alarmists cannot. Looking at the balance sheets on both sides, their logic would conclude that the greatest amount of corruption occurs on the alarmist side.

With federal expenditures on climate-related research soaring above $5 billion annually – more than we spend on AIDS or the National Cancer Institute – and hundreds of billions in “rents” to corporations pushing these schemes should the alarmist campaign succeed, the potentially corrupting factor of money cannot be ignored.

Someone saw a good investment in giving Al Gore $300 million for his “climate crisis” re-branding campaign. Gore’s advisor (and, officially, NASA astronomer) James Hansen and other activists receive enormous sums of money underwriting their alarmist activities, sums that no “skeptic” has ever been accused of receiving. Meanwhile Gore—the king of claiming that those who disagree are merely in it for the money—makes millions annually from all manner of enterprises premised upon the climate crisis, and his lucre will increase several fold upon passing the laws his alarmism demands.

The difficult truth is that the alarmists cannot logically fault the skeptics’ credibility without also faulting Gore’s credibility, and that of their heavily compensated alarmist mouthpieces. Yet no “skeptic” receives as much as Gore or even Hansen from shouting falsities about the issue.

The delicious irony found in the global warming alarmists’ claims is that it is they who closely resemble the “tobacco scientists” they accuse those who oppose them of being, and are quite plainly the ones stuck on “denial”.

Several thoughts occur to me:

First, most of Horner’s points are perfectly fair, but it’s interesting that he can make them while ignoring what they imply about himself and others who are denialists (since Horner calls those concerned about the effects of releasing all of the fossil carbons “alarmists”, for the sake of balance, let’s call him and others “denialists”, as opposed to “dissenters” or “skeptics”).

Second, Horner fails to distinguish between amounts spent by governments and amounts spent by rent-seekers directly.  While large government expenditures are “potentially corrupting”, such expenditures clearly do NOT directly corrupt the results of scientific investigations, nor do they directly influence decision-making by government, politicians or others.  As a result, such expenditures are certainly in a different class than direct and indirect rent-seeking (via paid mouthpieces, contributions to think tanks, campaign contributions, junkets and the like) by special interests.

Third, while Horner is right to note that there are large amounts flowing to support rent-seeking via alarmist mouthpieces like Gore, there is nothing really new here – this is just plain old garden-variety rent-seeking of the same type that we have seen from the denialists (fossil fuel interests and others who have different preferences regarding rights to the atmosphere and science/defense-budget priorities).  In one sense this is a relief – as it clarifies that the chief financiers of the alarmism are not out to destroy capitalism – but  one is left wondering WHO, precisely, is doing the funding and what precisely are their objectives.  While some may be looking for favors from government, others may be sincerely concerned about the potential consequences of releasing all of the fossil carbon stored up since the Age of Dinosaurs and the lack of any market mechanisms to express their preferences.

Fourth, while more information on rent-seekers is needed, it’s clear that most of them are commercial interests, whom our laws say are legal persons and our courts have declared to have the same Constitutional rights to spend freely to influence government via “free speech” as do you or I.  While a discussion of the merits of legal personhood is beyond the scope of of this post, I wish to draw attention to the role of limited liability, in fuelling the growth of (i) the corporate form, (ii) rent-seeking (at all branches of government) by corporations, and (iii) public pressure by citizens’ groups (and faux-citizens’ groups) to fight over the wheel of government.

Finally, Horner oversteps when he argues that the alarmists’ views must be based on a premise that “scientist’s convictions and those of other dissenters are for sale”. I think a little more nuance is called for.  W e are cognitively wired as tribal animals.  That means we are inclined to see “our side” as right, and the other side as lying and scheming. While very clever rent-seekers know this and try to use it to jerk us around, this does not mean that any particular group – or its spokesmen – has consciously sold itself out.  Rather, as William Butler Yeats famously noted, “the worst are full passionate intensity” – and each of us is good at the self-deception needed to provide the requisite conviction and self-righteousness.  Perhaps not only Al Gore, Jim Hansen and Horner’s frequent sparring partner Joe Romm share this quintessential human trait, but also Chris Horner himself?

[Update 2] Neocons, conservatives, libertarians and Exxon join Jim Hansen in calling for rebated carbon taxes in lieu of massive cap/trade rent-seeking and industrial planning

January 10th, 2009 No comments

[Update at bottom.]

Neocons, conservatives, libertarians and Exxon`s Rex Tillerson have recently joined arch-warmer Jim Hansen in calling for rebated carbon taxes in lieu of massive cap/trade rent-seeking and industrial planning.

I`ve blogged extensively on the reasons why I and others view carbon taxes – particularly if rebated to citizens – as a far better alternative to a domestic cap and trade program.

With the Obama inauguration looming, starting late last month a wide range of voices on the right have started to weigh in – each with their own reasons – in support of carbon or similar taxes, in order to shift the debate away from cap and trade and other extensive industrial policy.  Is it too late?  In any case, it`s worth taking a look at what people are saying recently:

Climate scientist Jim Hansen, who with his wife rather boldly sent to Barack and Michelle Obama a personal letter and background paper (with a discussion draft first made public in November).

Neocon Charles Krauthammer proposed a substantial “net-zero” gas tax in the December 27 (now updated to January 5) Weekly Standard, with intentions in part to cut off the flow of oil money to unfriendly (and Muslim) regimes abroad.

Republican Congressman Bob Inglis and economist Arthur Laffer argued in the December 28 New York Times  for a carbon tax coupled with tax-cut stimulus.

On January 9, the Wall Street Journal reported on ExxonMobil CEO Rex Tillerson`s recent speech in DC calling explicitly for Congress to enact a tax on greenhouse-gas emissions as a “more direct, a more transparent and a more effective approach” than cap and trade.  This is not as new as the WSJ would have it; as I note on an earlier post, ExxonMobil came out rather explicitly in favor of carbon taxes a year ago.

Libertarian and natural resources law prof – and NRO and Volokh Conspiracy blooger – Jonathan Adler applauds and explains these developments for various reasons, noting particularly that a train wreck seems headed our way, and that Congressional action is needed to avoid having the Obama EPA attempt to implement climate change policy via the Clean Air Act (for which a Supreme Court case last year paves the way).

Of course there is reasoned (both reasonable and passionate) disagreement, such as from businessman Jim Manzi at NRO on December 30 and blogger Tony Quain in response to Krauthammer, and by Chris Horner of the Competitve Enterprise Institute on January 7.

All are worth a look.


[Update:  Although liberal economists and commentators have tended to diss a carbon tax as a political non-starter, I note that in a December 27 New York Times op-ed, Thomas Friedman voiced support for a revenue-neutral carbon tax or gas tax on roughly the same grounds as Krauthammer.

Friedman and the others noted above join a long list of economists and political commentators on both sides of the political spectrum (including AEIGeorge Will and Barbara Thoring on the right) who strongly prefer carbon taxes over cap and trade.

I note that I do not buy all of the arguments for a carbon tax, particularly the argument that a gas tax would be an effective foreign policy tool.  However, I summarized previously some economists’s discussions of using a domestic tax to limit the flow of revenues to oil-exporting countries.

Dan Rosenblum of the Carbon Tax Center (which is a great complier of information on carbon taxes vs. cap and trade policies) has an excellent summary on recent developments in the December 30 Huffington Post.

My view is that a carbon tax would be much preferable to a cap and trade system and, if rebated or offset by reductions in income or other taxes, may improve incentives for savings and investment.  Further, it would undercut arguments and justifications for other obviously counterproductive market inverventions like the CAFE standards and subsidies for supposedly “green” sources of energy (including ethanol). 

Of course the fact that a carbon tax is much more transparent than a cap and trade and other policies interventions is one of the chief reasons that politicians and rent-seekers prefer more complex and obscure ways to provide favors to various industries and interest groups.]

[Further update:„ÄÄI note that Cato devoted its August 2008 edition of Cato Unbound to a debate over climate change, anchored by an essay by Jim Manzi that specifically advocated substantial government in improved global climate prediction, carbon capture and storage, and  geo-engineering

In addition, libertarians Ed Dolan, Gene Callahan and Sheldon Richman all feel that climate change deserves serious consideration, Reason online`s Ron Bailey and libertarian/energy expert Lynne Kielsing supports climate change actions,  Bruce Yandle, CEI`s Iain Murray, Cato`s Indur Goklany has advanced a specific climate change-targeted proposal, and AEI`s Steven Hayward and Ken Green have provided relatively balanced analyses.]

Categories: carbon pricing Tags:

Somali piracy flows from the greater and continuing Western theft and abuse of Somali marine resources

January 7th, 2009 3 comments

The January 4 Huffington Post carries a perceptive column by Johann¬†Hari, a writer for the Independent , who explains that Somali¬†piracy (which I have commented on here¬†and here)¬†has¬†roots¬†in¬†the Western theft and abuse of Somali marine resources –¬†in the form of¬†ongoing massive Western and Asian¬†fishing and illegal dumping of toxic waste along the 3300 km Somali coast –¬†and in efforts by Somali fishermen¬†to respond (even as such piracy has now morphed into an industry in its own¬†right, and not closely connected to the suffering fishing industry).

Hari’s post raises difficult questions about the ownership and¬†management of open-access resources, and the obligations (if any) of¬†Western governments to make sure that such resources are not plundered merely¬†because local peoples are unable to defend them.¬† (A report by a Canadian¬†observer to a 1998 UN mission provides background information and raised these¬†issues here.)

While neocons and others make rousing cries for¬†Western governments to¬†stiffen their spines at the impudent pirates (they’re terrorists, barbarians and¬†“enemies of mankind”, after all) and send in their navies to provide free cover¬†for those poor Western shipping interests who seem incapable of fending off the¬†pirates, no one seems to care much about reining in Western fishermen or toxic¬†waste dumpers.¬†¬†¬†The St. Augustine quote I referred to in my¬†preceding post begins to seem even more apropos:¬† “what are kingdoms but¬†great bands of brigands?¬† Unfortunately, this¬†type of resource exploitation is¬†the rule rather than the exception when markets¬†meet¬†unowned or inadequately defended resources.¬† I have made a number¬†of blog posts on related issues:¬†¬†salmon,¬†tuna,¬†other fish and whales.

I quote from Hari’s column (emphasis added):

In 1991, the¬†government of Somalia – in the Horn of Africa – collapsed. Its nine million¬†people have been teetering on starvation ever since – and many of the ugliest¬†forces in the Western world have seen this as a great opportunity to steal the¬†country’s food supply and dump our nuclear waste in their seas.

Yes: nuclear waste.

As soon as the government was gone, mysterious European ships started¬†appearing off the coast of Somalia, dumping vast barrels into the ocean. The¬†coastal population began to sicken. At first they suffered strange rashes,¬†nausea and malformed babies. Then, after the 2005 tsunami, hundreds of the¬†dumped and leaking barrels washed up on shore. People began to suffer from¬†radiation sickness, and more than 300 died. Ahmedou Ould-Abdallah, the¬†[Mauritanian diplomat who is] UN envoy to Somalia, tells me: “Somebody is¬†dumping nuclear material here. There is also lead, and heavy metals such as¬†cadmium and mercury – you name it.” Much of it can be traced back to European¬†hospitals and factories, who seem to be passing it on to the Italian mafia to¬†“dispose” of cheaply. When I asked Ould-Abdallah what European¬†governments were doing about it, he said with a sigh: “Nothing. There has been¬†no clean-up, no compensation, and no prevention.”

At the same time,¬†other European ships have been looting Somalia’s seas of their greatest¬†resource: seafood. We have destroyed our own fish-stocks by over-exploitation –¬†and now we have moved on to theirs. More than $300m worth of tuna, shrimp,¬†lobster and other sea-life is being stolen every year by vast trawlers illegally¬†sailing into Somalia’s unprotected seas. The local fishermen have suddenly lost¬†their livelihoods, and they are starving. Mohammed Hussein, a fisherman in the¬†town of Marka 100km south of Mogadishu, told Reuters: “If nothing is done, there¬†soon won’t be much fish left in our coastal waters.”

This is the¬†context in which the men we are calling “pirates” have emerged. Everyone agrees¬†they were ordinary Somalian fishermen who at first took speedboats to try to¬†dissuade the dumpers and trawlers, or at least wage a ‘tax’ on them. They call¬†themselves the Volunteer Coastguard of Somalia – and it’s not hard to see why.¬†In a surreal telephone interview, one of the pirate leaders, Sugule Ali, said¬†their motive was “to stop illegal fishing and dumping in our waters… We don’t¬†consider ourselves sea bandits. We consider sea bandits [to be] those who¬†illegally fish and dump in our seas and dump waste in our seas and carry weapons¬†in our seas.” William Scott would understand those words.

No, this doesn’t¬†make hostage-taking justifiable, and yes, some are clearly just gangsters –¬†especially those who have held up World Food Programme supplies. But the¬†“pirates” have the overwhelming support of the local population for a reason.¬†The independent Somalian news-site WardherNews conducted the best research we¬†have into what ordinary Somalis are thinking – and it found 70 percent “strongly¬†supported the piracy as a form of national defence of the country’s territorial¬†waters.” During the revolutionary war in America, George Washington and¬†America’s founding fathers paid pirates to protect America’s territorial waters,¬†because they had no navy or coastguard of their own. Most Americans supported¬†them. Is this so different?

Did we expect¬†starving Somalians to stand passively on their beaches, paddling in our nuclear¬†waste, and watch us snatch their fish to eat in restaurants in London and Paris¬†and Rome? We didn’t act on those crimes – but when some of the fishermen¬†responded by disrupting the transit-corridor for 20 percent of the world’s oil¬†supply, we begin to shriek about “evil.” If we really want to deal with piracy,¬†we need to stop its root cause – our crimes – before we send in the gun-boats to¬†root out Somalia’s criminals.

A little digging finds ample credible support for Hari’s piece ( actually, I¬†noticed some in connection with my earlier posts, but declined to refer to it¬†then).

More background is here:

“It’s almost like a resource swap,” said Peter¬†Lehr, a Somalia piracy expert at the University of St. Andrews in Scotland and¬†the editor of “Violence at Sea: Piracy in the Age of Global Terrorism.” “Somalis¬†collect up to $100 million a year from pirate ransoms off their coasts. And the¬†Europeans and Asians poach around $300 million a year in fish from Somali¬†waters.”,0,6155016.story,+%22Plundered+Waters%22&source=bl&ots=bYYy-Zz2kU&sig=iLqa6DxqiotxfGNVzmfPnAmUtMo&hl=en&sa=X&oi=book_result&resnum=2&ct=result#PPA109,M1,1518,594457,00.html


Note to William Anderson: Limited liability is a key to understanding the Great American Ponzi scheme

January 5th, 2009 No comments

William Anderson (an adjunct scholar of the Mises Institute and economics prof. at Frostburg State University) has a thoughtful New Year’s Day post, pointing out how Paul Krugman fails to understand the causes of ouir economic stagnation and financial meltdown.

I posted the following comment, in which I argue that the state grant of limited laibility (which I have discussed in several recent posts) is a key to understanding the Great American Ponzi scheme:

Bill, I agree with the thrust of your criticisms of Krugman, but have a few small quibbles.

First, while you rightly condemn “most economic regulation … of the command-and-control variety”, you blame all of this on “the whims of bureaucrats and environmentalists” and completely fail to note that state and federal environmental regulation (i) initially responded to real environmental problems and (ii) also represents the successful efforts by established firms to raise barriers to entry and to cartelize their industries.  See Roger Meiners & Bruce Yandle, Common Law and the Conceit of Modern Environmental Policy, 7 Geo. Mason L. Rev. 923, 926-46 (1999), and Walter Block, Environmentalism and Economic Freedom: the Case for Private Property Rights..

Second, while you are correct that Krugman fails to understand the role of the state in creating the distortions that underlie our current problems, it seems to me that you have neglected one of the key state interventions that has fuelled the rent-seeking and risk socialization that we see today – the grants of legal personhood (with unlimited purposes and life and Constitutional rights) to corporations and blanket limited liability to shareholders.

Limited liability has enabled corporate managers to act without close shareholder oversight and management; this I believe has played a key role in the vast misalignment of incentives that Michael Lewis and David Einhorn describe at the NYT, and in the risk mismanagement that Joe Nocera of the NYT describes at length in the NYT Magazine.  Those taking large bonuses (whether in the financial industry or large corporations) were essentially playing with OPM – Other People’s Money – and capturing the upside of short-term gains while leaving shareholders and taxpayers holding the bag for loses.

I hope that you and others here will look more deeply at the role of the state in the problem of misaligned incentives that continue to corrupt American capitalism.