Archive for March, 2009

Rot at the core: When will Tom Woods and other "Free Market intellectuals" have second thoughts about the state grant of limited liability to shareholders?

March 4th, 2009 3 comments

Tom Woods, in his recent “Another “Free Market” Intellectual Has Second Thoughts” post at the Mises Economics Blog, notes with great disappointment that Richard Posner is about to publish a book that will apparently abandon the free market and call for greater government intervention.

While I share Mr. Wood’s disappointment that Posner and others are not more vigorously defending free markets, I suggested in comments on Mr. Wood’s post that perhaps free market intellectuals are not yet really pulling their own weight in examining and describing the flaws in the market system that contributed to the current financial crisis, or in explaining the types of reforms that would actually be appropriate.  In particular, it seems to me that the role played by the state grant of limited liability to corporate shareholders in facilitating flawed and irresponsible risk-taking by executives and traders, as well as in perversely fuelling a vicious cycle of rent-seeking and further counterproductive regulation, should be much more seriously examined. 

In short, I believe that, as argued by James Glassman and William Nolan in a recent Wall Street Journal op-ed, unless and until owners and executives have “more skin in the game”, we will continue to ride a tiger of selfish risk-shifting, moral hazard, and ever more disruptive government regulation.

I copy below my comments on Tom Wood’s post:

Tom, it’s hard to judge an unpublished book, but I suspect you’re
right to do so. Has Posner given any more solid clues as to where he’s

However, as it’s clear that things went wrong, I can’t help but
wonder when can we expect to hear more from you and others on what
government factors (besides the Fed, Freddie and Fannie) “fatally
deformed” the financial markets, and laying out a “new, genuinely
free-market paradigm for the economy”. Isn’t there a good book or two
in there from Austrians?

It seems to me that that James Glassman and William Nolan have a key
insight into the type of reforms needed in a WSJ piece that refers to
von Hayek. They argue that “an irresponsible attitude toward risk led
to terrible mistakes in judgment” and conclude that “bankers need more
skin in the game”
. How to move in that direction?  Glassman and Nolan
point to the success of the Brown Brothers Harriman partnership, which
lacks the limited liability feature of modern corporations, and specifically recommend that governments recognize (by less burdensome laws and regulations) that entities like partnerships where owners face unlimited personal liability are more responible risk managers.

As I have argued in a series of posts, starting with my review of
Huebert and Block‘s criticisms of Long
, the state grant of limited
liability to shareholders (in particular the grant vis-a-vis those
injured by corporate acts and involuntary creditors, which is a pure
grant from the state and cannot be contracted for) has led to a number
of perverse results, which can be fairly clearly seen in the financial


Marlo Lewis/CEI at MasterResource: why a massive cap & trade program is much, much better than Jim Hansen’s simple rebated carbon tax idea. Or not.

March 3rd, 2009 2 comments

Marlo Lewis of CEI has a rather schizophrenic post up at Rob Bradley‘s MasterResource blog – one of my favorite “free market” fossil-fuel industry-funded sites (unlike the NRO’s “Planet Gore”, MasterResource actually allows comments!) – regarding the proposal by leading “alarmist” climate scientist Dr. James Hansen (of NASA and Columbia U.’s Earth Institute) that the federal government adopt a “tax and dividend” climate policy instead of a “cap and trade” approach.

Lewis notes that Hansen recently testified in front of the U.S. House Ways and Means Committee about Hansen’s “tax and dividend” proposal, but while Lewis calls Hansen’s per capita rebated carbon tax proposal “clever”, Lewis puzzlingly fails to compare Hansen’s proposal with the cap and trade alternative that the Obama administration supports and that Congress (and industry) appears to favor.  Instead we get some poorly grounded speculation about the effects of a carbon tax and complaints about the political viability of a transparent carbon tax – all of which points not only ignore the more opaque, rent-seeking prone and heavy-handed cap and trade alternative, but by implication suggests that those who prefer an opaque and back-room deal prone cap and trade approach have made the correct political calculation.

Nor does Lewis make any mention of all of the support that carbon taxes have received, not only from economists, but from a wide range of others, including Exxon`s Rex Tillerson and various neocons, conservatives and libertarians (George Will, Congressman Bob Inglis, Jon Adler, Barbara Thoring, etc.), at least in comparison to cap and trade.

As a result, one is forced to wonder just whati it is that Lewis is trying to achieve – is he trying to sabotage a government-lite carbon policy, so that government-heavy policy is more likely to prevail?  If so, why?  Or does he really think that opposing EVERY carbon pricing policy is the most effective way to delay and/or influence ultimate policy outcomes?  I for one am confused.

My more extensive (and less high-level) comments to Marlo Lewis on his comment thread are copied below:

first, I’m afraid I don’t follow you on the science. We can’t stop our
still growing GHG releases on a dime, much less the short- to
medium-term feedbacks from water, methane and albedo changes, and
long-term will persist for centuries, and the water cycles, the oceans’
pH and world’s biota are changing noticeably and fairly rapidly, even
without significant further increases during the past decade – yet what
is it, precisely, about our ability to change our influence on the
system or to control responses that gives you comfort? Why do you seem
to think it is “conservative” for our nation and others to do nothing
in light of our remarkable and uncontrolled global climate experiment?

BTW, surely you are aware that Hansen has earlier offered extensive
information that paleoclimate records indicate that long-range climate
rsponse to a CO2 doubling is on the scale of 3 degrees C. Did you miss
that? Or were you more eager to say that Hansen’s reference to more
recent studies about facts some how implies that Hansen is “dissing”
models? What’s the point anyway, other than point-scoring – if facts
appear to indicate that long-term sensitivity is relatively high,
should we be ignoring that and placing our faith in models instead?
Should facts not further inform models, or policy-makers?

Second, while you note Hansen’s attack on cap & trade and his
“tax and dividend” proposal “quite clever”, you fail to offer any
opinion on the realative merits of these quite different proposals.
Instead, you offer some sniping criticisms of tax and dividend, as if
you are hoping that the consequence will be that the Obama
administration, Dems and rent-seekers generally will turn away from
climate policy altogether. But isn’t that nothing but wishful thinking,
and shouldn’t libertarians and others who prefer to avoid the
monstrosity of cap & trade be trying to encourage the efforts of
those whose proposals would be much less economically damaging? Isn’t
Hansen’s proposal far preferable over cap & trade, and the kind of
industrial planning that Jon Adler says is inevitable from the EPA
under EPA vs. Massachusetts without legislative action?

Exxon and a host of others (as noted at the blog posts linked at my
name) have come clearly down in favor of carbon taxes over cap &
trade; perhaps you may at some point care to favor us with your own
comparative views.

It seems to me that Hansen’s proposal is clearly preferable; it
could be easily implemented and monitored, would not involve large new
bureaucracies, would be much more transparent and less susceptible to
rent-seeking, would provide market signals on GHGs while having no
fiscal impact, would be grounded in the principle that the atmosphere
is owned by citizens and not government (or by corporations that are
given or purchase rights to emit GHGs), and, by being refunded per
capita to citizens would be generally progressive.

Third, as for your criticisms of Hansen’s proposal:

– carbon taxes will hit coal use more heavily than petroluem or
natural gas, so focussing first on “pain at the pump” smacks of
pandering, especially as revenue recycling may eliminate the pain

– older, dirtier coal plants are already uneconomic and generate
tremendous costs to health and property that are not costed to
producers or consumers; taxing carbon is a great way to end some of the
nonsense incentivized by the CAA. Your speculation about power supply
and electricity prices is nothing more than speculation, but oil and
gas-fired plants could be brought on line relatively quickly;

– as for the “green stimulus” effect, it is ironic that you fail to
see that the fact that “There is no guarantee people will use their
dividends to buy hybrid cars, energy-efficient appliances, or green
energy” is in fact an argument IN FAVOR of rebated carbon taxes as
opposed to cap and trade, as the first allows much greater economic
freedom and is thus more conducive to wealth creation. Further, not
only is dividending the tax proceeds a great way to make sure that the
government doesn’t have an even larger pot to dole out mandates,
subsidies and other goodies to favored industries, but the right could
trade its acceptance for such a tax for elimination of existing
subsidies to ethanol and solar.

– your point about labor productivity is fair, but it ignores the
social cost of carbon. Has forcing polluting industries for the ’60s on
benefitted society and improved productivity as a whole the whole? Or
is it simply more important to allow certain classes of producers and
consumers to profit while continuing to shift costs to others?

– as for “massive” transfers, this is all “would” and “could”
without any backing, and it completely ignores all of the massive
wealth transfers involved in the way we presently regulate power
generation and energy (and have refused to regulate GHGs). I’m happy to
have more information, but let’s not forget that the whole purpose is
to have a closer alignment between profits/benefits and social costs.


Steven Milloy – yet another thoughtful green-hater – on RFK, Jr. and "coal criminal" Don Blankenship

March 3rd, 2009 No comments

Anti-enviro Steven Milloy,adjunct scholar at CEI, author and co-founder of a gadfly free-enterprise fund, has a post up on his Green Hell Blog about some interesting recent remarks by Robert F. Kennedy, Jr.   Apparently RFK Jr., at the “Capitol Climate Action” rally held on March 2, said that 

“Massey Energy CEO Don Blankenship “should be in jail… for all of eternity,”  and that coal companies Massey Energy, Peabody Energy and Arch Coal are “criminal enterprises.”

It seems clear from the context that RFK Jr. is referring to these firm’s destructive “mountaintop removal” mining practices and the legal and political strong-arming (all the way up to bribing W.Va. supreme court justices) in which the leaders of these politically powerful firm engage, which I have commented on several times.

I’m a bit disappointed that Milloy does not favor his readers with an explanation for why RFK Jr. is wrong, and Milloy closes with these puzzling remarks:

“But if Kennedy wants to oppose coal while honoring his father, perhaps
he ought to adopt RFK’s pro-nuclear stance. According to a March 21,
1967 New York Times article, RFK proposed that the New York
State Power Authority be permitted to develop nuclear power pants and
that private investment in nuclear power be encouraged.”

Milloy’s apparently favorable reference to nuclear power and his faiure to address the real social costs of coal stirred me to make a few comments, which I copy below:

Steve, just a few quick questions:

– are you seriously pushing nuclear power, or just cynically
flogging Kennedy for a technology that energy experts like Cato’s Jerry
Taylor have concluded just aren’t economical without life-support from

– do you disagree that coal is dirty, and imposes serious impacts on
health and property rights, both when mined and burned? The American
Lung Assn said in 2004 that power plant pollution causes 24,000
premature deaths each year (at least 50% more than annual homicides),
as well as over 550,000 asthma attacks and 38,000 heart attacks

– States like North Carolina are still suing – and winning – in
federal court to force power producers (like the big, government-owned,
polluting dinosaur TVA bureacracy) to be cleaner:

Do you love the TVA, and hate North Carolina?

Inquiring minds want your help in figuring out whom to hate, and why.

Who are the misanthropes – "Malthusians" or those who hate them? Rob Bradley and others resist good faith engagement despite obvious institutional failures/absence of property rights

March 2nd, 2009 4 comments

In a series of posts at the self-declared “free market” blog of the fossil-fuel energy industry funded Institute for Energy Research, energy expert  Rob Bradley (former Ken Lay speechwriter and Enron policy wonk) explores his dark forebodings that the “Malthusian wing” of the Obama administration and the environmentalist Left are actually enjoying and welcoming the present economic predicament.  Says Bradley, putting words in the mouth of his Malthusian stalking strawman:

“The economic recession/depression is good, not bad. It lowers our carbon footprint in countless ways. It saves resources. It throttles back industrial society to sustainable levels that were exceeded long ago. Let the downturn continue to get us out of the growth mentality. Let rising expectations fall! Less is more!”

[From: The Malthusian Wing of the Party in Power: When Will They Speak Up?; see also Beware of the New “Limits to Growth” (and looking for ReaganVision to CarterVision).]  Bradley will apparently be transported by paroxyms of self-satisfied delight/misery if a lefty, particularly one inside the Administration, ventures to say something like this.

Bradley may very well prove to be right that someone on the left may assert that an end to the “growth is good” mentality may be a silver lining in our recession.  But in his focus on prognosticating what plots the “Malthusians” may be hatching, Bradley simply refuses to actually engage the “Malthusians” on either their premises or their proposed solutions – namely, that there are real and serious problems that our societies must address and that more government is needed.  Indeed, Bradley doesn’t even venture to explain why he considers the Malthusians to be wrong, apparently assuming that this is self-evident. 

But as I have noted any number of times, there is indeed a wide range of very real and serious issues to be discussed, both as to problems AND to proposed “solutions”, such as I have noted in these two posts:

Too Many or Too Few People? Does the market provide an answer?

Food shortages: Ron Bailey takes up the cry, are Malthus and “Green fascism” on the march?

As a result, Bradley does not appear to be interested in the slightest in engaging productively with the Obama administration or the Left, and so in effect uses the term “Malthusian” as a type of shibboleth (or even an article of faith?) among supposedly “right-minded” people, and as an ad hom against the left.  In this, Bradley echoes others such as George Will who, in a recent editorial about climate change, warned of “dark green doomsayers”.

While I do not agree with the Left that more government is always the right solution, those on the right cannot win these arguments simply by name-calling or by trotting out – as George Will did in his editorial – the 1980 bet that Paul Ehrlich and others lost to Julian Simon over the future prices of minerals and commodities.   But the Ehrich-Simon bet was well-known; why not use it?   Because those who do so have ignored the reason why the Simon triumphed and Ehrlich lost, which was that because people own mineral resources, markets functioned to both to change demand and to provide incentives for future supply (and Ehrlich was no economist).  But none of this logic holds true for unowned or “public”, open-access resources – like the acidifying oceans, tropical forests and the global atmosphere and the climate it modulates – for which there simply are no effective property rights or functioning markets.  Instead, we continue to see see destructive exploitation (and kleptocracy in the countries where powerful elites elevate their interests over those of citizens). 

So, in the context of the issues that the “Malthusians” are now raising – in this case, the atmosphere – the Simon-Ehrlich bet stands for a propositions whose conditions clearly at present are not fulfilled, and which will not be fulfilled without hard work.  Until that hard work of establishing property rights or other effective governance institutionsis completed, people with legitimate preferences as to such resources and who are concerned about the effects of modern market demands on them have little ways of expressing those preferences other than through pressure on policy makers and attempts at moral suasion.

As an aside, let me note that nowhere does Bradley acknowledge that the Obama administration and Left inherited our economic shambles from freedom- and market-loving Greenspan/Bush/Bernanke/Paulson and the Right.  In this, Bradley resembles NRO commentator Henry Payne, who recently was so quick to lay all of the woes of the US automakers at the foot of the Obama administration and Washington Dems.  It’s sad that what may otherwise be legitimate commentary is so skewed by such transparent partisan bias and inconsistency.  Such reflexive partisanship also ignores not merely the responsibility of the Right, but also ignores what appear to be fairly significantly weaknesses in the structure of Western capitalism, which have been commented on by Michael Lewis, Joe Nocera and James Glassman and William Nolan at the WSJ; viz., weaknesses stemming from the weak governance and moral hazard (and strong rent-seeking) that is encouraged by the state grant of limited liaibility to corporate shareholders.

In other words, there are lots of real issues to discuss, from difficult resource issues that require collective action to address to public choice problems inherent in the use of government.

Those who profess a love of reason should turn to it, and not hobble themselves by a reliance on facile assumption and shallow ad homs.  Unless, of course, the aim is not to resolve underlying issues of appropriate institutions, but either to “win” the argument by wresting control of policy (and of related rents) from perceived competitors or, if winning is not likely, to at least satisfy emotional needs by railing at foes while surrendering the field (and the selection of policies) to them.

Let me close with a note of one small irony:  while Bradley is expecting that the Left will embrace the recession as a way to deliberately slow growth, Bradley’s own associate at IER, Austrian economist Bob Murphy has just put up on his personal blog a “wonderful clip” by comedian Loius C.K., who comments:

“Those were simpler times, I think; I just feel that we may be going back to that, by the way.  In a way, good; because when I read things like, “the foundations of capitalism are shattering,” I’m like, maybe we need that; maybe we need some time where we are walking around with a donkey with pots clanging on the sides.  … Yeah, because everything is amazing right now, and nobody’s happy.”

Seems like even Malthusian-haters will only be happy if we’re all more miserable!