Archive for October, 2009

The Road Not Taken II: Austrians strive for a self-comforting irrelevancy on climate change, the greatest commons problem / rent-seeking game of our age

October 30th, 2009 3 comments

[Update: Readers may wish to note the latest developments, as I note in these follow-up posts.]

Stephan Kinsella – whom I have engaged before on the ramifications of the decidedly non-libertarian state grant of limited liabiility to corporations – has a new post up on the Mises Blog on global warming;  his first on this subject, as far as I know.

The post is surprisingly short, and consists of a simple introduction by Stephan a copy of letter to the EPA (which he has appended) that one Howard Hayden, a retired physicist, one whom Stephan assures us is “a staunch advocate of sound energy policy” – whatever that means (hey, me too!) – submitted in connection with the EPA`s Supreme Court-mandated consideration of whether to regulate CO2 and other greenhouse gases. Stephan also refers to Dr. Hayden`s letter as a “one-letter disproof of global warming claims.”

I welcome Stephan to this discussion, which has taken place at the Mises Blog in fits and starts over the past few years. However, the absence of any commentary by Stephan leaves me scratching my head. Where`s the beef? Are this person`s scientific views on climate so convincing or obviously correct, and are the policy implication so straightforward, and correct, that we should all “get it” and agree, without any commentary by Stephan? Or Is Stephan simply playing with our credulity, and his own?

In any case, given both (1) the focus of Austrian economics on productively addressing conflicts between people with conflicting preferences (and the frequently negative role that governments play in resource tussles, generally to the benefit of entrenched insiders and to government itself) and (2) the recent Nobel prize award to Elinor Ostrom regarding the ways that humans work together successfully or not) to address common resources, I am simply disappointed. Is this all that Stephan has to offer?

Observing that Stephan fits within a grand tradition at Mises of shallow thought on climate and other “environmental” issues, I felt compelled to post a few thoughts at Stephan`s post, which I copy below:



Thanks for bringing your post to my attention.

My short response? Remember “Thank you, Prof. Block, for feeding our confirmation biases“?

But since I can`t resist doing what nobody else seems inclined to – I suppose it is, after all, why you invited me to this feast – let me make a few comments on matters that would apparently not otherwise occur to you or to the rest of the community.

The fact that most of the contents of Dr. Hayden`s letter is confused twaddle that has been explained in detail countless times (and personally by me, ad nauseum, to the extreme annoyance of most of the blog over the years 2006-2008) aside, it puzzles me that you and others prefer to treat the pages of the Mises Blog as a forum to dismiss – through drive-by postings like this (a la Walter Block) of a particular piece of “skepticism” that caught your fancy – extremely widespread scientific views (held by EVERY major national academy of science, including China and India), rather than engaging in a discussion of preferences, institutions and policies.

As I`ve asked Jeffrey Tucker previously, is science the forte of the Mises Blog, or its readers?

Even if those who believe that man`s rising emissions of CO2 have nothing to do with an observably rapidly changing world and pose no threat whatsoever – and that those who disagree are all deluded and/or evil – turn out, after we play our little massive and irreversible game with the Earth for another few centuries, to be absolutely right, is engaging with them by dismissing their concerns an approach that holds even the slightest prospect of success?

It`s as if Austrians were determined to ignore their own principles, stampede themselves into irrelevancy, and to make sure that we get the WORST policy outcomes possible.

Why not, if you think others all wrong, deluded or evil, play along with their game, and actually seek policy changes that might not only address the expressed concerns of others in a meaningful way, while also advancing a libertarian, freedom-seeking agenda?

As I have noted in a litany of posts at my blog, most recently one addressed to Bob Murphy, such pro-freedom regulatory changes might include:

  • accelerating cleaner power investments by eliminating corporate income taxes or allowing immediate amortization of capital investment,
  • eliminating antitrust immunity for public utility monopolies (to allow consumer choice, peak pricing and “smart metering” that will rapidly push efficiency gains),
  • ending Clean Air Act handouts to the worst utilities (or otherwise unwinding burdensome regulations and moving to lighter and more common-law dependent approaches),
  • ending energy subsidies generally (including federal liability caps for nuclear power (and allowing states to license),
  • speeding economic growth and adaptation in the poorer countries most threatened by climate change by rolling back domestic agricultural corporate welfare programs (ethanol and sugar), and
  • if there is to be any type of carbon pricing at all, insisting that it is a per capita, fully-rebated carbon tax (puts the revenues in the hands of those with the best claim to it, eliminates regressive impact and price volatility, least new bureaucracy, most transparent, and least susceptible to pork).

Other policy changes could also be put on the table, such as an insistence that government resource management be improved by requiring that half of all royalties be rebated to citizens (with a slice to the administering agency).

As Rob Bradley once reluctantly acknowledged to me (in the halcyon days before he banned me from the “free-market” Master Resource blog), “a free-market approach is not about “do nothing” but implementing a whole new energy approach to remove myriad regulation and subsidies that have built up over a century or more.” But unfortunately the wheels of this principled concern have never hit the ground at MR [persistently pointing this out it, and questioning whether his blog was a front for fossil fuel interests, appears to be what earned me the boot].

There have been occasional   libertarian  climate  proposals floated over the past few years, but they have never graced the Mises Blog, instead falling gently to the ground unnoticed – apparently, except for me – like the proverbial unstrained koala tea of Mercy.

Austrians seem to act as if the love of reason requires a surrender of it in favor of the comforting distraction of a self-satisfied echo chamber of a type that would warm the cockles of any like-minded religious “alarmist” cult.

Then of course, we have our own  home-grown libertarians who are happy to participate actively in the debate (with many excellent points, naturally), but carefully skirt for the purposes of maximum effectiveness (and felicitously, for their own consciences) the fact that their views are funded by the dirtiest class of rent-seekers. Plus we have a few who are happy to regurgitate for us “heroic” “grassroots” efforts that are transparent corporate PR ploys.

Finally, since no one else seems to be remotely interesting in scratching the surface of Dr. Hayden`s letter, here is what a little due diligence turns up:

– sure, the solubility of CO2 in water decreases as water warms, and increases as water cools. Some skeptics use this to suggest that rising atmospheric CO2 concentrations are due not to man, but to a naturally warming. That`s why it`s so interesting that, despite a warming ocean, ocean pH is rising [oops, I meant pH is “falling”, as I`ve noted in a previous comment about rapidly changing ocean pH]  because dissolved CO2 is also rising (because man`s CO2 emissions are forcing more CO2 to be dissolved in water).

– You ask sarcastically, if the melting point of ice is 0 ºC in Antarctica, just as it is everywhere else, how will a putative few degrees of warming melt all the ice and inundate Florida, as is claimed by the warming alarmists? The answer is, simply, that (1) the warming oceans melt and undermine the coastal ice, and (2) as coastal buttresses are removed, gravity brings the continental ice down more rapidly. This process is well underway and apparently accelerating, as described in a study just published in Nature. Note also that not all of Antarctica lies precisely at the South Pole, and that some parts are melting directly as the atmosphere warms.

– finally, not all men are dinosaurs, nor is the rest of extant Creation (save birds, of course). Why should we feel comforted by the fact that we may, in the blink of an eye in geologic time (decades/centuries), be terra-forming the Earth for creatures that no longer exist, while stressing it for the rest of Creation? Do we have no right of preference in climate or in the life we share the Earth with, or have the investors in fossil fuel firms homesteaded the right to modify environmental matters willy nilly, come what may?

Thanks for providing the soapbox, Stephan.


I note that Stephan closes his introduction to Dr. Hayden`s letter with the following:

“I love Hayden’s email sign-off, “People will do anything to save the world … except take a course in science.””

Would that problems of governance of shared resources were so easy as taking a science course! Then ALL of us Austrians, and not merely our leading lights at the Mises Blog, could simply pack up and go home, and leave everything to a few philosopher-king scientists!

[update] Bob Murphy, Rob Bradley and the Austrian Road Not Taken on Climate by two fossil-fuels gunslingers

October 28th, 2009 No comments

[Update: I copy at bottom a follow-up exchange I had on Bob`s thread with another reader – radio silence from Bob.]

Bob Murphy has a new post up at his blog, “CBO Testimony Misleads on Cost of Cap-and-Trade“, that draws attention to a new blog post at the Institute of Energy Research that Bob says he “had a lot to do with”.

The IER post rightly criticizes some of the numbers that the Congressional Budget Office has released, but the IER is playing games itself.

I left the following note at Bob`s (now substantially goosed up for the benefit of readers):

TokyoTom said…

IER? Isn`t that the “free-market” blog that bans libertarians who are not on their pro-coal, pro-pollution wagon? [Oops, I confused this with Rob Bradley`s MasterResource blog; IER is different, in that IER is – much more clearly than MR – an active rent-seeking front for fossil fuel interests, which Exxon made clear last year when it publicly announced that it would no longer fund IER`s “unproductive”, climate-skeptic position.]

But while we`re on the subject, let`s not forget:

– Austrians` fundamental objections to cost-benefit analysis;

that the mining, transport and combustion of coal, in addition to whatever climate “cost” it
might have to various people whose preferences can`t be measured, have
very real and significant costs in terms of damage to persons and property;

that federal law authorizes this (via the “Clean Air Act”, surface mining laws and ownership of the TVA), and grandfathers the very worst
midwestern utilities, the oldest 10% of which (41 or so) are  estimated to be responsible for 43% of the
$62 billion in annual  damages (not including damages from harm to ecosystems, effects of some air pollutants such as mercury, or climate change)(according
to the latest NAS report on the indirect costs of fossil fuels);

– that our federal government and states own most of the coal deposits and are otherwise addicted to the royalty revenues and complicit in turning a blind eye to damages;

– the future “costs” that the IER analysis refers to (in 2050) are not discounted to present value;

that alternative policies – such as

are never advanced, much less their costs weighed [that is, no attempt is ever made to engage opponents in good faith or to seek mutual gains by working to resolve underlying problems];

– the costs/consequences/risks and equities of “do-nothing” policies are hardly considered, and when so are heavily discounted;

– that deliberate “geo-engineering” holds no promise as a panacea, and itself is fraught with issues about statism, preferences, risks and liaibility;

the need for investment in infrastructure and change in laws to adapt
(and foster adaptation) to very real ongoing climate changes are never
discussed; and

– no one at IER ever seems to question the
unstated presumption that utilities and our transportation industries
have somehow homesteaded an ownership right over the global atmosphere – or the massive role that our federal government and states play as coal and other energy resource owners),
so that it`s perfectly okay to dismiss the preferences of those who
have concerns at home [those “religious” nuts like Exxon, and our Academies of Science] and those abroad in the least developed countries
that are most vulnerable to damages (much less to suggest how those
injured should be aided).

In other words, those defending the
status quo seem to have abandoned any Austrian training (or to have no
familiarity with its concern for problem-solving and awareness that
[as Block points out] common law protection of private property rights was hijacked a century
ago, with massive pollution and rent-seeking problems being the result

ought to post a few of these thoughts over at IER; Rob Bradley somehow
finds comments of this type over fundamental principles to be “ad hominem” arguments [of the kind that very quickly tested his patience and got me banned, without any word to his co-bloggers, who found my comments worthy of considered response].

Sure, we should fight over policy, but let`s not ignore principles or put our heads in the sand.

October 28, 2009 10:10 AM

*  From the NAS report:

Coal accounts for about half the electricity produced in the U.S.  In
2005 the total annual external damages from sulfur dioxide, nitrogen
oxides, and particulate matter created by burning coal at 406
coal-fired power plants, which produce 95 percent of the nation’s
coal-generated electricity, were about $62 billion; these nonclimate
damages average about 3.2 cents for every kilowatt-hour (kwh)
of energy
produced.  A relatively small number of plants — 10 percent of the total number — accounted for 43 percent of the damages.  By 2030, nonclimate damages are estimated to fall to 1.7 cents per kwh.


Supporters of cap and trade always turn to the
argument that opponents are burying their heads in the sand. It’s not
true. This legislation won’t do anything to help the environment. It is
merely a front so that the administration and the Democrats can say
they did “something.” We don’t need legislation that is going to cost
every single American household and won’t even be able to achieve its
stated goals. Write your Congressmen at

[A], you`re missing my higher -level poinht, which is that IER is
rather apparently UNINTERESTED in engaging productively or on a
principled basis on this issue; rather, they are simply sniping (though
they make excellent points) at the cap-and-traders).

of course, from the view of those financing them, this form of
engagement may very well be “productive”, if it delays any action that
will lower returns to coal, rail or utility investors.

regrettable is that this obfuscation, which has been going on for
decades, is what is likely to saddle us with extremely costly, porky
and ineffective “climate change” policies.

My freaking thoughts on the "Superfreakonomics" climate chapter and on geoengineering

October 22nd, 2009 No comments



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Positive sum games: Get yer Elinor Ostrom here! A reprise of posts on rolling up our sleeves to address real problems that "markets" (& govt.) now aggravate

October 16th, 2009 No comments

I excerpt below, in chronological order, portions of my prior posts here that refer to Elinor Ostrom (the political scientist who recently was awarded the Nobel prize in economics) and are indebted to her thinking.

Perhaps items 3 and 10 are most accessible for readers in a hurry to find links to her own work.

1.   Too Many or Too Few People? Does the market provide an answer?, Sep 28 2007:

Too many or too few? Good question, Dan.
I agree with you that the population question is like any other aspect
of the social order: best addressed by the market and by free societies.

There are just a few small problems – even within the developed
world (and very clearly outside of it), there are many important
resources that are unowned and thus not fully priced in the “market” economy.

Unowned resources include almost all of Nature.  Primary
productivity (the amount of vegetation produced from photosynthesis)
has changed little, so as we use technology and our organizational
abilities to divert more and more of it to feed us, this is an
inevitable cost to other species, either directly or in the form of
altered environments that support less life (and less diversity of

In altering our environments to suit us, we are of course no
different from other life forms that compete for resources to live and
propagate, but with our technical and organizational abilities, mankind
has clearly triumphed over the rest of nature (except perhaps evolving
microbes, to whom we represent an increasingly large and relatively
untapped food source). But at what cost?

Through the centuries we have wiped out many wild systems of food
and other resources – because they were never owned, and because our
improving technology enabled us to race each other to take the
resources before others (or from others, in the case of many native
peoples). Not only Jared Diamond`s “guns, germs and steel”, but
also forms of social organization have played deciding roles in the
competition between human societies for survival, growth and
dominance.  In this regard, societies that recognize and protect
property rights and utilize free markets have proven clearly superior
in the competition with other societies to obtain and utilize available

But our struggle has been not only to capture resources and to use
them before others do, but also to manage and protect them
effectively.  Evolving ownership systems have been a key means of
limiting wasteful “tragedy of the commons” struggles (see Yandle; von Mises),
but even where ownership systems have been implemented, we have
generally replaced complex natural systems with simpler systems
designed solely to feed us (and particularly so where, due to higher
consumptive demand, we have replaced common property systems with
private property systems (Ostrom)).

Meanwhile, virtually all of the natural world – the world’s oceans,
atmosphere, tropical reefs, tropical forests and other great commons –
remain unowned and thus unmanaged and unregulated (or indigenous
occupants have been forced aside).  For example, the great cod fishery
off of the Grand Banks that fed Europe for centuries has now
disappeared, and other fishery stocks worldwide are crashing – to be
“replaced” by “farmed” fish that are fed to a substantial degree by
catching and grinding up fish stocks that humans prefer not to consume
directly, and in part by fish firms that are established by destroying
the mangroves that are estuaries to various fisheries.  The same is
true of the replacement of vast tracts of tropical forests with
soybeans or oil palm plantations, with the rapid increase in
atmospheric CO2 (and attendant risks to climate) and with the
correspondingly geolologically rapid increases in ocean acidification (and
threats to plankton, corals and shellfish).

While populations in the developed economies are now relatively
stable, demand from our markets (as well as the burgeoning developing
markets) continues to strip out unowned (or mismanaged “public”)
resources from the oceans or undeveloped countries, aided by
kleptocratic elites who are happy to steal from the peoples they
supposedly represent in order to line their own pockets.  

As Dan points out, property rights failures in poorer nations
contributes to population growth there by delaying the demographic
transitions that we have experienced.  Developed economies face similar
problems with respect to “public”, state-owned lands, for which
rent-seeking by and sweet deals to insiders are enduring problems and
sources of politcal conflict (as markets cannot work to allocate

Dan states that the stunningly rapid growth of human populations
from the Renaissance to the present (6+ billion now expected to nearly
double again soon) “actually represents the rise of capitalism and
capital development … [and]  shows … the stunning capacity of
freedom to provide for the whole world.”  While partly correct, this
misses completely the question of our massive impact, within a very
short period of geological time, on the environment in which we evolved
over millions of years, the fact this has occurred because clear and
enforceable property rights have not been created in many of the
resources that have been consumed, and the corollary fact that
we continue to lack the ability to manage our impact on our endowment
of natural resources.

The market clearly does NOT send accurate pricing signals with
respect to goods that are unowned or ineffectively owned; these goods
are either unpriced or underpriced, so the effect is overconsumption
until the point that the resource is greatly degraded, at which point
attention is turned to the next unowned resource.
Thus, human
populations are responding to rather imperfect market signals.  And
where resources are unowned, individuals and groups with differing
values and desires cannot adjust or realize those desires by means of
private, market transactions.  As a result, we are seeing a recourse to
the public and political arenas – and the inevitable discordant debates
– as various parties seek to use either moral suasion or the levers of
government (locally, nationally and internationally) to advance what
they consider to be their own interests.
  (Of course, in a “tragedy of
the commons” situation, all resource users share an interest is the
future availability of a resource; the difficulty is in the prisoners’
dilemma negotiations at the primary user level about how to allocate
short-term pain in the interest of long-term gains, compounded in the
case of multinational resources by rent-seeking with each national

A cynic may say that our ongoing assault on nature is only
“natural”, presents no moral or philosophical issues and that we hardly
owe any responsibilities to “nature” or even “future generations” –  so
let’s just all keep on partying, consuming for today, and patting
ourselves on the back at how marvelous our market systems are.  And
that we should keep on hurling invective at those evil “enviros” who
want to crash the party and drag us all back to the Stone Age.

Perhaps I suffer from a want of sufficient cynicism.

2.    Using the State to solve common resource problems?, Oct 12 2007:

How exactly do you transfer commons into private ownership in a fair way, even for easily divided up stuff like land?

Libertarians do not insist that open-access resources (or common
property resources/CPR) be divided up by creating individual property
rights; cooperative ownership  via formal agreements or informally
developed practices and customs (such those developed by Maine
lobstermen, English angling clubs, indigenous peoples and Wikipedia and
online communities) may work better at solving the prisoners’ dilemma
issues and are just as acceptable

But technological advances and greater demand often swamp CPR
regimes, so such regimes remain vulnerable if they are not accorded
legal protection. My understanding of the UK enclosures in this regard
is that they were actually a legislative theft of common property by
the powerful.

Can states play positive roles in solving problems? At least
internally, it is rather clear that the answer is that the state works
best by allowing, and providing judicial mechanisms to enforce, private
transactions, and works least well when it tries to specify detailed
and rigid “solutions” itself – since the government itself never has
perfect information, often plays favorites and once a regulatory regime
is put in place, parties have no ability to work out their differences
directly with each other, but are forever in the position of trying to
influence the state and in adversarial positions vis-a-vis each other. 
But states can also play a positive role by disseminating information
and by acting to facilitate deals between various resources users,
particularly in cross-border/multi-state problems.

Elinor Ostrom is the guru of CPR regimes; anyone interested
should look into her fascinating and highly-regarded work, particularly
her seminal Governing the Commons (1990).

[She is a member of the American Academy of Arts and Sciences, the
National Academy of Sciences, and the American Philosophical Society,
and a recipient of a number of prestigious awards. Her other books
include Rules, Games, and Common-Pool Resources (1994); The Commons in the New Millennium: Challenges and Adaptations (2003); The Samaritan’s Dilemma: The Political Economy of Development Aid (2005); Understanding Institutional Diversity (2005); and Understanding Knowledge as a Commons: From Theory to Practice (2007).]

Here is one link to get readers started:  Elinor Ostrom et al.,
Revisiting the Commons: Local Lessons, Global Challenges, Science 9
April 1999:

Technology seems to provide us ability to create property rights regimes in ocean fisheries.

stickiest problems are those where the resource is located in a country
where we cannot ourselves create or enforce legal rights and in the
atmosphere, which no one owns and to which all have access.
Unfortunately, many libertarians don’t even want to acknowledge, much
less discuss, these problems. Since they are not confined to any one
country, clearly we need to coordinate with others – for which
purposes our state apparatus cannot be avoided.

Reaching any kind of effective solution for problems of this type
will require much more focussed attention and bridge-building (abroad
and at home), and if libertarians do not want to be part of the
discussion, clearly they will have little influence on the results.

3.    Sophomoric optimism?, Oct 16 2007:

Our states are merely one subset of the wide universe of formal and
informal institutions through which we cooperate with one another. 
States are not a market, to be sure, but then neither are corporations,
and there is a spectrum of ownership types between the two.  We can
study all of these institutions and use that knowledge to direct how we
make use of them.  Such study has informed, for example, the deliberate
shifts in policy that have led to the ongoing (yet incomplete)
privatization of the former USSR and of China. 

A study of institutions governing common pool resources by guru Elinor Ostrom makes the following point:

 “Whether people are able to self-organize and manage CPRs also depends on the broader social setting within which they work. National governments can help or hinder local self-organization. “Higher”
levels of government can facilitate the assembly of users of a CPR in
organizational meetings, provide information that helps identify the
problem and possible solutions, and legitimize and help enforce
agreements reached by local users. National governments can at times,
however, hinder local self-organization by defending rights that lead
to overuse or maintaining that the state has ultimate control over
resources without actually monitoring and enforcing existing

“Participants are more likely to adopt effective rules in
macro-regimes that facilitate their efforts than in regimes that ignore
resource problems entirely or that presume that central authorities
must make all decisions.
If local authority is not formally recognized by larger regimes, it is difficult for users to establish enforceable rules.

Elinor Ostrom et al., Revisiting the Commons: Local Lessons, Global Challenges, Science, 04/09/99

Was von Mises foolish to suggest we can use the state to reform our institutions?

“It is true that where a considerable part of the costs incurred are
external costs from the point of view of the acting individuals or
firms, the economic calculation established by them is manifestly
defective and their results deceptive. But this is not the outcome of
alleged deficiencies inherent in the system of private ownership of the
means of production. It is on the contrary a consequence of
loopholes left in this system. It could be removed by a reform of the
laws concerning liability for damages inflicted and by rescinding the
institutional barriers preventing the full operation of private

And Cordato, for suggesting that Austrians take particular policy approaches to environmental issues?

“For Austrians then, public policy in the area of the
environment must focus on resolving these conflicts over the use of
resources that define pollution, not on obtaining an ultimately
unobtainable “efficient” allocation of resources. …
For Austrians, whose goal is to resolve conflicts, the focus is on clarifying titles to property and rights enforcement.

Sorry, but I cannot believe that we are condemned always to repeat
all mistakes, despite our rather constant human nature.  Rather, as Yandle notes, our very history as a species is about our success in evolving, devising and adopting ways to manage shared problems.

This is a message of profound optimism, not cynicism — said the fool.

4.    Ron Bailey of Reason congratulates Al Gore , Oct 15 2007:

1.  You were right last year when you
said that “In the end, the debate over global warming and its obverse,
humanity’s energy future, is a moral issue.”

2.  I share your understanding of the
economics and institutional problem and agree that a straightforward
explanation of these is important for very many.

3.  However, you forget what
evolutionary psychology, Ostrom and Yandle have explained to us so well
about how our innate moral sense drives and underpins mankind’s success
as a species by enhancing our ability to cooperate and to overcome
commons issues.


Our long history of developed rules and
institutions (informal and formal now overlapping) are based on our
moral sense and the effectiveness of these rules depends critically on
our moral investment in accepting their legitimacy – witness our views
on murder, theft, lying and “not playing by the rules” – and in
voluntarily complying with them.

Our moral sense reinforces our judgments
about when rules/institutions are not working and the need to develop
new ones in response to changing circumstances and new problems.  When
we see a problem that we think requires change, it is unavoidable that
we respond the the status quo, the behavior of people within it and the
need for change with a moral sense. 

This is simply a part of our
evolutionary endowment.  (Of course, other parts of our endowment
accentuate our suspicions of smooth talkers and help us catch free
riders and looters and to guard against threats from outsiders.)

4.  Accordingly, while it’s unclear how
deliberate Gore’s talk of “a moral and spiritual challenge” and
“lifting the global consciousness” is or whether this is a
productive approach for some people, I think it is fairly clear that,
in order to build consensus for a solution to the climate commons
problem (and other difficult commons problems) and to ensure that any
agreed solutions are actually implemented, we will need to bring our
moral senses to bear.

In other words, it is RIGHT to worry
about climate change, but no meaningful/effective “solution” can be
reached or implemented unless it is FAIR and the parties involved have
sufficient TRUST (backed by information) in each other.

5.    Not Climate Change Welfare, But Capitalism and Free Markets, Jan 22 2008:

[F]ar from “forc[ing] rich countries to become poor”,
figuring out how to manage a global commons like the atmosphere, while
it may have the effect of imposing a cost on the release of carbon, is
basically aimed at privatising externalities, with the intention of
increasing the efficiency of private transactions and net wealth.
change is, of course, just one of a broad range of pervasive problems
that occur when markets encounter resources that are not clearly or
effectively owned or managed.

3.  Most importantly, while Lockitch correctly diagnoses the illness
– poor countries need to “embrace free markets and private property
rights and attract the investment of profit-seeking entrepreneurs to
create wealth and drive economic growth” – he simply fails to address what wealthy nations SHOULD be doing, if anything, to assist the cure.  This,
of course, is the main dodge, because Lockitch fails to own up to the
true difficulties involved in trying to help the developing nations.

Trying to build “soft” infrastructure in the form of rule of
law and property rights (ending kleptocracy and theft of “public”
resources) is tremendously difficult – perhaps a problem that is even
more difficult than the wealthy nations deciding how to share the pain
of GHG reductions
(as I noted in comments to a post on Amazonian deforestation here:,
the wealthy nations have a hard enough time doing the easiest things to
speed development of poorer nations, which is simply to open import
markets by removing domestic tariffs, import restrictions and subsidies.
Rather, it seems that the richer nations have to feed their more
powerful elites first, while hamstringing competition from poorer
nations in products for which they should be able to exploit a
comparative advantage.  If Lockitch was truly interested in
helping the poor of developing nations, you’d think he’d note how
enduring rent-seeking at home serves to keep the poorer nations down.

And if the wealthy nations should do something to help
poorer nations, which seems implicit in Lockitch’s analysis (if not
conventional aid, then aid to build soft, governance infrastructure),
then can’t some of those efforts easily dovetail with efforts to
establish carbon pricing in the wealthy countries?  Why couldn’t aid
budgets be funded by carbon taxes at home, for example?  And can’t
demand for “carbon credits” help to establish incentives to improve
governance infrastructure in poorer nations?  In other words,
“mitigation” (efforts to limit climate change) in developed
nations need not conflict with any efforts to help poorer
nations “adapt” to climate change or otherwise become wealthier.

4.  Lockitch asserts that the concern of enviros for the world’s
poor is “feigned”, but this is a cheap and unproductive ad hominem –
and one that can easily be turned around.  While some enviros may not
understand the institutional sicknesses that hinder development, this
illness has been fed much more by governments and corporations at home
than by enviros, many of who have been involved in the long,
hard effort to build local infrastructure and to protect traditional
private and community property rights.

On the other hand, just what is it that evidences that
Lockitch himself – or other skeptics – have any “real” concern for the
world’s poor?  Does the wheel of this concern ever hit the road, or is
it simply spinning noisily, to welcoming nods from  domestic special
interests who benefit from the continuation of climate externalities?

A key insight of Austrian economics relating to the environment is that man does not harm the environment per se, but that social
welfare or efficiency problems arise because of interpersonal conflict
associated with irresolvable inefficiencies – inefficiencies that
cannot find a solution in the entrepreneurial workings of the market
 because of institutional defects associated with the
lack of clearly defined or well enforced property rights.  (See Roy
It is both ironic and disappointing that many Austrians and others
similarly minded, rather than focussing on the difficult task of
conflict resolution in the case of the climate, seem to prefer the
emotional rush of conflict itself over analysis and bridge- and
consensus-building.  But this is nothing new (and is certainly
tempting, given our tribal nature)( 

No one owns the world’s atmosphere, so all are entitled to
their opinions about managing it.  And clearly the world continues to
struggle with the rapid exploitation of other unowned, “public” or
poorly defined or protected physical resources, in the face of growing
populations, growing markets and technological advances that lower the
costs of access to the commons.  I suggest that rather than ad
hominems, we would be better served by frankly acknowledging problems
of this nature and starting to build shared understandings.
  The writings of Elinor Ostrom are a good place to start:

In honestly engaging on these issues, it is perfectly
appropriate – nay, essential – to be aware of the self-interests of
various participants and to caution against the problems of
rent-seeking, “rent-farming” by politicians, and frequently unaligned
incentives of bureaucracies

5.  Finally, this is a quibble, but Lockitch is wrong to assert thay developing nations need to “industrialize”.  What they need to do is to better govern themselves by protecting investments, markets and human rights, and then getting out of the way of their people. 
What results will be these countries’ own path, which will naturally
differ from Western industrialization (leapfrogging it in some ways).

6.   Rob Bradley cheers on coal, but are all those who want to better manage commons and environmental impacts “Malthusian” idiots, or only in the case of coal?, Feb 5 2009:

Rob Bradley has a new post up at MasterResource, cheering on big (and now “clean”) coal, which has apparently received assurances from the Obama administration – after being bad-mouthed by NASA scientist Jim Hansen, Steven Chu and Obama himself – that, despite pressures from the “Malthusian anti-energy crusade” regarding climate change impacts, the recent massive TVA fly-ash spill and opposition to destructive mountaintop removal practices in Appalachia, coal will remain profitable during Obama’s term and central to US energy supplies.  Hooray!

But I wasn’t quite clear on all of Rob’s message, so I asked him a few questions in the comment thread:

Rob, are the John Badens, Terry Andersons, Bruce Yandles, Elinor Ostroms
and others who want to find ways to manage our commons better – by
improving ownership, incentives and pricing signals – also part of a[n
evil] “Malthusian crusade”?

I just wanna make sure I know who to hate.

As for that big fly-ash breach/spill in
Tennessee, I’m glad that you didn’t point out how this was a result of
government ownership of TVA, with the added benefit that costs will be
borne not only by direct and indirect victims, but by taxpayers as
well. No sense in pointing out how government is so often in the way,
particularly if it detracts from our “we hate enviros!” message. Last
thing we ever want to do is to reach a shared understanding with
enviros of the institutional underpinnings of problems, since that
means our funders might lose some of their fairly purchased,
government-given special privileges.

While it’s clear that “free-market” Rob cares little about whether the coal industry continues
commercial activities that shift the environmental costs and risks
(including potential costs arising from GHG emissions) to others
I forgot to ask Rob whether, as a hearty cheerleader for those poor
coal underdogs, he also supports their position that the government
should subsidize their change in business model by (a) having Uncle Sam pay the bulk of capital costs for IGCC (integrated gas combined cycle plant) [something like $1 billion for the first one with CCS], (b) giving them a further break (reduced royalties) on the sweet deals they already have
for stripping coal from public lands and (c) – now that the federal
government is getting into the busy of running the financial sector –
making sure that power producers that want to use coal have easy access
to credit, by twisting the arms of those uppity Wall Street financiers
who with their fancy new “Carbon Principles” and “Enhanced Due Diligence” seem a bit too reluctant to extend credit for coal-fired power plants.

Here’s hoping Rob weighs in further.  I want to make sure I’m not
messing up when I try to distinguish the “white hats” from the “black
hats”.   From what I can tell so far, seeking to manipulate government
policy for your own benefit is evil – as long as you’re not a coal
firm – and we call the evil ones “Malthusians”.  Right?

7.     More stupid from Tierney; this time on “Kuznets curve” and the dynamics of “wealthier and greener”, May 12 2009:

Tierney seems to believe that the Kuznets curve means that greater
wealth magically makes for a cleaner environment.  To the contrary, it
is the hard work of people, expressing their desires to protect their
own property and to realize other preferences regarding shared
resources, to increase wealth by finding means (property rights
institutions, litigation and government regulation) to end tragedy of
the commons-type situtations, who improve their environment.
 That is, working to close externalities leads to both wealthier and greener societies.  

(I`ve remarked on the Kuznets curve before; interestingly, conservatives seem to misunderstand it more than liberals.)

I tried to offer a more libertarian understanding, which I`ve taken the
liberty of memorializing here (with typo correction and emphasis and
further links added):

Andrew, food for thought on enviro Kuznets:

Unfortunately, Tierney simply fails to understand that the enviro
Kuznets curve does not tell us that problems relating to environmental
cost-shifting or to the over-exploitation of unowned commons are best
resolved by ignoring them and simply hoping for the best. Rather, it
affirms that as people become more wealthy, they care more about
protecting the environment and put more elbow grease into achieving
improvements – via improved property rights protection, improved
information disclosure, greater consumer pressure and even through
greater regulation (which is the path the West has largely followed),
and reaching agreements with others sharing the relevant resource).

In other words, the work relating to global, regional and various
national commons (atmosphere, seas, forests, water, etc.) is still
ahead of us. Libertarians can advocate for property rights (and
privatization of public lands) as ways to have a more efficient (and
just) path on the curve, or they provide implicit support for powerful
and dirty industries by standing by and waiting until citizen pressure
groups force government to act in heavy-handed ways.

    • Andrew. I suggest that you start with this short article by Yandle.

      I have plenty more links on my blog to him, Terry Anderson, Mises, Cordato, Block, Rothbard and others on Austrian approaches to environmental issues, fisheries, and climate. Ron Bailey (at Reason) has good posts on fisheries; leading enviro groups all agree that more privatization is desirable:

      Commons remain commons either because government ownership
      prevents privatization (as in the Amazon, US public lands and most
      fisheries management) or because full privatization is difficult. There
      are many examples of the latter case that involve semi-privatization
      and commons management,
      like traditional forestries, fisheries and water rights. Elinor Ostrom is the expert on commons; I have plenty of links to her too. …

    • People and firms invest all the time in doing
      things in response to incentives, both positive and negative; viz. they
      also try to reduce costs, including the costs their activities impose
      on others if those they injured have rights of recourse. The effort to
      reduce costs is one of the chief factors driving technological advances.

      Surely you`re not suggesting that the best way to encourage
      wealthier societies is to free people from responsibility for the
      damages they cause others? That`s hardly a Lockean or libertarian view.
      A “Laissez Faire approach” leaves government out, in favor of voluntary
      transactions and enforecment of property rights, including rights not
      to be injured. The regulatory state has in fact been a boon to the most
      powerful producers, by giving them rights to pollute, often
      grandfafthering dirty plants, while forcing the highest costs on more
      nimble and cleaner producers.
      If you^re interested in learning
      about libertarian approaches to the environment, again, I suggest you
      look at Rothbard, Cordato, Block and others, whom I link to on my blog.

      You seem to make reference to the enviro Kuznets curve, and how
      wealthier societies bring pollution dow, while completely missing the
      dynamics. Wealthier societies clean up because they insist on
      bringing an end to tragedy of the commons-type exploitation of
      resources. A society that focusses on property rights typically has a
      lower curve than societies that fail to enforce property rights (needed
      for Coasean bargaining) in favor of government regulatory approaches.
      Our own curve remains too high, because wealthier investors prefer to
      use regulation to shift costs to the rest of society.

8.   Libertarians to lefty-enviros: without community-based property rights, sustainable fisheries are impossible, May 11 2009:

Elinor Ostrom has
also been a leader in documenting the ways that a community of users
(NOT the dread and sloppily misused “soc-ial-ism”) may effectively
manage a shared resource.

Readers might be interested in the World Bank`s Oct 2008 report, “The Sunken Billions; The Economic Justification for Fisheries Reform”.

With support from the World Bank, PERC is in the middle of hosting a conference
on approaches to sustainable fisheries (and on ending the massive
over-harvesting and wasted subsidies and mal-investment under current
regulatory approaches).

I also urge readers to look at what the organization Defying Ocean’s End (co-founded by Conservation International, The Nature Conservancy, Natural Resources Defense Council, The Ocean Conservancy, Wildlife Conservation Society, The World Conservation Union, and World Wildlife Fundhas to say about protecting fish:

“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.”

I`ve linked a number of my other posts on fisheries here.

9.   The tragedy of the panicked enviro II; understanding the “tragedy of the commons”, Aug 29 2009:

the Western
world has managed to create many environmental problems, but we`ve
largely cleaned up our own messes, haven`t we?  While it by no means
excuses our own faults, far worse environmental problems have been
created and are still stewing in Russia and other state-directed
economies, and it`s no coincidence that the vast pollution being
created in China and India are tied to governement-owned enterprise and
an inability of injured people to sue for damages or to stop harmful
  And the great waves of extinctions created as man spread
around the globe tens of thousands of years ago can hardly be laid at
the foot of either the Western world or of private property rights (nor
can the collapse of earlier civilizations).

“tragedy of the commons” is NOT a “simplistic market morality”, but a
description of cooperation problems and incentives relating to shared,
open-access resources.  The tragedy of the commons and problems of
cooperation – and theft – are not even limited to mankind, but permeate
  This perceptive article by Bruce Yandle touches on competition
in nature, and links the ascendance of man to our evolution of
relatively enhanced cooperation

“tragedy of the commons” paradigm is useful to analyze, but the
paradigm doesn`t “seek to moderate” anything, and is just as useful in
looking at the ways Western nations still contribute to environmental
problems around the world (as I point out here: as it is in examining:

– environmental devastation in Haiti (which has little or no property rights, and vast free-for-all “government” holdings),

deforestation in Indonesia and the Amazon:,

– pollution in China:, and

crashing fisheries around the world as a result of government of marine
resources (producing free-for-alls and fleet subsidies) and a
free-for-all for other unowned or unprotected resources:

say: “The rate of exploitation and the decline
of resources, water, energy, fisheries, soil, minerals, etc., all
occured under a free market, private property paradigm.”  This is
clearly demonstrably wrong, and draws entirely the wrong lessons. While
private property is certainly no panacea, neither are they what is
wrong.  Very often, is is governments that have been and are wrong,
though there is certainly some learning going on.

Garrett Hardin`s “The Tragedy of the Commons” certainly represents a
hypothetical situation, it is actually a very powerful analytical tool
for understanding and fashioning solutions to countless “real life”
problems. See Elinor Ostrom et al., Revisiting the Commons: Local Lessons, Global Challenges, Science, 04/09/99

“In real life,
corporations own, or vie to own, resources or access to them for the
purpose of extraction and profit and they seek to maximize profits
through economies of scale, that is industrial extraction methods,
drift netting, blowing up mountains, tossing mining waste into clear,
pristine lakes.

you describe here is a conflict between preferences over how resources
are used.  Do you prefer a free-for-all, or a situation where those who
use a resource can protect it, negotiate with others who wish to see
other values preserved, and who are responsible for negative
consequences caused to others (not always a part of some property
rights systems), or perhaps a situation where governments make all
resource exploitation decisions?”

“The money is in the resource and when the resource is
exhausted they will move on to the next one.”

money is never in the “resource”, but in the ways that people can use
it or otherwise value it (and of course people also value pristine

10.  Tragedy of the panicked enviro III: learning from Elinor Ostrom about cooperative action, Aug 29 2009:

Let me add some further nuance to Mr. Worstall`s comment by saying
that Hardin`s fertile observations have fuelled extensive further
research on common property problems, with Elinor Ostrom being recognized as a leading light.

Here is one general bibliography on commons research:

has refined Hardin`s work in the following way (quoting from a review
of Ostrom`s 1990 ground-breaking and extensively researched book
, GOVERNING THE COMMONS, The Evolution of Institutions for Collective Action):

Ostrom uses the term “common pool resources” to denote natural
resources used by many individuals in common, such as fisheries,
groundwater basins, and irrigation systems. Such resources have long
been subject to overexploitation and misuse by individuals acting in
their own best interests. Conventional solutions typically involve
either centralized governmental regulation or privatization of the
resource. But, according to Ostrom, there is a third approach to
resolving the problem of the commons: the design of durable cooperative
institutions that are organized and governed by the resource users

“The central question in this
study,” she writes, “is how a group of principals who are in an
interdependent situation can organize and govern themselves to obtain
continuing joint benefits when all face temptations to free-ride,
shirk, or otherwise act opportunistically.”

heart of this study is an in-depth analysis of several long-standing
and viable common property regimes, including Swiss grazing pastures,
Japanese forests, and irrigation systems in Spain and the Philippines.
Although Ostrom insists that each of these situations must be evaluated
on its own terms, she delineates a set of eight “design principles”
common to each of the cases. These include clearly defined boundaries,
monitors who are either resource users or accountable to them,
graduated sanctions, and mechanisms dominated by the users themselves
to resolve conflicts and to alter the rules. The challenge, she
observes, is to foster contingent self-commitment among the members

Throughout the book, she stresses the dangers of overly
generalized theories of collective action, particularly when used
“metaphorically” as the foundation for public policy. The three
dominant models — the tragedy of the commons, the prisoners’s dilemma,
and the logic of collective action — are all inadequate,
she says, for
they are based on the free-rider problem where individual, rational,
resource users act against the best interest of the users collectively.
These models are not necessarily wrong, Ostrom states, rather the
conditions under which they hold are very particular. They apply only
when the many, independently acting individuals involved have high
discount rates and little mutual trust, no capacity to communicate or
to enter into binding agreements, and when they do not arrange for
monitoring and enforcing mechanisms to avoid overinvestment and overuse.

concludes that “if this study does nothing more than shatter the
convictions of many policy analysts that the only way to solve common
pool resource problems is for external authorities to impose full
private property rights or centralized regulation, it will have
accomplished one major purpose.”

profile of Ostrom, who is a member of the National Academies of Science
and and Editor of its Proceedings, is here:

Her work can be found here:,+Elinor&hl=en&btnG=Search and


thing worth noting is that the historical and ongoing records are rife
with examples – such as our crashing local fisheries – where government
intervention has done more harm than good.
  In these cases and in
others, Ostrom introduces an analytical approach that is acceptable
widely across the political spectrum, even if differences in opinion
will remain.  See, for example, this discussion at libertarian-leaning
George Mason U:

Categories: ostrom, tragedy of commons Tags:

Beyond zero-sum games: liberal press is starting to realize how state grants of monopolies to public utilities are the chief obstacle to energy efficiency!

October 15th, 2009 No comments

Michael Giberson at Knowledge Problem points to recent press coverage of the profoundly negative and perverse role being played by public utilities and their regulators.

Who knows, but isn`t there an opportunity here for market liberals and environmentalists to push for deregulation and greater competition in retail power markets, spearheaded by the federal government, and to have a deregulatory effort included in the climate bill?

Says Giberson: (emphasis in original)

The New Republic has an excellent article by Bradford Plumer about the current state of the electric power industry and the prospects of the industry achieving what diverse interests expect of it. (Yes, in TNR, who’d a thunk it?)
The article highlights the political economy of regulated electric
utilities and their immense lobbying savvy and political sway, and how
the existing regulatory framework acts to perpetuate the status quo.

The article leads off with an anecdote about Tom Casten
wishing to develop a combined heat and power (CHP) plant for a chemical
plant in Louisiana in the early 2000s
– you know, one of those
win-win-win projects that recycle waste heat to make electric power,
reduce air emissions, reduce costs to the industrial company host, and
still makes a profit for the CHP company. The proposed project
never got off the ground due to the lack of support from the local
utility, and that lack of support was attributed to a regulatory
structure which rewards utilities for owning power plants rather than
minimizing the cost of power to consumers.

The article goes on to tell more stories, and delves into issues
like renewable portfolio standards, distributed power, smart grid
visions, and how a mostly-regulated industry is going to do tackle all
of these changes while not upsetting existing political deals and
getting paid a fair rate of return.

Giberson further reports on another story:

A story posted Tuesday at the New York TimesGreen Inc. blog provides another example: “Discord Over Regulation of Car Charging.”
The story reports that the three major regulated electric utilities in
California each advocate different models for the regulation (or not)
of electric car charging stations by the California Public Utilities
Commission. Entrepreneurial companies like Better Place, trying
desperately to provide the electric vehicles that many consumers,
environmentalists, and policymakers say the country desperately needs,
find themselves caught in a regulatory battle.


Elinor Ostrom? Austrians praise the Nobel laureate’s work on how human communities successfully manage resource conflicts

October 15th, 2009 No comments

Elinor Ostrom awarded the Nobel prize in economics? Who? no doubt some of you are wondering.

Well, sharp-eyed readers will have noted that I have referred to her any number of times (which I will reprise later, as this post has gotten too lengthy).

I excerpt below some of the praise Elinor Ostrom has been receiving from Austrian economists familiar with her (emphasis added).

1.  First, though, from the press release:

Elinor Ostrom has demonstrated how common property can be successfully managed by user associations. Oliver Williamson has
developed a theory where business firms serve as structures for conflict resolution. Over the last three decades these seminal
contributions have advanced economic governance research from the fringe to the forefront of scientific attention.

Economic transactions take place not only in markets, but also within firms, associations, households, and agencies. Whereas economic theory has comprehensively illuminated the virtues and limitations of markets, it has traditionally paid less attention to other institutional arrangements. The research of Elinor Ostrom and Oliver Williamson demonstrates that economic analysis can shed light on most forms of social organization.

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

The background explanation is useful and contains a pointed criticism of many centrally-directed approaches to common pool resources (emphasis added):

If we want to halt the degradation of our natural environment and prevent a repetition of the many collapses of natural-resource stocks experienced in the past, we should learn from the successes and failures of common-property regimes. Ostrom’s work teaches us novel lessons about the deep mechanisms that sustain cooperation in human societies.

It has frequently been suggested that common ownership entails excessive resource utilization, and that it is advisable to reduce utilization either by imposing government regulations, such as taxes or quotas, or by privatizing the resource. The theoretical argument is simple: each user weighs private benefits against private costs, thereby neglecting the negative impact on others.

However, based on numerous empirical studies of natural-resource management, Elinor Ostrom has concluded that common property is often surprisingly well managed. Thus, the standard theoretical argument against common property is overly simplistic. It neglects the fact that users themselves can both create and enforce rules that mitigate overexploitation.
The standard argument also neglects the practical difficulties associated with privatization and government regulation. …

There are many …. examples which indicate that user-management of local resources has been more successful than management by outsiders. …

[T]he main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders – both politicians and social scientists – have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.

2.  Words of praise from libertarians:

Vernon L. Smith (2002 Nobel laureate for economics), Forbes, October 12:

For many of us she has long occupied our radar screen. Let me tell you why.

Relentlessly, Ostrom has pursued answers to two questions:

Since “everybody’s property is nobody’s property,” how is it that there
are so many cases where collectives of ordinary people with no
education and with none of the economists’ knowledge of “the tragedy of
the commons,” in fact discover ingenious rules (institutions) for
taking the “tragedy” out of a productive resource they hold in common?

Numerous other examples include Japanese lands held by thousands in
common under governance structures that avoided “tragedy;” also ancient
solutions to communal water and irrigation systems that create
effective enough private rights conferring benefits and costs that
constrain use.
This should not be too surprising, because “property
(originally propriety) rights” are about human rights and the challenge of defining them incentive-compatibly for mutual benefit.

As a distinguished political-economic scientist she will be the first
to tell you that there are also plenty of commons problems that
represent institutional failures and fragilities
; she has asked why,
and what makes the difference between success and failure? The
fragilities include inshore fisheries and groundwater basins with
continuing commons problems; failures include salt water fisheries and
irrigation systems hamstrung by the complexity of the rules.

Success is associated with clarity in the definition of and
bounds on individual rights (and opportunities) to take action, and the
geography of the commons; details for monitoring, operations, sanctions
and mechanisms for conflict resolution emerge from within the
collective and out of motivated people’s direct experience with
environmental context and each other.
When too many of these
problem-solving elements fail, the governance systems fail or require
continuing attention to their fragility characteristics. A fatal source
of disintegration is the inappropriate application of uninformed
external authority
, including intervention to prevent application of
efficacious rules to political favorites. Also detrimental to good solutions is the OPM (other people’s money) problem.

Peter Boettke, The Austrian Economists, October 12:

I told David [Henderson] that she is amazing and well deserving of the Nobel award for her pioneering work on rational choice theory (as if the choosers were human) and institutional analysis.  I then bent his ear about her work on governing the commons, institutional diversity, and learning. …

What Lin’s work demonstrates … is how individuals can in a variety of settings work to find (or stumble upon) institutional solutions that promote social cooperation and human betterment.  It is about voluntary civic association, a subset of which is commercial life, that her works highlights; not the absence of individual choice.  … My blurb on the back of her book, Understanding Institutional Diversity reads as follows: “What emerges from Elinor Ostrom’s book is precisely what the title suggests — an understanding of the diverse nature of institutions that exist in human societies to promote human cooperation or to hinder it.”

She is both a methodological individualist (rightly understood) and a spontaneous order theorists.  In this regard, Lin Ostrom (and Vincent) have represented one manifestation of the research program in the sciences of man (praxeology) by Mises and Hayek in the 1940s.  Actors of limited cognitive capabilities are studied for how the[y] shape and our [sic] shaped by the social structures that emerge in a variety of situations to provide voluntary solutions to complex and difficult problems, and they do so in a way that promotes social cooperation under the division of labor.  Read Human Action, chapter VIII, and Individualism: True and False, pp. 11-14 (in Individualism and Economic Order), and then look at Lin’s work in Governing the Commons; Understanding Institutional Diversity; and the 3 volume McGinnis, edited volumes, Readings from the Workshop in Political Theory and Policy Analysis and I think you will see what I am talking about. She has done fundamental research on the central idea of Ricardo’s Law of Association as Mises termed it.  Humanly rational choice and institutional analysis combine to address the most pressing question in the social world — why do some institutional patterns produce societies of peace and prosperity, while others produce societies that suffer under violence and poverty?

Lin Ostrom is firmly seated in the mainline tradition of economic scholarship from Adam Smith and David Hume to F. A. Hayek and James Buchanan …..  [H]er methods were chosen to be appropriate to the task she was pursuing.  Humanly rational choice, institutional analysis, field work, and experimental design were her tools for social understanding.  She did not limit her work to that of Max U notions of “choice” nor instituitonally antiseptic models of ‘markets’ nor one size fits all models of economic development.  Instead, she has been a major contributor to public choice economics, new institutional economics, and to our understanding of polycentricity and political economy.

[in comment] At the
home page for her institute — The Workshop in Political Theory and
Policy Analysis — they describe their work as a New Science of
Governance for a New Age. And they describe their task as follows: “The
betterment of humankind depends on the ability of fallible human beings
to make decisions, manage resources, and govern themselves. This is the
basis of democracy, and of civilization itself. It is also the basis
for more than 30 years of research and inquiry at the Workshop in
Political Theory and Policy Analysis at Indiana University in

The Workshop’s teaching and research probes the inner workings of
human institutions—structures of rules used to govern people and
resources, in this usage—in order to better understand what works and
what does not. Institutions affect every facet of life, from public
services to family and community structures to natural resources and
beyond, and the Workshop’s research helps people design and adapt their
institutions so that they generate better outcomes.”

This is why the work is so intriguing. First, at the core is a model
of man as fallible — cognitively limited. Second, is a focus on the
emergence of institutions — not necessarily state-led institutional
impositions. Third, is a focus on governance, not government.


Peter Boettke, comment at Marginal Revolution, October 13:

She is a former President of the Public Choice Society, as was
Vincent. She uses game theory, she engages in institutional analysis,
she has conducted experiements in the lab, she has conducted field work
both in the US and abroad, she considers herself a political economist,
etc. Her presidential address to the APSA summed up her theoretical agenda as “A Behavioral Approach to the Rational Choice Theory of Collective Action.”

is most deserving of this Nobel, and she has made a unique contribution
theoretically and empirically to the study of self-governance. But
there is no need to pick a fight where one isn’t there. Her prize fits
nicely in a stream of recognitions ANALYTICALLY
by the committee to scholars such as Hayek (1974), Buchanan (1986),
Coase (1991), North (1993), and V. Smith (2002). These are all scholars
within the discipline of economics/political economy that recognize the
cognitive limitations of man, and focus analytical effort on
institutional analysis.

Lin Ostrom’s contributions come from
an analytical framework that grounded in rational choice theory (as if
the choosers are human) and builds to an institutional analysis
(as if
history mattered). The distinction between “rules in form” and “rules
in use” means she studies in close detail the social norms that
underlie self-governance in the management of resources and the
management of social relationships.

It is amazing body of work.

Alex Tabarrok, Marginal Revolution, October 12:

Elinor Ostrom may arguable [sic] be considered the mother of field work in development economics.  She has worked closely investigating water associations in Los Angeles, police departments in Indiana, and irrigation systems in Nepal.  In each of these cases her work has explored how between the atomized individual and the heavy-hand of government there is a range of voluntary, collective associations that over time can evolve efficient and equitable rules for the use of common resources.

With her husband, political scientist Vincent Ostrom, she established the Workshop in Political Theory and Policy Analysis in 1973 at Indiana University, an extraordinarily productive and evolving association of students and professors which has produced a wealth of theory, empirical studies and experiments in political science and especially collective action.  The Ostrom’s work bridges political science and economics.  Both are well known at GMU since both have been past presidents of the Public Choice society and both have been influenced by the Buchanan-Tullock program.  You can also see elements of Hayekian thought about the importance of local knowledge in the work of both Ostroms (here is a good interview).  My colleague, Peter Boettke has just published a book on the Ostrom’s and the Bloomington School.

Elinor Ostrom’s work culminated in Governing the Commons: The Evolution of Institutions for Collective Action which uses case studies to argue that around the world private associations have often, but not always, managed to avoid the tragedy of the commons and develop efficient uses of resources.  (Ostrom summarizes some of her findings from this research here).  Using game theory she provided theoretical underpinnings for these findings and using experimental methods she put these theories to the test in the lab.

For Ostrom it’s not the tragedy of the commons but the opportunity of the commons.  Not only can a commons be well-governed but the rules which help to provide efficiency in resource use are also those that foster community and engagement.  A formally government protected forest, for example, will fail to protect if the local users do not regard the rules as legitimate.  In Hayekian terms legislation is not the same as law.  Ostrom’s work is about understanding how the laws of common resource governance evolve and how we may better conserve resources by making legislation that does not conflict with law.

Bob Subrick, Stationary Bandit, October 12:

Ostrom’s “Governing the Commons” develops Hayek’s theme of spontaneous order through numerous real world examples.  Non-market institutions solve collective action problems that the price mechanism cannot.  That is the point of Hayek’s later writings– non-market institutions coordinate behavior.  Also, her emphasis on the lack of a “one-size-fits-all” approach resonates with those who are sympathetic to Hayek.

Paul Romer, Charter Cities, October 12:

Elinor’s fieldwork, followed up by her experimental work, pointed us in exactly the right direction. To understand BOTH why we don’t need police officers in some cases AND
why police officers don’t follow the rules in other cases, we have to
expand models of human preferences to include a contingent taste for
punishing others.
In reaching this conclusion, she arrived at a point
similar to that reached by Avner Greif (whom the Nobel committee
correctly cites.) They, more than anyone else in the profession,
spelled out the program that economists should follow. To make the
rules that people follow emerge as an equilibrium outcome instead of a
skyhook, economists must extend our models of preferences and gather
field and experimental evidence on the nature of these preferences.

who have become addicted to skyhooks, who think that they are doing
deep theory but are really just assuming their conclusions, find it
hard to even understand what it would mean to make the rules that
humans follow the object of scientific inquiry. If we fail to explore
rules in greater depth, economists will have little to say about the
most pressing issues facing humans today – how to improve the quality
of bad rules that cause needless waste, harm, and suffering.

to the Nobel committee for recognizing work on one of the deepest
issues in economics. Bravo to the political scientist who showed that
she was a better economist than the economic imperialists who can’t
tell the difference between assuming and understanding.

Lynne Kiesling, Knowledge Problem, October 12:

Both Ostrom’s work on governance institutions and common-pool resources
and Williamson’s work on governance institutions and the transactional
boundary of the firm contribute meaningfully to our understanding of
how individuals coordinate their plans and actions in decentralized,
complex systems. …

Ostrom’s work highlights the ability of communities of
individuals, using their local knowledge and taking into account their
individual preferences and constraints, to develop governance
institutions that enable beneficial outcomes to emerge. As I put it in my book on institutional design in electricity,

Given the pervasiveness of incomplete property rights,
even in commercial transactions, how are we able to engage in so much
mutually beneficial exchange? We achieve it through the design of
institutions to govern the commons (Ostrom 1990, 2005). These
institutions can specify use rights, means for enforcing those use
rights, and penalties for violating those rights. Again, defining and
enforcing use rights is costly, but institutional design to do so
happens when its benefits are high enough
, and the institutional form
varies depending on the environment and context.

The Ostrom works cited therein, Governing the Commons and Understanding Institutional Diversity,
are full of rich insights that can be applied to environmental policy,
regulation, economic development, and many other areas of economics and
political science.

David R. Henderson, WSJ, October 12:

… I think it’s a great choice. The reason is that mainstream economics
has become highly mathematical and increasingly independent from
reality. Many economists sit in their offices and derive proofs. Few go
out and do the time-consuming work of examining the institutional
structures that humans build to solve their own real-world problems.
Among those few are Ms. Ostrom and Mr. Williamson.

Both draw on rich data from outside the field of economics. Ms.
Ostrom draws much of hers from case studies of common-property
resources and Mr. Williamson from business historians such as the late
Alfred Chandler. Some have summarized their work by saying that
institutions other than free markets often work well. But that
statement can mislead you to conclude that government solutions are the
answer. Free markets are only a subset of free institutions. A better
way to sum up their work is that what Ms. Ostrom and Mr. Willamson
really show is that voluntary associations work.

Most economists are familiar with the late Garrett Hardin‘s classic
article, “The Tragedy of the Commons.” His idea was that when no one
owns a resource, it is overused because no one can control its usage
and each person has an incentive to use it before others do. This
insight has helped us understand much human behavior and has led people
to advocate either having the resource privately owned or having it
controlled by government.

Not so fast, said Ms. Ostrom.
Examining dozens of case studies, she found cases of communal ownership
that worked—that is, that didn’t lead to the tragic outcomes envisioned
by Hardin—as well as ones that didn’t.
Were there systematic
differences? Yes, and interestingly the ones that worked did have a
kind of property rights system, just not private ownership.

Based on her work, Ms. Ostrom proposed
several rules for managing common-pool resources, which the Nobel
committee highlights. Among them are that rules should clearly define
who gets what, good conflict resolution methods should be in place,
people’s duty to maintain the resource should be proportional to their
benefits, monitoring and punishing is done by the users or someone
accountable to the users, and users are allowed to participate in
setting and modifying the rules. Notice the absence of top-down
government solutions.
In her work on development economics, Ms. Ostrom
concludes that top-down solutions don’t help poor countries. Are you
listening, World Bank?

In a 2006 article with Harini Nagendra, Ms. Ostrom wrote: “We
conclude that simple formulas focusing on formal ownership,
particularly one based solely on public [government] ownership of
forest lands, will not solve the problem of resource use.” …

Economists talking about real humans and not mathematical
abstractions and winning the Nobel prize for it? Good on ya, Nobel

John V.C. Nye, Forbes, October 12:

Oliver Williamson and Elinor Ostrom are both leaders in the growing
field of the New Institutional Economics. Both can be seen as pioneers
in understanding how markets work in the real world where transactions
costs are high, establishing smoothly functioning markets is costly,
information is incomplete, and hiring and production options are
limited. They show how firms, communities and organizations come to
solve these problems absent government regulation and how the choices
they make can be disrupted or worsened by bad state policy or sustained
by good rules that promote stable property rights and reliable contracts. …

Elinor operationalized the core insight of Ronald Coase that
creating and accessing markets is often quite costly and hence
organization, hierarchy and collective agreement can, under the right
conditions, serve as viable or even superior alternatives to market
While the lack of private property often leads to the
tragedy of the commons, it is surprising how often tragedy has been
avoided throughout the world. The answer is that small groups with
tight social structures can substitute community monitoring and peer
controls for a market that is non-existent and private property that is
neither well-defined nor reliably enforced. Of course, such local
enforcement tied to community norms, moral suasion, and restricted
geographical domains does not scale well to the modern world of
extensive impersonal exchange.
But she has studied areas as diverse as
police departments in Indiana to irrigation in Nepal.

But as
Elinor has demonstrated, ham-fisted reforms that attempt to bring the
illusion of modernity to the developing world by a naive adoption of
Western best-practice laws without the structures that support and
enforce those rules often leads to a destruction of indigenous practice
that works reasonably well without substituting a functioning and
reliable market of impersonal exchange.
Much of the disaster that is
foreign aid can be tied to the blunt importation of best-practice rules
without understanding how their implementation interacts with existing

Her work centers on a variety of case studies of
private associations throughout the world but is tied to the mainstream
methodologies in the social sciences through her use of game theory
and related analysis. She also tests her hypotheses in various
laboratory experiments designed to isolate the core behavioral
assumptions and in so doing continues in the tradition begun by
Nobelist Vernon Smith. Moreover, her work on real-world institutions
and the rules that sustain efficient outcomes is a natural complement
to the work of laureate Douglass North who also draws upon the ideas of
Coase and Williamson in understanding how political and social
institutions promote or retard growth.

Greg Ranson, Taking Hayek Seriously, October 13:

Peter Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux,
and other Hayekian economists are all applauding the award of the Nobel
Prize in Economics to Lin Ostrom and Oliver Williamson. …

In many ways Ostrom & Williamson are very much contributing to an
intellectual tradition championed by Hayek and other leading
“Hayekians” like James Buchanan and Douglass North.

Henry Farrell, Crooked Timber, October 12:

[T]his is also a very interesting statement of what the Nobel committee see as important in economics.

Lin’s work focuses on the empirical analysis of collective goods problems –
how it is that people can come up with their own solutions to problems
of the commons if they are given enough room to do so. Her landmark
book, Governing the Commons, provides an empirical rejoinder
to the pessimism of Garret Hardin and others about the tragedy of the
commons – it documents how people can and do solve these problems in
e.g the management of water resources, forestry, pasturage and fishing
She and her colleagues gather large sets of data on the
conditions under which people are or are not able to solve these
problems, and the kinds of rules that they come up with in order to
solve them.

This is … a vote in favor of detailed, working-from-the-ground-up, empirical work, which doesn’t rely on
sharply contoured theoretical simplifications and flashy statistical
techniques so much as the accumulation of good data, which reflects the
messiness of the real social institutions from which it is gathered.
Quoting from Governing the Commons:

“An important challenge facing policy scientists is to develop theories of
human organization based on realistic assessment of human capabilities
and limitations in dealing with a variety of situations that initially
share some or all aspects of a tragedy of the commons. … Theoretical
inquiry involves a search for regularities … As a theorist, and at
times a modeler, I see these efforts [as being] at the core of a policy
science. One can, however, get trapped in one’s own intellectual web.
When years have been spent in the development of a theory with
considerable power and elegance, analysts obviously will want to apply
this tool to as many situations as possible. The power of a theory is
exactly proportionate to the diversity of situations it can explain.
All theories, however, have limits. Models of a theory are limited
still further because many parameters must be fixed in a model, rather
than allowed to vary. Confusing a model – such as that of a perfectly
competitive market – with the theory of which it is one representation
can limit applicability still further. (pp.24-25)”

One plausible characterization of her life’s work is that it is about
demonstrating the empirical weaknesses of a ‘cute’ economic model (the
Tragedy of the Commons) that assumed a role in policy discussions far
out of proportion to its actual explanatory power, and replacing it
with a set of explanations that are nowhere near as neat, but are far
more true to the real world. …

It is also a vote in favor of supplementing quantitative work with
qualitative understanding – Lin spends a lot of time (albeit less than
she used to) in the field, soaking up practical knowledge which informs
her work in striking ways. She is hands-on in a way that very few
economists, political scientists or sociologists are. It is also
interesting to note that the Nobel committee pays specific attention to the political implications of her work.

“Elinor Ostrom has challenged the conventional wisdom that common property is
poorly managed and should be either regulated by central authorities or
Based on numerous studies of user-managed fish stocks,
pastures, woods, lakes, and groundwater basins, Ostrom concludes that
the outcomes are, more often than not, better than predicted by
standard theories.”

This reflects what she and her husband Vincent refer to as “polycentricity,” a normative approach to
governance which stresses the degree to which higher levels of
government should not crowd out self-organization at lower levels. Her
work implies that both pure marketization and top-down government
control can have badly adverse consequences for resource management,
because they rob individuals of the capacity to govern themselves, and
because they both lead to the depletion of important forms of local
collective knowledge.
… Ostrom stresses repeatedly that even the best
functioning markets are undergirded by an array of collective
institutions which order people’s market interactions
, and that in the
absence of such rules, self interested behaviour will have highly
adverse consequences.

Greg Ransom, Taking Hayek Seriously, October 14:

Elinor Ostrom Endorses Hayek’s Model of Economic Science

See Elinor Ostrom & Charlotte Hess, “Ideas, Artifacts, and Facilities: Information as a Common-Pool Resource”.

Ostrom also frequently cites Hayek’s work on social rules and local knowledge in many of her books & book articles and in her journal publications.

Most frequently Ostrom cites Hayek’s Law, Legislation and Liberty and Hayek’s “The Use of Knowledge in Society”.

As economist Art Carden says, “Ostrom’s win can be considered a win for the Hayekian worldview as opposed to the Samuelsonian worldview.”

Republicans (Sen. Lindsey Graham & others) give Dems a climate deal? In exchange for streamlining for nukes, "clean coal" subsidies, offshore drilling, carbon price ceiling & import taxes

October 12th, 2009 No comments

Senate Dems, who lack sufficient votes on their own to approve a cap-and-trade bill over a possible Republican fillibuster, have sought help from sympathetic Republicans, who have apparently used this leverage to broaden the bill and to extract key concessions on various issues; such  concessions are sure to please a wide range of lobbying groups, and it looks like there may be a good chance that they will be sufficient to slip a cap-and-trade bill past opposition from coal-producing and -burning states.

The framework of the bi-partisan package was spelled out on Sunday, October11, in a joint NYT op-ed, “Yes We Can (Pass Climate Change Legislation)”,  by liberal Senator John Kerry (D-Mass.) and conservative Senator Lindsey Graham (R-SC).

While details are sketchy (and details sure to still be fought over), it looks like Pres. Obama will have, if not final legislation, then at least high prospects for a cap-and-trade bill that he can use for the negotiations that will start in a few weeks in Copenhagen (over the shape of a global climate treaty to replace the expiring Kyoto Protocol).

Excerpts from the Kerry-Graham op-ed are here (emphasis added; with a few comments in brackets):

Many Democrats insist on tough new standards for curtailing the
carbon emissions
that cause global warming. Many Republicans remain
concerned about the cost to Americans relative to the environmental
benefit and are adamant about breaking our addiction to foreign sources
of oil
[Republicans are so easily jerked around over “energy security”].

However, we refuse to accept the argument that the
United States cannot lead the world in addressing global climate
change. [but do China, India and others want to follow?] We are also convinced that we have found both a framework for
climate legislation to pass Congress and the blueprint for a
clean-energy future that will revitalize our economy, protect current
jobs and create new ones, safeguard our national security and reduce
pollution. …

First, we agree that climate change is real and threatens our
economy and national security. That is why we are advocating aggressive
reductions in our emissions of the carbon gases
that cause climate
change. We will minimize the impact on major emitters through a
market-based system that will provide both flexibility and time for big
polluters to come into compliance without hindering global
competitiveness or driving more jobs overseas. [cap-and-trade]

Second, while we
invest in renewable energy sources like wind and solar, we must also
take advantage of nuclear power, our single largest contributor of
emissions-free power. Nuclear power needs to be a core component of
electricity generation if we are to meet our emission reduction
targets. We need to jettison cumbersome regulations that have stalled
the construction of nuclear plants in favor of a streamlined permit
that maintains vigorous safeguards while allowing utilities to
secure financing for more plants. We must also do more to encourage
serious investment in research and development to find solutions to our
nuclear waste problem

Third, climate change legislation is an
opportunity to get serious about breaking our dependence on foreign
. For too long, we have ignored potential energy sources off our
coasts and underground. Even as we increase renewable electricity
generation, we must recognize that for the foreseeable future we will
continue to burn fossil fuels. To meet our environmental goals, we must
do this as cleanly as possible. The United States should aim to become
the Saudi Arabia of clean coal.
For this reason, we need to provide new
financial incentives for companies that develop carbon capture and

In addition, we are committed to
seeking compromise on additional onshore and offshore oil and gas
— work that was started by a bipartisan group in the Senate
last Congress. Any exploration must be conducted in an environmentally
sensitive manner and protect the rights and interests of our coastal

Fourth, we cannot sacrifice another job to competitors
overseas. China and India are among the many countries investing
heavily in clean-energy technologies that will produce millions of
jobs. There is no reason we should surrender our marketplace to
countries that do not accept environmental standards. For this reason,
we should consider a border tax on items produced in countries that
avoid these standards
. This is consistent with our obligations under
the World Trade Organization and creates strong incentives for other
countries to adopt tough environmental protections
.[probably just a signal to China & India; any bill would have to leave flexibility to the Administration.]

Finally, we
will develop a mechanism to protect businesses — and ultimately
consumers — from increases in energy prices. The central element is the
establishment of a floor and a ceiling for the cost of emission
This will also safeguard important industries while they
make the investments necessary to join the clean-energy era. We
recognize there will be short-term transition costs associated with any
climate change legislation, costs that can be eased. But we also
believe strongly that the long-term gain will be enormous. …

If Congress does not pass legislation
dealing with climate change, the administration will use the
Environmental Protection Agency to impose new regulations. Imposed
regulations are likely to be tougher and they certainly will not
include the job protections and investment incentives we are proposing. 

The message to those who have stalled for years is clear:
killing a Senate bill is not success; indeed, given the threat of
agency regulation, those who have been content to make the legislative
process grind to a halt would later come running to Congress
in a panic
to secure the kinds of incentives and investments we can pass today.
Industry needs the certainty that comes with Congressional action.

Joe Romm on the left applauds the proposed deal (though there is sure to be disagreement about support for coal, nuclear power and offshore oil & gas exploration), and Bill Scher says “Sen. Lindsey Graham Crosses the Climate Rubicon” and thus “made a deal all but inevitable”.

On the right, Michelle Malkin reports that she was right to warn about Republican turn-coats, the National Review `s Gore-haters are dispirited, and MasterResource, the coal-funded “free market” energy blog by libertarian Rob Bradley, has nothing to say.

Political scientist Roger Pielke, Jr. notes the lack of precision and suggests that Republicans now have the upper hand in negotiating the bill.

More reaction and background that readers may find useful is here:

Let’s Try This Again: Are There GOP Senators Who Will Back The Climate Bill? (Bill Scher, Campaign for America`s Future, October 7, 2009)
Senators link drilling with cap-and-trade (Houston Chronicle, October 6, 2009)
Is Lieberman at it again? (Politico,


On the Climate Bill Fence: How Sen. Graham Got There by Bill Chameides (Dean of Duke U`s school of the environment) | Aug 27, 2009

– More on other senators by Bill Chameides

From a libertarian perspective, I ask other libertarians and those on the right whether it is not too late to get a leaner climate/energy bill, that would:
  • instead of a cap-and-trade program (that hands out emissions permits free to existing fossil fuel users, with costs being borne regressively by energy users), use upstream carbon taxes, with the revenues rebated per capita to all Americans;
  • allow limited use of offsets in lieu of taxes (effectiveness of eligible offsets to be insured for a period of 50 years) by Lloyd`s of London);
  • eliminate subsidies for all energy technologies (including ethanol and biofuels)
  • provide that at least half of all revenues taken in by the federal
    government and state government for offshore oil & gas leases and for coal leases will be paid per capita to citizens (and state residents);
  • allow nuclear fuel reprocessing and breeder plants, while eliminating federal insurance for nuke plants;
  • eliminate the grandfathering of dirty coal-burning plants under the Clean Air Act;
  • allow immediate tax deduction of a ll capital expenditures (eliminating multi-year amortization limits);
  • eliminate mandates that public utilities increase use of green, renewable fuels, in favor of the removal of antitrust protection for the grant of local monopolies (and other measure that introduce real competition into the retail power sector), and application of Commerce Clause protection to those who want to sell power out-of-state;
  • establishes energy efficiency targets, as opposed to mandates, with awards to category winners, and publishes results;
  • privatize the TVA (by distributing shares per capita to all who are served by TVA);
  • publish information on the locations of coal fly-ash storage sites;
  • make it clear that federal and state licenses for energy facilities and mines are not licenses to pollute, do not extend any immunity for actual damages caused, and do not prevent injunctions for facilities identified as causing particular damage; and
  • to dampen NIMBYism, establish compensation schedules for federally-licensed facilities, and encourage states to do the same (based on distance and like wind and water flow).

Beyond zero-sum games: Instead of mandating "green power" and greater efficiency, why not mandate MORE COMPETITION in power markets?

October 11th, 2009 No comments

To my disappointment, it turns out that Joe Romm, who  maintains the Center for American Progress` Climate Progress blog, didn`t let through my prior comment about how our discussions about green/efficiency mandates ignore the 800 lb. gorilla in the room, namely, inefficiency stemming from the lack of competition in consumer electricity markets.

But I`m not so easily discouraged; on the heels of Google`s roll-out of software and a monitoring device specifically to enable consumers to more efficiently use electricity, I tried again (toned down so he would not have to see how guys like Steven Milloy mirror him).  Here`s the comment I submitted:

Joe, on the issuie of mandates, both you and Henderson fail to consider WHY our power system isn`t MUCH more efficient and doesn`t provide greater consumer choice – namely, grants by local governments of power monopolies and related regulatory balkanization.

Let`s not forget that the “ethical” argument for interfering with the market for electrical products is based on the fact that local governments have prevented competition in local markets for power generation and distribution.

That there are huge efficiency gains to be made in improving consumer electricity markets is precisely why Google is focussed on providing consumers with greater information about their electricity consumption.

Thus we see one of the continuing problems presented by the fight for control over the wheel of government: those who want to steer it their way are so sure they`re right – and convinced that the others are stupid or evil – that they can`t be bothered to try to notice or try to achieve shared objectives.

Rot at the Core: John Quiggin says that to stop banks from engaging in risky activities we need to outlaw investment banking

October 10th, 2009 No comments

I commented last week on a blog post by leftist Aussie economist John Quiggin, who blamed the financial collapse on investment banks, and suggested that either:

(i) investment banking should be much more heavily regulated (“Properly
done, regulation of this kind would kill off investment banking of the
kind with which we are familiar.”), or

(ii) ultra-high Glass-Steagall-like barriers should be raised that prevent most transactions between investment banks and government-guaranteed banks.

Right; and the identical approach to outlawing drugs and tightening penalties for buying, selling, growing and producing has worked out great, hasn`t it?  (Well, it has, for our growing and ever-more invasive armies of regulators, police, prisons, and grug-related interventions abroad.)

Such proposed “solutions” left me head-scratching, since they entirely missed addressing the root of the problem, which Quiggin identifies here:

This is one instance of a more general point emerging from discussion of the financial crisis. As
Felix Salmon observes, the extraordinary profitability of investment
bank can most plausibly be explained by the hypothesis that risk is
being shifted, without compensation, to someone else
. Salmon focuses on the case of ignorant buyers, sold products they don’t understand. But, as
Arnold Kling observes, an equally important source of investment
banking profits is regulatory arbitrage at the expense of governments,
and, ultimately, the public at large

Why not observe that government efforts to make depositors “safe” by guaranteeing deposits has instead almost entirely blown up, at the expense of taxpayers, and engendered a system of spiralling risk-shifting and opacity that left even the largest and smartest investment banks unable to calculate their own exposures and scrambling for government protection? And wonder whether – instead of banning risk-taking and providing products used for risk-shifting and regulatory arbitrage – it`s time to introduce real discipline into the system by making depositors and investors, banks and investment banks, carry a little more of their own risks?

I left John the following comment (with typographical edit)

October 6th, 2009 at 20:48 | #27

it seems to me that you`re missing an important part of the picture
(that Arnold Kling and others point to): namely, the “information
problem” that limits the ability of regulators to notice, much less
keep fingers in, all of the holes in the dike, along with the federal
interventions in banking that have provided the chief moral hazard
problems and the chief demand for the products that investment banks

BIS and investment standards created for the purpose of limiting the
risk that the government put on taxpayers via deposit guarantees
instead fuelled demands for products that provided higher returns at
than other assets at the same risk-weightings, and for
“investment-grade” products – but where the sellers perversely
arranged/paid for the rating, instead of buyers. This nonsense is still
continuing; even as the FDIC is closing banks right and left, banks
about to fail can attract “brokered deposits” from investors chasing
higher interest rates than are available at the safer banks (as
deposits remain guaranteed), as management gambles for returns that
will keep them in office.

The unregulated buyers of CMOs and CDS should of course be left to
suffer the consequences of their own investments; the Fed`s
intervention in support of LTCM (and the investments by insured banks
and investment banks) simply contributed to the “too big to fail”
massive risk shifting that has come home to roost.

Federal regulators should be reconsidering their fundamental
preconceptions, and moving away from trying to micro-manage risks in a
futile whack-a-mole enterprise, toward one that places more
responsibility for risk analysis on depositors and investors.
Otherwise, we will see simply empty promises, and more risk shifted to

We`ll be better off if everyone has more of their own skin in the game.


As the struggle to influence government spirals out of control, is it time to start a coalition of principled, non-statist firms?

October 9th, 2009 No comments


People can compete with their competition  to
provide the best products and service at the best price or people can
compete for government influence to give them an unfair advantage over
their competition.

There’s really no other option.

The larger government gets the more the latter is beneficial, and eventually required. We’re almost there now.


re: Rot at the Core: Michael Moore says “Capitalism is evil”, but
rightly points to statist corporations and institutionalized theft via

[Remove this Comment]

Wednesday, October 07, 2009 12:08 PM

said. It seems to me that the best way to influence this is to start
forming a consumer-supported coalition of principled, non-rent-seeking

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