TT's Lost in Tokyo — by TokyoTom

Further to my preceding post on speech and corporations, I highly recommend Lawrence Lessig`s insightful short piece, “The Principled and Pure Court? A Reply to Glenn Greenwald” (HuffPo, January 27).

For those who haven`t seen it yet, I take the liberty of quoting liberally (emphasis added):

Salon‘s Glenn Greenwald
is just about the most persistent and effective critic of money in
politics today. He is among the least starry-eyed reporters studying
Congress. But his essay defending the Court’s judgment in Citizens United would have been better had he sprinkled a bit of the skepticism he has for Congress on the words penned by the Court….

The First Amendment, Greenwald tells us, is an absolute. It applies
not to “persons”; it “simply bans Congress from making any laws
abridging freedom of speech.” This law plainly banned these entities —
whether persons or not — from a freedom of speech. Ergo, this law is,
and should have been found to be, unconstitutional.

Sounds good. Sounds principled. Sounds refreshingly different from
anything else that happens within the reach of DC (i.e., good and
principled).

But apply that same test to the following (not so hypothetical) free
speech case: A bunch of doctors practice in family planning clinics.
The government issues a rule that says certain doctors in certain
clinics are not allowed to discuss abortion as a method of family
planning. They can talk about abstinence. Or condoms. But they are not
allowed to advise their pregnant patients that they have the liberty to
abort their fetus.

Sounds like — under the First Amendment Greenwald describes — a
simple case. Whether or not doctors are persons (and at least some are
just mere mortals), they should have the freedom to speak. Advising
someone about a legal medical procedure is among the core freedoms one
would expect a Free Speech Clause to serve.

Yet in 1991, in an opinion by Chief Justice Robert’s former boss, Chief Justice Rehnquist, in the case of Rust v. Sullivan,
the Court found no First Amendment problem at all with the government’s
restriction on doctors’ speech. Indeed, it wasn’t even a difficult case
according to the Court (“no question but that the statutory prohibition
contained in § 1008 is constitutional.”)

Why? How? Well the doctors at issue worked in family planning
clinics that had received at least some of their funds from the
government. And in exchange for that benefit, the government was free
to gag the doctors however it wished. The doctors were free of course
to work in a family planning clinic not funded at all by the government
(for of course, there are plenty of those) (that’s a joke). But so long
as the doctors take this benefit from the government, they’ve got to
live by the rules of the government, at least so long as those rules
serve some legitimate state end.

So how is this case related to Citizens United? For the law wasn’t
applying exclusively to entities that had received something from the
government. It was applying to all corporations.

But of course, corporations do receive a gift from the government.
The government limits the legal liability of investors in that
corporation in exchange for their risking their capital to spur
innovation and growth. That benefit is significant. And the First
Amendment question is whether in granting that benefit, the state would
be free to limit the political advocacy that corporations engage in.

It seems astonishing to imagine the state couldn’t. State law has
historically had wide freedoms to condition the corporate form as they
wished. This fact has led some, including my colleague, Sina Kian, to
argue that Citizens United is less than people think. That the decision
notwithstanding, states could build this limit into their corporate
charters. Or that maybe even Congress could induce states to do the
same. The question then would be the reason the government had for
demanding the entity give up this liberty in exchange for the corporate
form. Traditionally, the burden of that question is the easiest for the
government to meet — is there any state interest at all? In Rust, the
interest was that that government didn’t like abortion.

But I agree with Greenwald that there is something unseemly in the
idea that the government could restrict the speech of a class because
it doesn’t like the speech of that class.

Yet this is the most confused part of the commentary (and reaction)
of most to this kind of regulation. If the government’s reason for
silencing corporations is that they don’t like what corporations would
say — if it thinks, for example, that it would be too Republican, or
too pro-business — then that’s got to be a terrible reason for the
regulation, and we all ought to support a decision that strikes a law
so inspired.

That, however, is not the only, or the best, justification behind
the regulations at issue in Citizens United. Those rules not about
suppressing a point of view. They’re about avoiding a kind of
dependency that undermines trust in our government. The concentrated,
and tacitly, coordinated efforts by large and powerful economic
entities — made large and powerful in part because of the gift of
immunity given by the state — could certainly help lead many to
believe “money is buying results” in Congress. Avoiding that belief —
just like avoiding the belief that money bought results on the Supreme
Court — has got to be an important and valid interest of the state.

If the Court really means to say that entities that fund or create
other entities can’t limit the power of those entities to speak — so
the government can’t stop doctors from talking about abortion, or the
IRS can’t stop non-profits from talking about politics — then we
really have crossed a Bladerunner line. For that conclusion really does
mean that these entities were “created with certain unalienable
rights,” even though they were created by a pretty pathetic creator —
the state.

My point is not that the state’s power to condition should be
unlimited. The point instead is that it’s not so simple, or absolute,
as Greenwald would have it. And given the true complexity of these
evolving and complicated doctrines, it is certainly fair to be critical
in the extreme of this decision by the Court, favoring speech that most
believe it naturally likes (unlike abortion-speak), in a decision that
ignores the judgment of Congress about the conditions under which the
integrity of that body, or any election, proceeds.

It seems to me that Lessig doesn`t go far enough, in questioning as I have all of the negative consequences of the state grant of limited liability to the owners of corporations. Surely any libertarian worth his salt should do so.

But Lessig has understated his own case: the government has a valid interest in seeking to prevent not only the appearance that “money is buying results”, but actual corruption and sweet deals as well. Surely the Constitution was not intended to let wealthy individuals to get a leg up on everyone else by laundering their speech through a company and on a tax-deductible basis.

Further, Lessig fails to noted that the Supreme Court could easily have avoided overturning laws and decades of precedents and public understanding – and could have provided much-needed clarity – by concluding that the statements coming from corporations are NOT entitled to protection as First Amendment “speech”, because corporations are legal entities and not themselves actual individuals capable of “speaking” for purposes of the First Amendment. Such a decision would leave all corporate spokesmen and shareholders bearing, like the rest of us do, personal liability and moral sanction for false or offensive speech (though insurance or indemnification by others might of course be be available).

But via the growth of concentrated power enabled by the state establishment of the corporate form, we appear to be rapidly becoming a nation a county “of the corporation, by the corporation and for the corporation”.

Banning corporate political speech (and campaign contributions) would dampen the rent-seeking pressures that have fuelled to the growth of the state; such steps would also invigorate public discourse – and build greater national trust – by making it clear WHO is actually doing the talking (or letting the body politic discount whenever speech is anonymous).

Further, virtually everyone has been ignoring (2) WHY it is that there is so much concern about corporations and their influence on (and vulnerability to) government: namely, states have allowed individuals (and now other corporations) to form separate, limited-liability legal entities that cut off their owners for any responsibility for the damages that such corporations may do to others.

One of the chief direct consequences of the use of the state to create corporations, as I have discussed in many posts (as the Mises` resident radical enviro), has been massive risk-shifting to the public and cycles of public pressure to use government to rein in corporations. In this, the better organized, longer-lived  and deeper pocketed corporations always having a leg up on gaming the drafting and interpretation of laws and regulations, and using government to steal further from/shift risks to the public at large and to hobble competitors. Thus the indirect consequences of the grant of a limited liability corporate personhood include not simply the financial crisis, but the growing distrust of government, corporations, politicians and voters of a different political stripe and the ramp-up in reasons to fight over the wheel.

I think that the Supreme Court decision in Citizens United v. Federal Election Commission is wrong, chiefly because the First Amendment is about HUMAN speech, while corporations – though associations of humans – have a distinct legal identity and very different characteristics.

The decision is also wrong because the Roberts court fails to acknowledge that just as the state can create corporations, so also can it condition their existence on refraining from political speech (making political contributions, etc.), or regulate their speech via excise taxes or the like (just as the federal government so conditions the grant of income tax-free status to religious groups and non-profits on express restrictions on political speech). But far better to attack the problem at the root of incorporation (or at the Constitutional level) than by a host of federal-level laws and regulations – including those remaining on churches and NPOs.

I have commented on these points in a blog thread at the libertarian/right-leaning legal blog, The Volokh Conspiracy.

TokyoTom says:

January 22, 2010, 1:12 am

TokyoTom says:

January 24, 2010, 9:53 pm

John Dewey says:

The discussions about whether corporations have the rights of people and about whether the Founding Fathers could have considered corporations — is any of this relevant?

The First Amendment protects a citizen from a powerful government which would decide what speech the citizen would be allowed to read or hear. It’s not a right granted to a speaker, but a right granted to a listener or reader. As such, it makes no difference whether the speech being protected comes from a single person, a non-profit organization, a union. a church, or a corporation. It is not the speaker but rather the speech — and the right of the citizen to hear it — which is being protected.

January 26, 2010, 5:33 pm

TokyoTom says:

John, I disagree. The First Amendment is about the peoples‘ rights to gather and to speak privately and publicly, including reporting on government.

Corporations are not people — but legal fictions that are creatures of their owners and the State, which protects their owners by giving them a special grant of limited liability. Corporations may parrot the words of particular people with in the firm, but they [corporations], like parrots, are not people and do not “speak” themselves. (Actually, this is unfair to parrots and other animals, which deliberately attempt to convey meaning to others, and not as a sock puppet for another person/animal/entity.)

While I‘m no fan of corporate income taxes, just as the federal government can condition “non-profit” status on a waiver of political speech rights by churches and other forms of legal entities, so states condition the grant of corporate status on the owners‘ acceptance that they cannot use the corporation as a political mouthpiece (such a use could be made expressly ultra vires), and so should states and the federal government be able to limit or tax political speech by corporations.

Not only would this be good law, but in my view entirely good policy by doing much to slow rent-seeking via large corporations, by removing incentives for wealthy investors to influence public officials and public debate. Let the rich (and others) speak for themselves – anonymously if they choose – but we can and should stop the money-laundering of speech through corporations.

The Roberts court showed it didn‘t have the strength of its convictions by upholding the part of McCain-Feingold that mandates disclosure of who is funding speech — in my view, this is incorrect. Anonymous speech very much SHOULD be allowed – but only for individuals and organizations that have not been granted limited liability by the state.

The chief sticky side issue here is the political gagging of churches and NGOs arising from the desire for favorable tax treatment [on this, the solution lies both in ending limited liability and in ending corporate income taxes].

February 2, 2010, 9:48 pm

[Update: My follow-up post outlines the WSJ`s report and chief recommendations.]

I thought I’d elevate what was a side and closing comment on Stephan Kinsella’s Avatar thread, about an appalling group of articles at the Wall Street Journal, which seems to have absolutely no clue about how the financial crisis stems from a chain of   government interventions, was fuelled by a government-inflated bubble and was “intermediated” by a financial industry rife with moral hazard.

The WSJ is great at drumming up fears about a world-wide climate change cabal, consisting of everyone one who showed up at Copenhagen, blogged about it or thought about it (fears of regulatory over-reach are perfectly understandable, but nary a cui bono question about the “skeptics” industry), but just what in the heck are they trying to pull here – help to CREATE world government, directed by the same firms and regulators who brought us market opacity, arbitraged investment and capital requirements intended to backstop deposit insurance, rampant profit-taking, financial meltdown and tremendous risk-shifting (to shareholders & taxpayers)? Is the WSJ really so naive about rent-seeking, moral hazard and mission creep?

I urge everyone to take a very close look at the WSJ’s “Future of Finance Initiative” and their recent “Fixing Global Finance” report.

Here’s a copy of my comment, as noted in my prior blog post (with some bracketed additions and changes to order):

What happens abroad at the “Avatar” is pretty basic, but the same
nonsense, with taxpayers, investors and consumers playing the role of
victim, can be seen at home. Has anybody seen the jaw-droppingly
appalling report that the WSJ has run on “Fixing Global Finance”, based
on their “Future of Finance Initiative”, in which they cheerlead a
bunch of financial firms in their efforts to abandon free markets and
to structure global regulation and regulators, to be staffed by a
revolving door of themselves?

[I think I’m being fair to see this as posing a threat to markets and
freedom at least as great as what others see in the more multi-faceted
climate change muddle.]

Even Paul Volker was appalled, not at
their willingness to create more regulation, but at their unwillingness
to confront the moral hazard problems (tied to regulation of public
corporations and the financial sector) that lie at the core of the
financial meltdown. [Volker seems to overlooked the crucial role of
government in driving and feeding the moral hazard problems.] Here’s the link, for those of you who missed it:
http://online.wsj.com/public/page/future-of-finance-121409.html Property rights, corporations and government-complicit theft? Hmm.

[Sounds familiar. Maybe some of those who want to battle corporate
excesses might not be so crazy after all, even if they neglect to
understand the risks of negative consequences of seeking help from
government. And maybe someday libertarians will get a little more
serious about addressing the festering
concatenation of corporate-linked problems that are generating so much
rot at the core of our government and public company/financial company
sector.]

Corporations have very unfortunately been inescapably tainted
with statism from the get-go, in ways that play out negatively both
abroad and at home. I’ve devoted a fair amount of time to examining the
entanglement of corporations and government: http://mises.org/Community/blogs/tokyotom/search.aspx?q=limited

Our state governments were wrong to get into competition with each
other to grant corporate status to investor-owned enterprises, in
exchange for fees and later taxes. Corporate status freed investors
from down-side risk, by limiting liability to the amount of capital
contributed. This incentivized investors to encourage corporations to
embark on risky activities that shifted costs to innocent third
parties; the concentration of wealth in corporations (that now have
unlimited lives and purposes, subject to survival in the market); the
corruption of the court system that once protected third parties from
damages caused by others (by replacing strict liability with balancing
tests); and the ensuing battle over legislatures and courts to check
corporate abuses.

I will try to come back later and provide more details of the WSJ initiative/report, but for now let me note that I have relevant discussion at some of my posts on limited liability (see link above) and on “Rot at the Core“.

On December 16, Spiegel Online ran the following interview with Elinor Ostrom, whose 2009 Nobel prize in economics (shared with Oliver Williamson), was widely applauded by Austrian economists (and whose work I have referred to any number of time previously).

Der Spiegel asked some good questions, and Ostrom provided interesting responses, though thoughtful readers of course are left asking for more.

I`ve tweaked the formatting, added my own emphasis, and interspersed a few bracketed comments of my own:

Nobel Laureate Elinor Ostrom

‘Climate Rules Set from the Top Are Not Enough`

The world is gathered in Copenhagen in an
effort to reach an agreement to slow global warming. Elinor Ostrom,
winner of this year’s Nobel prize for economics, spoke with SPIEGEL
ONLINE about shared ownership, local action and why we can’t sit around
waiting for politicians to act.

SPIEGEL ONLINE: The Copenhagen summit is about setting new
global rules for how we treat the Earth. But are people willing to
change their personal lives accordingly?

Elinor Ostrom: Under the right circumstances, people are willing
to accept additional efforts and costs. It all depends on trust in the
fact that others will also act. Humans have the capacity to engage and
see that their own long-term future is harmed if they don’t change
their lifestyles. Under the right circumstances they understand: It’s
not me against you. It’s all of us against ourselves, if we don’t act.
So trust really is the most important resource.

[The multi-decade, global trust-building exercise has made a great deal of progress, despite being hampered by gamesmanship, domestic rent-seeking, partisan mistrust, legitimate worries about abuse of government, and the difficulty we all face in actually agreeing there might be a problem (as opposed to a big scam/mass delusion).]

SPIEGEL ONLINE: How can we generate enough trust so that we all act in concert?

Ostrom: Rules set from the top are not enough. Successful
communities often have a few common design principles — monitoring and
sanctioning of the participants, for example. They also have conflict
resolution mechanisms in place and the people have some authority to
make their own rules. Under those circumstances humans can develop some
trust in each other — faith that if they take a costly action that
benefits everybody in the long run, others will also invest.

[Yes, but does “community”-level action scale? How do we make a “community” with billions of people we have little interaction with? Is Ostrom suggesting we need more global-level “grassroots” community-building, in addition to leader-level trust-building?]

SPIEGEL ONLINE: Why is it less effective if governments establish strict rules from the top down?

Ostrom: Because people will not identify with it. My research
has shown that forests managed by local communities are in a far better
state than state-run parks, where locals feel left out and officials
can be bribed. Let us imagine, we live in a village and have all agreed
that none of us is going to be in the forest on Saturday or Sunday, so
that we can give the forest time to recreate. If I then see you in the
forest when you’re not supposed to be, I will probably yell at you. If
only the state is in charge, I will just walk on past.

[Now she`s talking; libertarians and a host of others almost completely reject even climate “science” out of a reflexive but understandable concern that climate “policy” is or will be sufficiently corrupt as to vitiate any intended/purported gains. The same is true with many on environmentalists and others on the left, who feel that powerful corporate insiders will make climate policy ineffective.]

SPIEGEL ONLINE: In your research, you focused on local and
regional levels. What makes you think that your solutions would work
for the entire planet as well?

Ostrom: Indeed, the global scale is a challenge. Building that
kind of knowledge between the different parties is tricky. We need our
global leaders to take some of the decisions on a very big level. Here
at the summit, those guys are talking to each other and gaining some
trust because they meet face to face. But then they go home — and
that’s when the real action starts.

[It`s tricky, but much progress has been made; even Sen. Robert “Coal” Byrd is signalling that coal states need to change, and China abd India both concede change is needed – though naturally they make an equity argument that they have a right to catch up with out per capita CO2 emissons (which are four times theirs).]

SPIEGEL ONLINE: Can money help to build trust between developing nations and industrialized nations?

Ostrom: Maybe, and it is hard to see a climate deal without
serious financial commitments. But at the same time, I am very worried
and nervous about corruption. If we pour money into a country in which
the corruption level is very high, we would be kidding ourselves not to
think that some of it will end up in the wrong pockets. At first, a lot
of the proposals on the table sound great. But four to six years later,
you have a lot of politicians who have money in Swiss bank accounts.
What we need are tight rules and controls to ensure that the billions
that might be put on the table here are used correctly.

[Ostrom is absolutely right, if understated – perhaps most “development” aid has been disastrous. Still, it might make sense for some aid money to go to climate adaptation projects, and to allow offsets for preserving tropical forests – if the money goes to indigenous peoples, and not corrupt governments.]

SPIEGEL ONLINE: In other words, an anti-corruption task force —
like the one that exists in Indonesia — might be the best
environmental protection agency?

Ostrom: Absolutely! If you look at the role corruption plays in
giving away forests to big corporations and in looking away if forest
protection rules are broken, you will see that bribery is one of the
main contributors to environmental destruction.

[A fruitful focus by libertarians and conservatives might be on simply helping to bolster law and order – including the property rights of locals – in developing nations.]

SPIEGEL ONLINE: Is it possible to save the climate with a single treaty?

Ostrom: One treaty will not solve the problem entirely. This is
why I propose a so-called polycentric approach to tackling climate
change. We need all levels of human society to work on this to be
effective in the long run. Cities, villages, communities and networks
of people have been neglected as players.

[I`m not sure I agree with Otrom here; there has been plenty of action on climate on individual, local, corporate and state levels, thanks in no small part to the stifling of climate policy at federal levels under the GWB/Cheney administrations. While such “thousand points of light” efforts may be bolstering mutual trust at various levels around the world, federal and international policy coordination is still needed, fraught with rent-seeking problems though it may be, ]

SPIEGEL ONLINE: What happens if there is no agreement?

Ostrom: We need to get away from the idea that there is only one
solution on the global scale. There are many, many levels in between.
So we need to take action on smaller levels. If the politicians do not
agree in Copenhagen, I would like to embarrass the hell out of them by
getting some agreements going where people are doing something —
essentially saying: “We are tired of waiting for you.” The city of
Freiburg is a very good place to see what that actually means.

[Politicians don`t embarrasss so easily; rather they see opportunities to jump on and use band wagons to bolster their own careers and to steer favors to rent-seekers.]

SPIEGEL ONLINE: Why Freiburg of all places?

Ostrom: I spend quite a bit of time in Germany and I’m very
impressed by some of the local action I see. Local action cannot do it
fully, but just think about all the bicycle-paths that they have built
there. That is a case where the action of individuals is reducing
emissions. At the same time it is a very healthy thing. On Sundays
everybody is going to the woods and has a good time on their bikes —
and not in their cars. It’s good for your health and for the
environment. So everyone should ask himself: Why don’t I bike to work
and leave the damn car at home or get rid of it entirely?

SPIEGEL ONLINE: Still, such a decentralized approach sounds
painfully slow. We need rapid action if we wish to limit global warming
to 2 degrees Celsius.

Ostrom: If we sit here and twiddle our thumbs and wait for these
guys up there to make a decision — that is what I would call painfully
slow. Should we just blame the politicians? I am not saying that we can
solve it entirely, but we can make significant steps. To some extent we
can challenge them. Everyone can contact foolish politicians like some
US Congressmen who oppose climate change action by e-mail or phone and
let them know that they are acting irresponsibly.

[Unfortunately, Ostrom doesn`t address how we figure out how to trust our own government, and how to mitigate/manage the problem of rent-seeking. But I`ve tried to note the types of policies that libertarians cand – and should – support here. Some Austrians might even want to consider the root cause of rampant renk-seeking and fights over the wheel – the corporate risk-shifting juggernaut that has its genesis in the grant of limited liability]

SPIEGEL ONLINE: Why is the US so reluctant to fight climate change?

Ostrom: In the economic emergency we are experiencing, some
people think that we cannot afford it. I think it is the other way
around, if we don’t act now we will run into even greater economic
problems in the future. And of course we still have the bad legacy of
our previous president, George W. Bush. For eight years, the White
House didn’t consider the issue to be important. We did not have
American leaders who understood that there is a scientific foundation.
Obama has a much higher chance of understanding the science. But even
for him it is just damn tough.

[It`s  even more complicated, obviously. The Bush administrtion actually DID work on building trust with China and India, supported the IPCC science process, etc. But they were also rather naked catering to coal and other fossil feul interests, while making political hay by labelling all concerned scare-mongering socialists. Not only is it extremely difficult to coordinate this issue globally, it`s also difficult politicaly to tell Americans that fossil-fuel-based energy is underpriced, to seek to undo public utility monopolies, or to address the favors to dirty coal in the Clean Air Act, or to streamline nuclear power licensing.]

SPIEGEL ONLINE: Worries about climate change have slowly
resulted in people seeing the Earth’s atmosphere as a common good that
we all must protect. Where is the next challenge?

Ostrom: The oceans! They are being threatened to an ever greater
degree. It is a disaster, a very difficult situation. The fish
resources are overexploited and waste, including CO2, is dumped in huge
quantities into the ocean. The law of the sea has not been effective at
all. A lot of fishing ships act like roving bandits. That’s why better
ocean governance is one of the top priorities for safeguarding the
future.

Interview conducted by Christoph Seidler and Christian Schwägerl

I would be remiss if I did not point out that Ostrom recently elucidated her views on climate policy in much greater length in a paper that she prepared at the behest of the World Bank. Yes, Ostrom`s trying to give the Beast indigestion – from the Inside. 

Here`s the extract of her paper,  “A Polycentric Approach for Coping with Climate Change”:

Abstract: This paper
proposes an alternative approach to addressing the complex problems of
climate change caused by greenhouse gas emissions. The author, who won
the 2009 Nobel Prize in Economic Sciences, argues that single policies
adopted only at a global scale are unlikely to generate sufficient
trust among citizens and firms so that collective action can take place
in a comprehensive and transparent manner that will effectively reduce
global warming. Furthermore, simply recommending a single governmental
unit to solve global collective action problems is inherently weak
because of free-rider problems. For example, the Carbon Development
Mechanism (CDM) can be ‘gamed’ in ways that hike up prices of natural
resources and in some cases can lead to further natural resource
exploitation. Some flaws are also noticeable in the Reducing Emissions
from Deforestation and Forest Degradation in Developing Countries
(REDD) program. Both the CDM and REDD are vulnerable to the free-rider
problem. As an alternative, the paper proposes a polycentric approach
at various levels with active oversight of local, regional, and
national stakeholders. Efforts to reduce global greenhouse gas
emissions are a classic collective action problem that is best
addressed at multiple scales and levels. Given the slowness and
conflict involved in achieving a global solution to climate change,
recognizing the potential for building a more effective way of reducing
green house gas emissions at multiple levels is an important step
forward. A polycentric approach has the main advantage of encouraging
experimental efforts at multiple levels, leading to the development of
methods for assessing the benefits and costs of particular strategies
adopted in one type of ecosystem and compared to results obtained in
other ecosystems. Building a strong commitment to find ways of reducing
individual emissions is an important element for coping with this
problem, and having others also take responsibility can be more
effectively undertaken in small- to medium-scale governance units that
are linked together through information networks and monitoring at all
levels. This paper was prepared as a background paper for the 2010
World Development Report on Climate Change.

I left this earlier comment on the paper at the blog of libertarian-leaning water economist David Zetland:

TokyoTom
said…

David, I saw this elsewhere and read through this，but count me
unimpressed. It`s basically a recounting of what we already know – that
there are formidable barriers to reaching coordinated global decisions
on climate policies, that local, regional and efforts are proceeding
and will be needed in any event, both in mitigation and adaptation.

Nothing about whether local, regional and national efforts scale to the size of the problem.

18 November, 2009 08:17

In my initial post, on how Austrians strive for a self-comforting irrelevancy on climate change, I copied my chief comment to Stephan Kinsella.

I copy below my other posts and some of the remarks I was responding to on Stephan`s thread, including the one that I was unable to post – for some reason I am trying to figure out (but that Stephan tells me was not a result of moderation by him; I note my full apology, as stated in my update to my preceding post):

• TokyoTom

  fundamentalist: “I love the responses from the GW hysteria crowd.
  They have nothing to offer but ad hominem attacks and appeals to
  authority.”

  Am I excluded from the “hysteria” crowd, Roger? Because if I`m in,
  you seem to have entirely missed my post, and my point, as to the
  consistency of your arguments with Austrian principles and the
  effectiveness of approaches like yours in dealing with the rest of the
  world – including all of the deluded and others who are engaged in bad
  faith.

  Published: October 30, 2009 9:44 AM

• Stephan Kinsella
  [Note: this is the comment to which I responded with the remarks copied on my preceding post]

  “Tokyo” asked me to respond to his post but it’s so rambling I am
  not sure what to respond to. To me this is very simple. I think we are
  in an interglacial period. It’s going to start getting cooler
  eventually, unless by then we have enough technology and freedom (no
  offense, Tokyo) to stop it. If there is global warming maybe it can
  delay the coming ice age by a few centuries.

  If there were really global warming why not just use “nuclear
  winter” to cool things down? You don’t see the envirotards advocating that! 🙂 (see Greenpeace to advocate nuking the earth?)

  In any event as I see it there are several issues. Is it warming?
  Can we know it? Do we know it? Are we causing it? Can we stop it?
  Should we stop it?

  It seem to me we do not know that it’s warming; if it is, it’s
  probably not caused by Man; and if it is, there’s probably nothing we
  can do to stop it except effectively destroy mankind; there’s no reason
  to stop it since it won’t even be all bad, and in fact would be overall
  good. I do not trust the envirotards, who hate industrialism and love
  the state, and seek anything to stop capitalism and to give the state
  an excuse to increase regulations and taxes; why anyone thinks these
  watermelons really know what the temperature will be in 10, 100, 1000
  years, when we can’t even get accurate weather forecasts a week out, is
  beyond me.

  That said, I’ll take the watermelons seriously when they start
  advocating nuclear power. Until then, they reveal themselves to be
  anti-industry, anti-man, techo-illiterates. (See Green nukes; Nuclear spring?.)

  Published: October 30, 2009 10:03 AM

• TokyoTom

  [my prior version ran off without my permission; this is a re-draft]

  It seems like I can lead a horse to water, but I can`t make him think,

  We all have our own maps of reality and our own calculus as to what
  government policies are desirable and when, but as for me, the status
  quo needs changing, and the desire of a wide range of people – be they
  deluded, evil, conniving or whatnot – to do something on the climate
  front seems like a great opportunity to get freedom-enhancing measures
  on the table and to achieve some of MY preferences, chiefly because
  they help to advance the professed green agenda. [To clarify, I didn`t mean that I want to advance “the green agenda”, but that the pro-freedom policy suggestions I have raised should be attainable because greens and others might see that they also serve THEIR agendas.]

  I see no reason to sit at home or simply scoff or fling poo from the
  sidelines, and let what I see as a bad situation get worse. There`s
  very little in that for practically anyone here – except of course
  those who like coal pollution, public utilities, corporate income
  taxes, big ag corporate welfare, political fights over government-owned
  resources, energy subsidies and over-regulation, etc. (and those folks
  aren`t sitting at home, believe me).

  I can keep on questioning everyone`s sanity or bona fides, or I can
  argue strongly for BETTER policies, that advance shared aims.

  Does Austrian thinking simply lack a practical political arm, other
  than those few who have signed up to support special interests?

  Ramblin` Tom

  Published: October 30, 2009 11:51 AM

• TokyoTom

  Stephan, if I may, I am appalled and offended by your shallow and
  fundamentally dishonest engagement here. That there are a string of
  others who have preceded you in this regard is no excuse.

  You: (i) post without significant comment a one-page letter from a
  scientist – as if the letter itself is vindication, victory or a
  roadmap for how we should seek to engage the views and preferences of
  others,

  (ii) refuse to answer my straightforward questions (both above and
  at my cross-linked post, which you visited) on how we engage others in
  the very active ongoing political debate, in a manner that actually
  defends and advances our policy agenda, and (putting aside the
  insulting and disingenuous “Tokyo asked me to respond” and “it’s so
  rambling I am not sure what to respond to”); and

  (iii) then proceed to present your own view of the science, the
  motives and sanity “watermelons” (as if they`re running the show), a
  few helpful, free-market libertarian “solutions”, like open-air
  explosion of nuclear weapons to bring about a “nuclear winter” effect!

  And my attempt to bring your focus back to the question of how we
  actually deal with others in the POLITICAL bargaining that is, after
  all, underway is met with silence – other than your faithful report
  back from your trusty climate physicist expert policy guru friend about
  …. science (all being essentially irrelevant to my question, not
  merely the cute little folksy demonstration about how the troubling
  melting and thinning of Antarctic ice sheets actually now underway
  simply CAN`T be occurring, but also a further failure to address the
  very rapid ocean acidification our CO2 emissions are producing)!

  Maybe it`s me, but I find this type of insincere and shallow
  engagement on such a serious issue to be a shameful discredit to the
  Mises Blog (even if it does cater to those who prefer to think that the
  big to do about climate – which may very well result in a mass of
  ill-considered, costly and counterproductive
  legislation – is really groundless and so can simply be ignored, aside from a bit of internal fulminations here).

  If you are not actually interested in discussing policy on a serious issue, then consider refraining from posting on it.

  Maybe it`s not my position to expect better, but I do.

  Sincerely,

  Tom

  Roy Cordato (linked at my name) said this:

  “The starting point for all Austrian welfare economics is the goal
  seeking individual and the ability of actors to formulate and execute
  plans within the context of their goals. … [S]ocial welfare or
  efficiency problems arise because of interpersonal conflict. [C] that
  similarly cannot be resolved by the market process, gives rise to
  catallactic inefficiency by preventing useful information from being
  captured by prices.”

  “Environmental problems are brought to light as striking at the
  heart of the efficiency problem as typically seen by Austrians, that
  is, they generate human conflict and disrupt inter- and intra-personal
  plan formulation and execution.”

  “The focus of the Austrian approach to environmental economics is
  conflict resolution. The purpose of focusing on issues related to
  property rights is to describe the source of the conflict and to
  identify possible ways of resolving it.”

  “If a pollution problem exists then its solution must be found in
  either a clearer definition of property rights to the relevant
  resources or in the stricter enforcement of rights that already exist.
  This has been the approach taken to environmental problems by nearly
  all Austrians who have addressed these kinds of issues (see Mises 1998;
  Rothbard 1982; Lewin 1982; Cordato 1997). This shifts the perspective
  on pollution from one of “market failure” where the free market is seen
  as failing to generate an efficient outcome, to legal failure where the
  market process is prevented from proceeding efficiently because the
  necessary institutional framework, clearly defined and enforced
  property rights, is not in place.”

  Published: October 31, 2009 1:00 PM

• TokyoTom

  Bala:

  “Did rising temperatures cause an increase in atmospheric carbon-dioxide concentration”.

  This is a great, basic question; I`d love to answer it (actually, I
  already did, though a bit indirectly), but you see, I`m one of the
  nasty obfuscating members of the socialist hysterical crowd, so I
  really should defer to others here who have better ideological and
  scientific stature here (and who hate ad hominems and love reason),
  such as fundamentalist, or perhaps even our confident lead poster,
  Stephan Kinsella (who has nothing to offer on the question of how
  libertarians should engage with others on the political front), or even
  our humble physicist climate system authority, Dr. Hayden.

  Gentlemen, take it away.

  Published: October 31, 2009 11:31 AM

• TokyoTom

  I`m sorry I don`t have time now to respond in more detail to those
  who have commented in response to mine, but let me note that not one of
  you has troubled to actually respond to my challenge, which was based
  on Austrian concepts of conflict resolution, understanding of
  rent-seeking embedded in the status quo, and the recognition that the
  present debate on climate, energy and environmental issues presents
  opportunities to actually advance an Austrian agenda.

  In my view, we can either try to improve our lot, by seeking items
  such as those I laid out previously or condemn ourselves to irrelevancy
  by standing by and letting the big boys and the Baptists in their
  coalition hammer out something worse from our Congresscritters.

  For this, the correctness of our own views of climate science
  matters little – nothing, in fact, unless we are willing to DO
  something about it, by engaging with OTHERS who have DIFFERENT views.

  For those who have too much trouble remembering the legal/regulatory changes that I suggested, here they are:

  [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).]

  Many others come to mind.

  Well, what`s it going to be? Relevancy, or a tribal exercise in disengaged and smug self-satisfaction?

  Published: October 31, 2009 12:37 PM

• TokyoTom

  1. Christopher and mpolzkill:

  Thanks for the favor of your comments.

  I was asking if Austrians never seek to practically engage others on
  questions of policy; the first of you brings up Ron Paul, but one man
  is not a policy, nor are his sole efforts a policy program; the other
  of you suggests succession from the U, which is hardly an effort at
  pragmatic engagement with anybody over a particular issue. (BTW, here
  is Ron Paul`s climate program.)

  I can see some engagement by libertarians on this issue, but such
  seeds either (i) die when they fall on the rocky ground of the Mises
  Blog or (ii) represent work by people paid to criticize one side of the
  debate, and consistently ignore problems with the definitely
  non-libertarian status quo.

  Why libertarians do not see any opportunity here for a positive
  agenda? Do they prefer to be taken as implicit supporters of the
  government interventions that underlie most enviros` complaints?

  2. fundamentalist:

  “I don’t see anyone doing that except the GW hysterical crowd.
  Honest scientists like Hayden try to present evidence and reason so
  that we can have a real debate, and the hysterical crowd flings poo
  from the sidelines.”

  Thanks for your direct comment (even as you lace it and others with
  ad homs), but can`t you see you also are missing my point? Are you NOT
  interested in trying to cut deals that would, say:

  * accelerate cleaner power investments by eliminating corporate
  income taxes or allowing immediate amortization of capital investment,
  * eliminate antitrust immunity for public utility monopolies (to allow
  consumer choice, peak pricing and “smart metering” that will rapidly
  push efficiency gains),
  * end Clean Air Act handouts to the worst utilities (or otherwise
  unwinding burdensome regulations and moving to lighter and more
  common-law dependent approaches),
  * end energy subsidies generally (including federal liability caps for nuclear power (and allowing states to license),
  * speed economic growth and adaptation in the poorer countries most
  threatened by climate change by rolling back domestic agricultural
  corporate welfare programs (ethanol and sugar),
  * insist that government resource management be improved by requiring that half of all royalties be rebated to citizens,
  * end federal subsidies to development on barrier islands, etc. or
  * improve adaptability by deregulating and privatizing roads and other “public” infrastructure?

  Or is it more productive to NOT deal with those whom you hate, and
  stand by while special interests cut deals that widen and deepen the
  federal trough?

  TT

  Published: November 1, 2009 2:21 AM

• TokyoTom

  Allow me to outline here a few responses to the arguments raised by
  Dr. Hayden, even as I do not pretend to be an expert (and, to be
  pedantic, even though they are largely irrelevant to the question of
  whether Austrians wish to take advantage of the opportunity presented
  by the many scientists and others who have differing views, to roll
  back alot of costly, counterproductive and unfair regulation).

  1. Models: Dr. Hayden disingenuously casts aside what modern physics
  tells us about how God plays dice with the universe (via random,
  unpredictible behavior throughout the universe), and the limits of
  human knowledge (including the ability to measure all inputs affecting
  climate, including all of our own), and essentially asks us to wait
  until our knowledge is perfect, and our ability to capture and
  number-crunch all information relevant to the Earth`s climate
  (including changing solar and cosmic ray inputs and ocean behavior)
  before any of us, or our imperfect governments, can take any action on
  climate.

  Physical and practical impossibility aside, is this how any human or
  any human organization structures its decisions? Narrowly, Dr. Hayden
  is of course right that “the science is not settled”, but so what?

  2. Was there a tipping point 300 million years ago (or whenever it was when CO2 levels reached 8000 ppm) ?
  Dr. Hayden plays with language, suggesting that a “tipping point” means
  something irreversible over hundreds of millions of years, when it`s
  very clear that there have in the past been numerous abrupt changes in
  climate (some taking place in as little as a few years, with a general
  return to prior values sometimes taking very long periods of time) and
  that scientists today are talking about tipping points that may be reached in human lifetimes.
  Will we lose all mountain glaciers? Will the Arctic become ice-free in
  winter? Will thawing release sufficient methane from tundras and seabed
  clathrates to push the climate even more forcibly than CO2? Are we set
  to lose glaciers in Greenland and Antarctica, regardless of what we do?
  Will we dry out the Amazon basin, and interrupt the Asian monsoon?
  There is plenty of concern and evidence that these things are real
  possibilities.

  3. “Global-warming alarmists tell us that the rising CO2 concentration is (A) anthropogenic and (B) leading to global warming.”

  But you never tell us whether you, too, Dr. Hayden, are an
  “alarmist”. Further down you acknowledge that “Nobody doubts that CO2
  has some greenhouse effect” admitting (B) (though not that it may be
  the chief factor), but as far as (A) goes, you only acknowledge that
  “CO2 concentration is increasing”. Care to make yourself an alarmist by
  admitting what cannot be denied – that man is responsible for rising
  CO2 concentrations? Or you prefer play with laymen`s ignorance by
  irresponsibly suggesting that rising CO2 is now due to warming oceans
  and not man`s activities?

  – “CO2 concentration has risen and fallen in the past with no help from mankind.”

  Yes, but what relevance is this now, when man is undeniably not simply “helping” but clearly responsible?

  – “The present rise began in the 1700s, long before humans could have made a meaningful contribution.”

  So? Does the fact that CO2 fluctuates naturally do to things other
  than man`s activities mean humans` massive releases of CO2 have NOT
  made a “meaningful contribution”? It`s very clear that the Industrial Revolution caused a dramatic rise in CO2. Surely you don`t disagree?

  – “Alarmists have failed to ask, let alone answer, what the CO2
  level would be today if we had never burned any fuels. They simply
  assume that it would be the “pre-industrial” value.”

  “Alarmists” of course is simply an unhelpful ad hom; and as for the rest, concerned scientists and laymen clearly note how CO2 has fluctuated prior to the Industrial Revolution.

  There undoubtedly many clueless laymen, just as there are some
  clueless scientists, so your sweeping statement may be narrowly
  accurate.

  But in the big picture, it is clear that man has had a drastic
  impact on CO2 levels – so what, precisely, is your point, except to
  confuse the issue?

  – “The solubility of CO2 in water decreases as water warms, and
  increases as water cools. The warming of the earth since the Little Ice
  Age has thus caused the oceans to emit CO2 into the atmosphere.”

  Sure, but this doesn`t mean man hasn`t been the dominant contributor to atmospheric CO2.

  Further, of course, warming oceans CEASED to release CO2 at the
  point that atmospheric CO2 started to make the oceans more acidic.

  – “The historical record shows that climate changes precede CO2
  changes. How, then, can one conclude that CO2 is responsible for the
  current warming?”

  The lag in the historical record BEFORE man simply shows that CO2,
  which has an acknowledged warming effect, was a warming reinforcer and
  not an initiator. This does NOT, of course, suggest that massive CO2
  releases by man magically have NO effect.

  4. Assuming that we ARE changing climate, is that a bad thing?

  – “A warmer world is a better world.” Maybe, but are there NO costs,
  losses or damages in moving to one? And do those people and communities
  who bear these costs or kinda like things as they are have any choice,
  much less defendable property rights?

  – “The higher the CO2 levels, the more vibrant is the biosphere, as
  numerous experiments in greenhouses have shown. … Those huge
  dinosaurs could not exist anywhere on the earth today because the land
  is not productive enough. CO2 is plant food, pure and simple.”

  I see; this is not a question of fossil fuel interests homesteading
  the sky (or being given license by govt) and so being entitled to shift
  risks and costs on us, but them beneficiently bestowing gifts on
  mankind – or dinosaurs, as Dr. Hayden may prefer! Wonderful gifts that
  cannot be returned for centuries or millenia! Yippee!

  [This is only scratching the surface of the letter, but I`m afraid I need to run for now.]

  Published: November 1, 2009 4:51 AM

• TokyoTom [Note: my original post contained some bolding that went haywire and bolded most of the post; I`ve fixed that.]

  Okay, here`s a few more unconsidered thoughts to show how hysterical
  I am, am hooked on religion, hate mankind, [want to] return us to the Middle Ages
  and otherwise take over the world:

  – “Look at weather-related death rates in winter and in summer, and the case is overwhelming that warmer is better.”

  Sure, for If only it were so simple. The increase in AVERAGE global
  temps that we`ve experienced so far has meant little warming of the
  oceans (a vast thermal sink), and has shown up at higher latitudes,
  where we have seen a very marked warming and ongoing thawing, a shift
  of tropic zones away from the equator, disruption of rainfall patterns
  and stress on tropical ecosystems; all of this is considered to be just
  the beginning of a wide range of climate effects that have not yet been
  fully manifested for GHG and albedo changes so far,. much less to
  further increases in GHGs.

  – “CO2 is plant food, pure and simple.”

  It IS a “pure and simple” plant food, but your rhetoric implies much
  more – essentially that CO2 is NOTHING BUT plant food, and large
  releases of it have no effect on climate. And this, as you well know,
  is NOT a “pure and simple” matter.

  – “CO2 is not pollution by any reasonable definition.”

  You mean not by your reasonable definition, or under
  historical standards. But what IS “pollution”, but a social construct
  to describe the outputs of human activity that some of us have found to
  be damaging to our persons, property or other things that we value?
  Were CFCs released by refrigeration equipment “pollution” before we
  discovered that they damage the ozone layer?

  Scientists may be qualified to measure particular outputs and their
  consequences, but otherwise have no special insights into what others
  value.

  – “A warmer world begets more precipitation.”

  Sure, as warmer air generally holds more water – which in turn has a
  warming effect, let`s not forget. But as for the water itself, climate
  change leads to more severe rain events in some places but to droughts
  in others. And let`s not forget that a warmer world means that mountain
  snows don`t last until spring and summer as they once did, leaving
  streams and forests drier, and adversely affecting agriculture that
  relies on such water.

  – “All computer models predict a smaller temperature gradient
  between the poles and the equator. Necessarily, this would mean fewer
  and less violent storms.”

  Not so fast; this doesn`t hold for rain events or tornadoes.
  Further, independent paths of research indicate that while the North
  Atlantic may end up with fewer hurricanes, warming is likely to make them more intense.

  – How, pray, will a putative few degrees of warming melt all the ice
  and inundate Florida, as is claimed by the warming alarmists?

  First, note again the Dr.`s use of a strawman; no one is expect an
  imminent melt of “ALL” the ice. But significant melting and thinning of
  coastal ice IS occurring, and not merely on the West Antactic
  peninsula, which the good Dr. would realize if he`d trouble himself to
  compare his simple mental model, of reality with FACTS. As previously
  noted, coast ice sheets are plugs that slow the flow of glaciers from
  the interior. As these plugs are removed, the glaciers flow more
  quickly, via that exotic phenomenon we call “gravity”. I`ve already
  addressed this above, with links.

  – “If the waters around it warm up, they create more precipitation.”

  Yes, but does the new precipitation balance the ice being melted?
  Actual, detailed observations tell us that, despite your absolute
  certainty, that we are seeing increasing net mass losses far inland,
  not merely in Greenland but also in Antarctica. Your religious-like
  faith in your own superior understanding doesn`t make the facts go away.

  – “The ocean’s pH is not rising. It is falling, ever so slightly.
  Obviously your respondent has not the faintest clue as to how pH is
  defined. (BTW, the oceans are basic, not acidic.)”

  Yes, the good Dr. catches my mistake – pH is falling rather
  remarkably (from basic towards acidic) – but he too hastily skates past
  the main point, which is that this is due to increased atmospheric
  levels of CO2, which prove that the oceans are NOT actually releasing
  CO2 (or they`d be becoming more basic).

  I provided links in this last year here:
  http://blog.mises.org/archives/007931.asp#c192563

  Here`s more:
  http://www.scienceprogress.org/2008/06/our-dying-oceans/
  http://docs.google.com/gview?a=v&q=cache:y_W6vseUrykJ:www.tos.org/oceanography/issues/issue_archive/issue_pdfs/20_2/20.2_caldeira.pdf+caldeira+ocean+ph&hl=en&gl=jp&pid=bl&srcid=ADGEESgEEoFLf7xd9QTyol2TYYmXKPxXFqMq5Nr1IPdGd_yEbV3zIxPi-4Rmhb6d-IQ-r4BPwBqzyhF6GZQw_ka1Eh3Ynn0lYlP7p974IYMHIdLMVE90nWJ81GHAfcdTrUJTNk7W8Man&sig=AFQjCNGg6Idq6GQ5gyrddlXRD8R98NQ_dQ

  From the Plymouth Marine Laboratory (UK) :

  “Until recently, it was believed that the oceans contained so much
  disolved carbonate and bicarbonate ions that any extra would have
  little effect. In fact this absorbtion was generally acknowledged a
  valuable process in protecting the planet from the worst effects of
  rising temperatures and climate change. However, in 2003 a paper was
  published in Nature (vol 425) which suggested that the increases in
  atmospheric CO2, occurring over the last 200 years, has actually
  increased the acidity of the oceans by 0.1 of a pH unit.The pH scale is logarithmic and this change represents a 30% increase in the concentration of H+ ions.

  “However, atmospheric concentrations of CO2 have been
  higher during previous times in Earths history and these high CO2
  periods didn’t cause ocean pH to change. The difference now is that the
  rate at which CO2 concentrations are increasing, is 100 times greater
  than the natural fluctuations seen over recent millennia. Consequently,
  the processes that ultimately balance the carbon cycle are unable to
  react quickly enough and ocean pH is affected. About half of all
  released CO2 is absorbed by the oceans but even if we stop all
  emmissions today, the CO2 already in the atmosphere has been predicted
  to decrease ocean pH by a further 0.5 unit.”

  From
  Wikipedia”>http://en.wikipedia.org/wiki/Ocean_acidification”>Wikipedia:

  “Dissolving CO2 in seawater also increases the hydrogen ion (H+)
  concentration in the ocean, and thus decreases ocean pH. Caldeira and
  Wickett (2003)[1] placed the rate and magnitude of modern ocean
  acidification changes in the context of probable historical changes
  during the last 300 million years.

  Since the industrial revolution began, it is estimated that
  surface ocean pH has dropped by slightly less than 0.1 units (on the
  logarithmic scale of pH; approximately a 25% increase in H+), and it is
  estimated that it will drop by a further 0.3 to 0.5 units by 2100 as
  the oceans absorb more anthropogenic CO2.[1][2][9] These changes are
  predicted to continue rapidly as the oceans take up more anthropogenic
  CO2 from the atmosphere, the degree of change to ocean chemistry, for
  example ocean pH, will depend on the mitigation and emissions pathways
  society takes.[10] Note that, although the ocean is acidifying, its pH
  is still greater than 7 (that of neutral water), so the ocean could
  also be described as becoming less basic.”

  – “The term global warming has given way to the term climate
  change, because the former is not supported by the data. The latter
  term, climate change, admits of all kinds of illogical attributions. If
  it warms up, that’s climate change. If it cools down, ditto. Any change
  whatsoever can be said by alarmists to be proof of climate change.”

  Wonderful observation, except for the fact that IT`S WRONG; the
  change instead being deliberately led by Republicans; leading
  Republican pollster/ spinmeister Frank Luntz in 2002 pushed Republicans
  to move the public discussion away from “global warming” to “climate
  change”, because, as Luntz wrote,

  “’Climate change’ is less frightening than ‘global warming.’
  … While global warming has catastrophic connotations attached to it,
  climate change suggests a more controllable and less emotional
  challenge”.

  Of course there IS the inconvenient fact that “climate change” is
  actually more accurate than simple “global warming”, but who cares
  about accuracy anyway, right Dr.?

  – “the earth has handily survived many millions of years when CO2
  levels were MUCH higher than at present, without passing the dreaded
  tipping point.”

  I already addressed above the point that while the Dr. seems to
  what to recreate the Cretaceous, the better for dinosaurs, most of us
  seem rather to like the Earth that we actually inherited and that the
  rest of current Creation is adapted for. He is obviously a physicist
  and not a biologist, and doesn`t seem to give any thought to the
  rapidity of the scale at which we are conducting our little
  terraforming experiment, and te challenges the pace of those changes
  are posing to ecosystems.

  – “To put it fairly but bluntly, the global-warming alarmists
  have relied on a pathetic version of science in which computer models
  take precedence over data, and numerical averages of computer outputs
  are believed to be able to predict the future climate. It would be a
  travesty if the EPA were to countenance such nonsense.”

  To put it bluntly, this is largely rubbish; there is a tremendous
  and growing amount of climate change DATA. You just make it your habit
  not to let facts get in the way of your own opinions. I would be a
  travesty if we continue to countenance posts such as yours, questions
  of relevance to Austrian purposes aside.

  – “I don’t do politics”

  Fine; I can see why that would not be your forte. But what`s very
  puzzling is that you seem to think that climate science IS your forte,
  when all you`ve show is a shocking level of arrogant ignorance.

  – “I don’t pretend to be an economic theorist.”

  And on a blog dedicated to Austrian economists, just why, one
  wonders, do the “giants” in our Mises world keep filling the Blog pages
  with post such as this, which are, on their very face, IRRELEVANT, to
  the question of how Austrians wish to address the preferences of other,
  the misuses of government and the management of unowned common
  resources.

  – “he only difference between the Republicans and the Democrats
  is, in practical terms, their rhetoric. I don’t pretend to be an
  economic theorist.

  – “But the notion that we can run an industrialized giant on
  chicken manure and sunbeams doesn’t even pass the giggle test. Except
  in Washington.”

  At long last, you say something something intelligible. Except
  Washington spends trillions on nonsense at the drop of a hat, if you
  haven`t noticed recent events.

  Published: November 1, 2009 10:02 AM

• TokyoTom

  Sorry if I`ve been a bit intemperate; that I`m rushed doesn`t excuse it.

  Dr. Hayden, you are entirely welcome to your own opinion and your
  own mental map of reality, but not to your own facts. As to your
  opinion and mental map, they are by your own admittance uninformed as
  to matters of economics and political science, but I must confess that
  I find your understanding of climate science to be seriously wanting.

  Given these, I fail to see what you offer here, other than a
  convenient, if very thin, cover for others here who don`t want to
  think, or to fight to make the world (or our own government) better.

  Sincerely,

  Tom

  Published: November 1, 2009 10:11 AM

• TokyoTom

  Bala, I appreciate your polite persistence; I`m sorry I haven`t responded yet, but I`ll get to you.

  Please note that my time is both limited and my own (though indeed
  others have claims on it), and I have no obligation to spend any of it
  responding to your importunings regarding climate science, which are
  now shading into impertinence.

  Feel free to draw whatever conclusions you wish, but a fair reader might note that:

  – my priorities may (unsurprisingly) differ from yours,
  – my chief points (and Austrian principles as to how to engage with others) have nothing to do with climate science per se,
  – I explicitly make no pretense of being a scientist or climate expert, and
  – in any case, there is no simple course to understanding reality; we
  are all forced to make decisions as to how much energy to devote to
  puzzling things out on our own (and overcoming what we know of our own
  subconscious cognitive filters) versus outsourcing this effort to
  others (by accepting things without deliberation, “on faith” as it
  were).

  Others who have been around longer will know that I`ve also devoted
  what they might consider an unreasonable amount of my time over the
  past few years, “hysterical” trying to help others work through climate
  science (and policy) issues.

  TT

  Published: November 1, 2009 8:46 PM

• TokyoTom

  mpolzkill:

  – “Tom, believing you live in a Republic with 300,000,000 people is a delusion which heads off all actual pragmatism.”

  This is not a delusion I have, but in any case it`s not at all clear
  that this or any other delusion “heads off all actual pragmatism”.

  – “Until there is actual representation, everything said by we
  proles is literally hot air (unless it’s happens to coincide with
  whatever benefits the regime).”

  I use “our government” simply as shorthand for what you call “the
  regime”, but perhaps may be more accurately described as a multicentric
  mess.

  In any case, the painstaking efforts of LVMI to grow the Mises
  website, and the welcome reception of and contribution to those efforts
  by everyone here – yourself included – belies both your near-nihilistic
  cynicism and your conclusion, as to virtually every topic discussed
  here. Words are deeds, though they be more or less frivolous, weighty,
  insightful or consequential.

  If the other Mises bloggers agreed with you as to the possible
  efficacy of their words, either generally or on this particular topic,
  they simply wouldn`t bother to post.

  However, I share your concern about efficiacy, which is why I
  criticize posts such these (whether by Stephan, George Reisman, Sean
  Corrigan, Walter Block, or Jeffrey Tucker), which are, by and large,
  more of a circle jerk than an effort to engage.

  – “thank you for being respectful”

  My pleasure, but you hardly need to thank me; this is a community, after all.

  – “even though you mistakenly think I’m a nut.

  In this case, it is you who are mistaken (not that you ARE a nut, but that you think I think you are).

  Tom

  Published: November 1, 2009 9:35 PM

This is last version of the comment that I tried to post several times:

method fan:

[my first attempt apparently failed to post, so apologies if this shows up twice]

– “You are insofar wrong, that not only this “data” is analysed but it is also used to “predict” the future of reality by using it in simulations!”

You miss my criticism of Dr. Hayden`s refusal to examine facts about ongoing melting in Antarctica, but of course I do NOT disagree with you that current and paleo data can be used to “predict” the future.

But of course a scientific understanding of the world, and information – in this case, both about the past and current trends of climate inputs – certainly can give us useful information about what the future may hold in store for us.

“There is no sound experimental proof that human activity-emitted carbon dioxide is the cause for some sort of global warming.”

Nicely phrased; there of course plenty of experimental proof that carbon dioxide is an atmospheric warming agent, but no experimental proof that it is “the” cause for any global warming.

While we are now running such a global experiment – one that started centuries ago and will not be played out for centuries hence and is, for all intents and purposes irreversible – and thus cannot, in the Popperian sense, even be considered an “experiment”.

Whether our ramping up of the experiment is prudent or principled are entirely different questions, and properly the subject of much discussion.

– “These guesses remind one of the idea that rain dances are the cause for rain.”

I`m tempted to make a comeback, but surely you realize your flip comparison is entirely inapropos.

Here`s hoping for more sincere discourse.

TT

[Note: Stephan Kinsella tells me he has NOT put my posts on his thread on moderation.  I believe him, and so (even as I fail to understand why I was unable to post a particular comment after a number of attempts), as noted I would in my original post, I withdraw my charge that he put my comments on moderation, and offer my sincere apology to Stephan (and to LvMI readers) for my mistake and for the offense that I imagine I may have caused to his sense of fair play. I am happy to do this, though of course I deeply regret my mistake.

Stephan, I`m sorry. I take your word that the conclusion I jumped to was wrong.

I am still trying to puzzle through what happened; below I have restored an edited version of my prior post, with the unjustifed portions deleted.

Meanwhile, the discussion continues at the Mises Blog, at the above thread.]

In my preceding post I commented on Austrian (dis)engagement on climate issues, as exemplified by Stephan Kinsella`s Mises Blog post, “Physicist Howard Hayden’s one-letter disproof of global warming claims”.

[clip]

Instead of the usual cheerful message LvMI provides when comments
are accepted (“Confirmation…  Your comment has been submitted!)”, my
attempts  to comment are now met with the message, “Thank you for commenting.  Your comment has been received and held for approval by the blog owner.”

While there are times that this message is automatically served up
for technical reasons, such as not providing proper email address
(i.e., by accidently typing in “.comh” instead of “.com”) or providing
too many links (which may trigger a spamblocking feature), this [seemed to me] to be fairly clearly NOT one of those occasions – I had just successfully
posted a couple of comments that included links, and my “failed” post
included my usual email address (properly formatted, as I can confirm
simply by backing up) and no links.

[clip]

I copy below the comment that I
[had supposed] turned his playful non-responsiveness (see his comment to my prior post) into stony silence/silencing:

• Published: October 31, 2009 1:00 PM

• TokyoTom

  Stephan, if I may, I am appalled and offended by your shallow and
  fundamentally dishonest engagement here. That there are a string of
  others who have preceded you in this regard is no excuse.

  You: (i) post without significant comment a one-page letter from a
  scientist – as if the letter itself is vindication, victory or a
  roadmap for how we should seek to engage the views and preferences of
  others,

  (ii) refuse to answer my straightforward questions (both above and
  at my cross-linked post, which you visited) on how we engage others in
  the very active ongoing political debate, in a manner that actually
  defends and advances our policy agenda, (putting aside the
  insulting and disingenuous “Tokyo asked me to respond” and “it’s so
  rambling I am not sure what to respond to”); and

  (iii) then proceed to present your own view of the science, the
  motives and sanity “watermelons” (as if they`re running the show), a
  few helpful, free-market libertarian “solutions”, like open-air
  explosion of nuclear weapons to bring about a “nuclear winter” effect!

  And my attempt to bring your focus back to the question of how we
  actually deal with others in the POLITICAL bargaining that is, after
  all, underway is met with silence – other than your faithful report
  back from your trusty climate physicist expert policy guru friend about
  …. science (all being essentially irrelevant to my question, not
  merely the cute little folksy demonstration about how the troubling
  melting and thinning of Antarctic ice sheets actually now underway
  simply CAN`T be occurring, but also a further failure to address the
  very rapid ocean acidification our CO2 emissions are producing)!

  Maybe it`s me, but I find this type of insincere and shallow
  engagement on such a serious issue to be a shameful discredit to the
  Mises Blog (even if it does cater to those who prefer to think that the
  big to do about climate – which may very well result in a mass of
  ill-considered, costly and counterproductive legislation – is really
  groundless and so can simply be ignored, aside from a bit of internal
  fulminations here).

  If you are not actually interested in discussing policy on a serious issue, then consider refraining from posting on it.

  Maybe it`s not my position to expect better, but I do.

  Sincerely,

  Tom

[Note: I had intended to excise the following from my comment,
but it`s just as well that it slipped in, as it serves to illustrate
what productive Austrian approaches to climate issues might look like.
I`ve added a link to Roy Cordato.]

Roy Cordato (linked at my name) said this:

“The starting point for all Austrian welfare economics is the goal
seeking individual and the ability of actors to formulate and execute
plans within the context of their goals. … [S]ocial welfare or
efficiency problems arise because of interpersonal conflict. [C] that
similarly cannot be resolved by the market process, gives rise to
catallactic inefficiency by preventing useful information from being
captured by prices.”

“Environmental problems are brought to light as striking at the
heart of the efficiency problem as typically seen by Austrians, that
is, they generate human conflict and disrupt inter- and intra-personal
plan formulation and execution.”

“The focus of the Austrian approach to environmental economics is
conflict resolution. The purpose of focusing on issues related to
property rights is to describe the source of the conflict and to
identify possible ways of resolving it.”

“If a pollution problem exists then its solution must be found in
either a clearer definition of property rights to the relevant
resources or in the stricter enforcement of rights that already exist.
This has been the approach taken to environmental problems by nearly
all Austrians who have addressed these kinds of issues (see Mises 1998;
Rothbard 1982; Lewin 1982; Cordato 1997). This shifts the perspective
on pollution from one of “market failure” where the free market is seen
as failing to generate an efficient outcome, to legal failure where the
market process is prevented from proceeding efficiently because the
necessary institutional framework, clearly defined and enforced
property rights, is not in place.”

The Road Not Taken III: Stephan Kinsella plugs his ears on the Austrians` obstinate, willful irrelevancy in the climate debate

[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:

Stephan:

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.

Tom

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!

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)

John,
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
sourced.

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
taxpayers.

http://mises.org/Community/blogs/tokyotom/search.aspx?q=limited+liability

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

Robert Wenzel has a couple of posts up on his blog that rightly ring alarm bells about the plans of the Obama administration to seek legislative changes that would allow regulators to oversee executive compensation (1) in the financial sector (“The United States of Obama Has Arrived“) and (2) for all public companies generally (“It`s Worse Than I Thought:”). 

And make no mistake, Wenzel is VERY alarmed:

“Treasury Secretary Timothy Geithner’s statement on
executive compensation packages is a clear signal that a dictatorship
has arrived in America. Make no mistake, the compensation package
regulations that are about to be instituted will go way beyond
regulations on banks and other financial institutions that took TARP
money. It is about controlling the entire financial sector–which will
ultimately result in controlling the entire economy.”

“Now that the government is moving in to control the financial sector,
the rest of the economy will be a lay up. Money controls the economy
and Barack Obama is about to take over the money infrastructure. Money
is going to end up going to some very funny places. Mostly to people
who control lots of votes in the next presidential election, and to
those who finance such election campaigns. In other words, the
connected. In the first group, we are talking unions, in the second
group we are talking about Goldman Sachs, Carlyle Group and the like.

“When
this is all over, the United States of Obama is not going to look
anything like the America we now know. Think Cuba, think North Korea,
that’s how all dictatorships end up.”

“The compensation oversight programs announced by Geithner will not be
limited to financial companies. The Treasury will propose legislation
giving the SEC the power to ensure that compensation committees are
more independent, for all publicly traded companies, according to Sperling.”

“What should be of major concern is that this is going to bring to the
compensation table all kinds of people with all kinds of agendas”.

“In short, there appears to be Herculean oversight of executive
compensation coming that is likely to turn into more regulation than
oversight. And there is enough wiggle room in these proposals, at this
point, that the Administration can drive the programs in any direction
they want, any time they want or need to. It sounds like a Paulson plan
all over again. Throw everything up against the wall, get legislation
passed and interpret all these broad generalizations any way you want,
down the road.

“Very scary.”

But in his rush to tell us that the doctor is about to enslave the patient, Wenzel neglects
to offer an opinion on whether the patient is sick, if so, why, and what treatment might be more apt.  Such analysis must be offered if one wants to persuade – either the patient that the doctor is a quack (and to run), or those with the lobotomizing tools to put them down (in favor of a more appropriate diagnosis and treatment). 

Have faulty incentive structures in the financial sector and within public firms not contributed to the financial crisis?  If indeed they have – as seems to be universally acknowledged –  how did those incentive structures arise, and what are the best ways to remedy them? 

While the discussion can become quite nuanced, it seems to me fairly clear that root causes lie in financial regulation and in the regulation of “public” companies, both of which have served to loosen shareholder/investor control over management. 

This loosening of control, of course, has an even deeper root, namely, the grant of limited liability to shareholders for the torts committed by company executives and employees.  This grant incentivized lighter oversight by shareholders (as gains from risky activities could be captured, with losses in excess of  assets being shifted to the public), and in turn has led to a continuing cycle of federal regulation intended to rein in risks – particularly on environmental, health and safety areas, and regulation of stock markets and “public” companies – with resistance from and rampant rent-seeking and gamesmanship by larger risk-generating firms.  Sometimes forgotten by advocates of “free markets” is how larger firms utilize their political influence to co-opt regulators and regulations, both to raise barriers to entry to keep smaller and nimbler competitors at  bay and to ensure that they can continue in business without facing the full external costs of their business activites.

This dynamic – and the way free market advocates miss it – can be seen in Wensel`s most recent post, where he notes:

“The Treasury will propose legislation
giving the SEC the power to ensure that compensation committees are
more independent, for all publicly traded companies, according to Sperling.

“Sperling
championed this as putting standards into effect for compensation
similar to those put in place for audit committees as part of the
Sarbanes-Oxley Act.

“I know of no one, including most legislators
, who don’t think that Sarbanes-Oxely was a big mistake, that it costs
companies millions of dollars annually in compliance costs, with zero
benefit. Setting up such a nightmare for all publicly traded companies
will make it even more difficult, if not impossible for small companies
to raise money and go public, and will force others to leave the public
markets and go private (or overseas).”

Sarbanes-Oxley vastly extended the reach of federal securities regulation, and raised costs for public firms.  But while Wenzel can see this, why has he failed to note that such regulation also greatly raised the costs of access to the public capital markets, thus benefitting public companies by insulating them from potential competitors?

The whole system of public company regulation is rotten.  We need less regulaton, and greater self-policing by investors and market counterparties of the risks they face.  The alternative of lightly-regulated private companies (especially unlimited liability structures like partnerships) ought to be more vigorously explored.

I quote  a summary of my views on this subject from another recent post:

“I share Ariely’s concern that we are likely to be distracted by a
focus on big “bad apples” that may satisfy our needs to string someone
up, but that will ignore the rot at the core – the systemic
cheating that, in the American system, is very much related to the
institution of state-granted “limited liability” to corporate
investors/shareholders.  This grant (1) frees investors from the
downsides of losses suffered and borne by third parties as a result of
corporate actions, (2) limits investor incentives – and abilities – to
monitor and control risks faced by and generated by executives,
managers and other employees, (3) thus incentivizing risky behavior and
providing greater freedom of action to executives and managers –
including freedom of action to seek favors from government , (4)
leaving executives and managers freer to loot their companies by taking
large bonuses, which shifting downside risks to shareholders and
taxpayers, and (5) fuelling pressures by consumers and others adversely
affected by corporations to seek to use legislative, regulatory and
judicial mechanisms to check corporate behavior.  In sum, limited investor liability has proven to lie at the core of the moral
hazards which have produced the Great American Ponzi scheme that our
fearless leaders are now struggling mightily to patch together and
profit from.

“Did I leave anything out?  (Ah, maybe how various firms, investors and their political handlers profit while socializing climate change risks?)

“Anyone game for exploring ways to reduce the destructive gaming and rampant cheating in the American system?”

I just ran across an interesting speech and related commentary provided last month at TED by behavioral economist Dan Ariely, professor at MIT and author of Predictably Irrational.  Both the speech and the commentary are worth a look.

Ariely’s speech, billed as “Why we think it’s OK to cheat and steal (sometimes),” discusses how we fail to test our often-wrong intuitions, and focusses on the cognitive and social aspects of cheating behavior.  The Carnegie Council (which has a sidebar with other resources on cheating and corruption) summarizes Ariely’s speech as follows:

Ariely finds that in most situations a lot of people cheat a little, and that there are predictable ways to influence honesty.  When test subjects are reminded of morality, cheating drops. When subjects are distanced from the object of reward—for example, by replacing money with redeemable tokens—cheating increases. When other members of your social group cheat, you are more likely to cheat as well.

TED also asked Ariely for his thoughts on the Bernie Madoff scandal; these are a short read (about a page), but allow me to present a “readers’ digest” here:

Madoff’s massive Ponzi scheme was horrific on many levels. But while we watch the next phase of the scandal, it’s important to ask: What lessons are we going to learn from this? I can see three lessons that relate to my work studying human irrationality — and in particular, some non-useful lessons we might [unintentionally] learn.

One lesson that individuals and foundations are likely to take from the Madoff scandal is that in addition to diversifying their portfolio across several investments (stock, bonds, equity, cash), they also need to diversify their investments among several advisors. … You will need a whole new level of coordination among them so they can have the right amount of cash, bonds, stocks etc., across all of your assets.

And I think that people will begin to over-diversify across investors. Why? Because when we have one large and salient instance in our minds, it can be so powerful that we overemphasize it. …  In general, what we find when there’s one single vivid event is that people overweight it — we focus on it too much. So that’s the first lesson: We’re going to learn from the Madoff scandal, but we are going to overdo it.

Another non-useful lesson that I think we will adopt is to start searching with more vigor for other bad apples. On one hand, it is clearly important to prevent more Madoffs, but at the same time I worry that as a consequence of searching for bad apples, we won’t pay enough attention to other financial behavior that might not be as badly wrong but that can actually have larger financial consequences.

In our research on dishonesty, we found that when we give people the opportunity to cheat, many of them cheat by a little bit, while very few cheat by a lot. In our experiments, we lost about $100 to the few people who cheated a lot — but lost thousands of dollars to the many people who each cheated by a bit. I suspect that this is a good reflection of cheating in the stock market, where the real financial cost of the egregious cheating by Madoff is actually a tiny fraction of all the “small” cheating carried out by “good” bankers.

The risk here is that if we pay too much attention to chasing bad apples, we might pay too little attention to the situations where the small dishonesties of many people can have large consequences (such as paying slightly higher salaries to cronies, making small changes to financial reports, doctoring documents, being slightly dishonest about mortgage terms), and in the process neglect the real economic source of the trouble we are in. (emphasis added)

A third bad lesson that I think people will take from this concerns the way we define acceptable levels of cheating. In a study that may parallel Madoff’s egregious dishonesty, we … [found] that when someone who is part of our own social group cheats, we find it more acceptable to cheat, but when people who are not part of our social group cheat, we want to distance ourselves from these people and cheat less. (emphasis added)

Madoff was part of the financial elite — part of an in-group of our financial leaders. Think of all these people who were in his house, who knew him well. So now, when other people in this circle see him cheating, think about the long-term consequences: Would these other people in this financial industry now be more likely to take the immoral path? It doesn’t have to be another Ponzi scheme. It just means that, now that they have been exposed to this extreme level of dishonesty, they might adopt slightly lower moral scruples.  … I don’t think that those in his circle will necessarily become more Madoff-like people, but I do suspect that they will get a substantial relief from their moral shackles. Sadly, that’s his legacy.

So, Chapter One of the Madoff scandal is over, but I worry that the negative downstream consequences of this experience are just starting …

I share Ariely’s concern that we are likely to be distracted by a focus on big “bad apples” that may satisfy our needs to string someone up, but that will ignore the rot at the core – the systemic cheating that, in the American system, is very much related to the institution of state-granted “limited liability” to corporate investors/shareholders.  This grant (1) frees investors from the downsides of losses suffered and borne by third parties as a result of corporate actions, (2) limits investor incentives – and abilities – to monitor and control risks faced by and generated by executives, managers and other employees, (3) thus incentivizing risky behavior and providing greater freedom of action to executives and managers – including freedom of action to seek favors from government , (4) leaving executives and managers freer to loot their companies by taking large bonuses, which shifting downside risks to shareholders and taxpayers, and (5) fuelling pressures by consumers and others adversely affected by corporations to seek to use legislative, regulatory and judicial mechanisms to check corporate behavior.  In sum, limited investor liability has proven to lie at the core of the moral hazards which have produced the Great American Ponzi scheme that our fearless leaders are now struggling mightily to patch together and profit from.

Did I leave anything out?  (Ah, maybe how various firms, investors and their political handlers profit while socializing climate change risks?)

Anyone game for exploring ways to reduce the destructive gaming and rampant cheating in the American system?