Archive for the ‘Roderick Long’ Category

[Revised] Corporations, the state, limited liability and rent-seeking: Some criticisms of Huebert and Block's criticisms of Long

November 26th, 2008 No comments

[Update:  Items 2 & 3 revised and an item 4 added.]

J.H. Huebert and Walter Block have posted a critique of Roderick Long‘s recent Cato essay.  Allow me to make a few comments:

1.  Huebert and Long argue that “There Is No Such Thing as Corporate Power”, stating that:

“Long writes that “Corporate power depends crucially on government intervention in the marketplace.”

But what does he mean by “corporate power”? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business’s name instead of their own names. And it allows them to enter into contracts under which they limit their own liability – something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation, and see our article, “Defending Corporations,” forthcoming in the Cumberland Law Review.)

The corporation, therefore, has no power to speak of.

Instead, only the state has power.”

(emphasis added)

This omits something rather crucial – that the corporate form allows owners to sidestep any personal liability for the wrongful acts that their corporation commits, with the result that liability of the corporation is limited by its assets.  Can someone point me to where libertarian principles defend this result?

2.   Huebert and Block further state that:

“sometimes the state uses its power to confer benefits, direct and indirect, on corporations. It also uses its power to confer benefits on partnerships. And sole proprietorships. And individuals. There is nothing special or different about government privileges for corporations – so why does Long single them out?”

I’m sorry, but a state grant of uncontracted-for limited liability vis-a-vis consumers and others IS a special privilege , and the very reason why so much economic activity is concentrated in corporations, as opposed to partnerships, sole proprietorships and individuals.

Further, there is indisputably quite a difference in SCALE of the benefits that the state confers on corporations, particularly larger ones.

3.  Huebert and Block concede that

“There is a kernel of truth in Long’s viewpoint – some larger firms do use the apparatus of the state to steal an advantage over smaller competitors. As a matter of history, things work out this way more often than in the opposite direction.”

But they fail to acknowledge the obvious implications of this concession:  the aggregated resources and long lives of larger corporations make it much easier for them, as compared to individuals, other forms of association and smaller corporate rivals, to effectively seek rents from the state by offering bribes of various forms (campaign contributions, lecture fees, junkets and revolving-door employment) .  Consequently, the state very often marches to the tune of large corporate drummers, with lobbyists and politicians acting as entrepreneurs in brokering the rents.  It is readily apparent that in the larger firms, executives are very effective at extracting equity at the cost of investors, and are often likewise effective in socializing costs (via federal and state bailouts) when their firms fail.

The creation and expansion of the corporate form has worked hand-in-glove with a steadily expanding and intrusive state.  Huebert’s and Block’s statements that “The corporation, therefore, has no power to speak of” and “onlly the state has power” are both obvious rhetorical excess.

4.  While Long argues that “In a free market, firms would be smaller and less hierarchical, more local and more numerous … and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.”  Huebert and Block take this to mean that Long is making the “unfounded” assertion that “big business needs the state to survive”.  Rather than being unfounded, such a view simply cannot be found in Long’s essay.

Huebert and Block argue that:

As it is, there are big businesses that don’t benefit much from government and there are small businesses that benefit greatly from government. In a fully free market, undoubtedly, large and small businesses would both survive, succeed, and prosper. Long’s assertions to the contrary are unfounded speculation.

The first two sentences are unobjectionable, and are not inconsistent with Long’s points. 

Of course what a fully free market would look like is pure speculation, all around.  But without the ability of larger firms to use the state to raise barriers to entry, it seems to me axiomatic that there would be a greater percentage of smaller firms.

Jerry Taylor/Cato fails to fully engage Yglesias’ "free-market case for revenue-neutral carbon pricing"

November 25th, 2008 No comments

Along with Roderick Long‘s recent Cato Unbound piece on libertarianism and corporatism, Cato hosted a reaction essay by liberal Matthew Yglesias, in which Yglesias made the following side comment:

The free-market case for a revenue-neutral carbon pricing scheme seems fairly impeccable to me. But instead of organizing its climate change efforts around seeking to ensure that any future carbon pricing plan be as close to revenue neutral as possible, Cato prefers to steadfastly defend the rights of industry to unload air pollution unimpeded.

Yglesias’ comment on carbon pricing elicited a longer response by Cato senior fellow Jerry Taylor, who in Cato-at-Liberty argues that the case for carbon taxes was not at all “impeccable”.   Unfortunately, Taylor does exactly what Yglesias argues –

  • Taylor ignores Yglesias’ implicit agreement that any carbon pricing should be as revenue-neutral as possible, which further implies support by Yglesias of the notion that the government should avoid using any carbon revenues to subsidize particular technologies;
  • Taylor refuses to address the question of whether relatively slim, revenue-neutral carbon pricing approaches are much preferable to the heavy-handed, pork-ridden policy alternatives that are being floated before Congress; and
  • by proffering arguments by Indur Goklany, Taylor in effect concedes that the best policy is for the government to do nothing, other than to encourage adaptation and to fund adaptation efforts in the developing world – thus conceding to industry a continuing “right to emit GHGs”. 

It is a puzzle that Taylor doesn’t explicitly address these points, particularly as the policy debate has very much shifted ground from whether the government should act to the question of what policy is preferable.   While I believe that Jerry Taylor and Indur Goklany make important points, they can hardly expect to be effectual in their efforts to stand against greater federal policy intervention if they ignore the change in political currents and fail to more directly engage obviously sympathetic observers like Matt Yglesias, to establish and build on common ground, or to more forcefully argue on the basis of principles.

Moreover, Taylor rather surprisingly compounds his disengagement by pulling an apparently skewed figure (the rather low mode rather than the higher mean) from a 2004 review of climate change cost-benefit studies by economist Richard Tol,  who has conducted further reviews and analyses and this year has come very strongly out in favor of carbon taxes.  In the August 12, 2008 issue of Economics — the Open-Access, Open-Assessment E-Journal, Tol concluded:

… the uncertainty about the social cost of carbon is so large that the tails of the distribution may dominate the conclusions
(Weitzman 2007b)—even though many of the high estimates have not been peer reviewed and use unacceptably low discount rates. …

There are three implications. Firstly, greenhouse gas emission reduction today is justified. Even the most conservative assumption lead to positive estimates of the social cost of carbon (cf. Table 1) and the Pigou tax is thus greater than zero. Yohe et al. (2007) argue that there is reason to reduce greenhouse gas emissions further than recommended by cost-benefit analysis. The median of … peer-reviewed estimates with a 3% pure rate of time preference and without equity weights, is $20/tC. …. The case for intensification of climate policy outside the EU can be made with conservative assumptions. … Secondly, the uncertainty is so large that a considerable risk premium is warranted. With the conservative assumptions above, the mean equals $23/tC and the certainty-equivalent $25/tC. More importantly, there is a 1% probability that the social cost of carbon is greater than $78/tC. This number rapidly increases if we use a lower discount rate—as may well be appropriate for a problem with such a long time horizon—and if we allow for the possibility that there is some truth in the scare-mongering of the gray literature.  Thirdly, more research is needed into the economic impacts of climate change—to eliminate that part of the uncertainty that is due to lack of study, and to separate the truly scary impacts from the scare-mongering.

Tol, R.S.J. (2008), ‘The Social Cost of Carbon: Trends, Outliers, and Catastrophes‘.

Taylor should be aware of this paper, as Richard Tol is well-known and -regarded, and Tol’s above paper was available as a draft in August 2007 and widely discussed (including here).  Consequently, Taylor’s quoting of old numbers that Tol has himself moved away from looks like cherry-picking and in any case will not convince anyone who has moved on from 2004.

Further, while Taylor refers readers to an excellent study by Indur Goklany, he fails to note that Goklany is a strong advocate for “adaptation”, namely, the view that:

The world can best combat climate change and advance well-being, particularly of the world’s most vulnerable populations, by reducing present-day vulnerabilities to climate-sensitive problems that could be exacerbated by climate change rather than through overly aggressive GHG reductions. 

But can’t one agree with Goklany’s preferences and yet kill two birds with one stone, by using domestic carbon taxes to fund contributions to global development efforts?  The “adaptation is preferable to mitigation” dichotomy simply fails.

Here’s to hoping for more constructive engagement from Jerry Taylor and from Cato.