Archive for August, 2010

A few thoughts on David Korten's "10 Common Sense Principles for a New Economy"

August 27th, 2010 2 comments

I refer to David Korten, a Stanford-trained economist, former professor at Harvard Business School, former adviser to the Ford Foundation and the US Agency for International Development. Korten, a prominent critic of corporate globalization and official aid, is co-founder and board chair of the Positive Futures Network, which publishes the quarterly YES! Magazine, a board member of the Business Alliance for Local Living Economies, and is author of  When Corporations Rule the World (1995 and 2001).

Korten recently published in YES! Magazine his thoughts on how we need to re-organize our economy. Since YES! publishes under a Creative Commons License, I take the liberty of reproducing the article below, with my comments interlaced.

I find hope in the fact that millions of people the world over are seeing through the moral and practical fallacies underlying the Wall Street economy and—by contributing to the creation of a New Economy—are taking charge of their economic lives.
[So far, so good!]

Here are ten common sense principles to frame the New Economy that we the people must now bring forth:

1.  The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing. 

An “economy” has NO purpose; it is simply shorthand for the interactions of people, acting as individuals and in groups. Securing just, sustainable, and joyful livelihoods for all is indeed a worthy goal for a society to have, among other goals that individuals, groups within the society (including those within government) and the society as a whole may have – which goals cannot all be achieved due to scarce resources and conflict between goals.

While the identification of “Wall Street Financiers” is vague, certainly it is fair criticize our financial system and those who profit from it while generating ill for the rest of society.

2.  GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it. 

Korten’s definition of GDP is idiosyncratic and not helpful. GDP is the chief measure of economic performance used by policy makers (determined either as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports, or as the sum of income and depreciation). It is certainly a very flawed measure of economic performance, as it fails to measure damage to private and social capital (including damage to the environment), and treats wasteful government spending on wars, pork-barrel spending and building a police state on the same basis as it treats expenditure by the private economy. It does not even attempt to measure of human well-being and happiness, such as differences in income and wealth.

Maximizing GDP – especially as it is now defined – certainly should not be a public policy goal. Korten does not refer to the “environmental” cost of our economic activities; if he intended this criticism I would agree. In fact, GDP treats expenditures to deal with environmental harms as positive contributions to GDP!

3.  A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness. 

While I share many of Korten’s concerns here, he has completely failed to define what he means as the “Wall Street economy”, so it is difficult to have productive conversation. GOVERNMENT, not Wall Street, is chiefly or substantially responsible for wars, automobile dependence and suburban sprawl, for building a financial sector that encourages financial speculation, and for the ruinous “War on Drugs” that militarizes our police, keeps blacks in jail and undermines the growth of healthy inner cities. How is Wall Street responsible for energy-inefficient buildings or any other problem Korten identifies, other than financial speculation? Does Korten intend here simply to set up his later criticism of the “money system”? Libertarians would certainly agree that our screwed-up money system is the linchpin of many problems in our society/economy.

Nor is it clear what Korten means by “bringing ourselves into balance with the biosphere” or by a “rational reallocation of resources”, whether these are goals shared by all and are top priorities, or who is supposed to be making rational reallocation decisions. If he is suggesting that governments should have more power, I would disagree.

4.  Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality. These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

“Markets”, loosely defined, are evolved and devised cooperative institutions for interpersonal and inter-group exchange. To maintain efficient cooperation, markets typically employ rules that enforce agreements, provide clarity, limit cheating. Cost internalization (limiting costs shifted to others) and fair sharing of collective costs are a purpose of the rules, but market participants generally have no personal interest in, and markets generally have no rules regarding, “balanced trade” or domestic investment.

Sure, there are a host of problems that can be identified as relating to “corporate monopolies”, but corporations are NOT creations of markets, but creations of governments. It is governments that incentivize moral hazard and risk-shifting, by allowing people to form limited liability business firms that – unlike individuals and partnerships – have unlimited lives and whose owners have no liability for the damage that such firms may do to others. Government action creating corporations has been the trigger fuelling corrupt and damaging behavior, that in turn has fuelled citizens’ demands that government get bigger and create more “rules” to constrain their Frankensteins, who are now bigger and more powerful than government, and far more influential than REAL “persons”. 

Well, it’s not working out very well, is it? The only path I see ahead is to gradually end “limited liability” in corporations, on a number of different fronts.

5.  A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.

Korten is very right about his last three sentences; the first is spot-on: Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. If one understands modern “fiat money”, it is easily seen as a form of fraud. While I do not see this as a deliberate intention of those working in finance, expropriation of wealth is a natural consequence of the “fiat currency” system that banks developed and that the US government has captured (though governments often deliberately expropriate by inflating their currency – this is clearly seen in Zimbabwe). Until money systems were captured by banks and government, real money was nothing more or less than goods of various types that people found valuable and more convenient than direct barter as a means of exchange.

If fiat money was eliminated (a gradual process would eliminate “legal tender” laws and allow competing currencies), then the natural result would be a shift of power from government and Wall Street to people and local communities.

6.  Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

This is completely wrong-headed. First, wealth is not created, and long-run human needs are not addressed, simply by continuing to treat money as play money that can be created whenever one wants something – this simply hides the very real theft from the economy as a whole (particularly those least well-off).  If we want honest government that does not favor the wealthy over the middle class or the poor, then we need to end our fiat currency. But as long as we are NOT doing that, then the government should either borrow what it intends to spend, or raise it via donations or taxes – even during down times.

Second, economic recessions or depressions, while not happy times, are generally the product of government playing with money – “easy money” of the kind Korten seems to want – that leads to mal-investment. The recession is actually the process by which the economy “cures” the over-investment, as investments in unsustainable, over-heated sectors go bust and are reallocated to projects that more realistic.

7.  Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.

Generally, agreed, with many quibbles and clarifications. Speculation as used in it’s negative sense is simply making a bet, backed with real money, that an asset (stocks) is worth more than or less than what others think. It sends a useful signal to everyone else that a particular corporations or government may be hiding its real financial and/or business condition. It is government AND banks that generate financial bubbles.

Of course risk externalization is bad, but not only is it inherent in the corporate form, but it is actually encouraged by our systems of financial and corporate regulation, and by government ownership of many resources. Government insurance of banks means government and not depositors must regulate and monitor the risks generated by banks, whose executives and traders are thus playing with “other peoples’ money”. The business models of securities firms and rating agencies has been to find ways around regulations, and to sell risky instruments to regulated entities. Likewise, the regulation of “public companies” has served to raise barriers to entry and to reduce the ability of shareholders to oversee management. The powerful “regulated” companies are always better positioned than consumers and possible upstart rivals to manipulate and take advantage of regulations.

“Usury”? Interest is nothing more than the recognition that a bird in the hand is worth two in the bush.

How to deal with Wall Street? First, end fiat money. While that is progressing, require banks and financial companies to be partnerships instead of limited liability corporations (tighten regulations on the first, relax them on the second), and roll back the counter-productive, easily corrupted effort by government to regulate risks, by limiting deposit insurance.

8.  Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.

I agree that sharing is not a sin (indeed, it’s necessary for societies to function well, particularly for common resources), but “greed” is a cop-out. While I would support whole-heartedly an effort to eliminate limited liability for corporate shareholders (it was once extremely rare, and required legislative approval on a case-by-case basis of a strong public purpose), people engage in business on an individual basis not expressly “to serve the community”, but to make a living – by providing goods and services that the community members want. If people and firms fail to do that well, they go out of business.

9.  The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

I have a very similar perspective, but my conclusion is that the government should not be issuing corporate charters at all, and certainly none that limit the potential liability of the shareholders. I don’t trust politicians who are easily influenced by the wealthy to be bestowing special favors to anyone. 

10.  Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them. 

Muddled, but I largely agree. There are business that “extract wealth”, and damage the local community while benefitting others who have little or no stake in it. This can be addressed by insisting that states end limited liability corporations, which would allow them to apply different standards to corporations based in other states or countries, and finding ways to limit the damage done by Supreme Court decisions that say that corporations have Constitutional rights.

But rather than asking for government “favor”, communities and individuals should insist on reclaiming control over their own destinies, thus limiting the areas of “public policy” that government can screw up – a la BP and offshore drilling), in order to benefit a favored set of interest groups.

Let me conclude by saying that I share David Korten’s concerns about how screwed up our economic priorities are, and appreciate his efforts. However, his “common sense” principles miss the key factors at work in skewing our economy towards Wall Street and “extractive” corporations: fiat money, deposit insurance, limited liability for corporate shareholders, and government ownership of resources. 

David Korten author pic

David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real Wealth, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World.

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Mises The Enviro on BP (and ConocoPhillips)

August 19th, 2010 No comments

I just ran across an old post quoting Mises, and some of it seemed quite relevant to my posts on BP (including my post yesterday regading a statement by the CEO of ConocoPhillips that they would not drill in the Gulf of Mexico if Congress eliminated statutory liaibility limits for pollution), particularly with regard to ownership by government, lack of ownership  by BP, and the absence of any rights in favor of fishermen or other non-petroleum resource users.

Here’s the quote (emphasis added):

Property rights as they are circumscribed by laws and protected by courts and the police, are the outgrowth of an age-long evolution.The legal concepts of property do not fully take account of the social function of private property. There are certain inadequacies and incongruities which are reflected in the determination of the market phenomena.

Carried through consistently, the right of property would entitle the proprietor to claim all the advantages which the good’s employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand. Then the proprietor alone would be fully responsible for the outcome. In dealing with his property he would take into account all the expected results of his action, those considered favorable as well as those considered unfavorable. But if some of the consequences of his action are outside of the sphere of the benefits he is entitled to reap and of the drawbacks that are put to his debit, he will not bother in his planning about all the effects of his action. He will disregard those benefits which do not increase his own satisfaction and those costs which do not burden him. His conduct will deviate from the line which it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable.

The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people.

The extreme instance is provided by the case of no-man’s property referred to above. If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns–lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil–do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds. In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries. The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. Until the last decades of the nineteenth century there was always a geographic zone open to newcomers–the frontier. Neither the existence of the frontier nor its passing was peculiar to America. What characterizes American conditions is the fact that at the time the frontier disappeared ideological and institutional factors impeded the adjustment of the methods of land utilization to the change in the data. …

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



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In a shocking moment of honesty, ConocoPhillips CEO says offshore oil isn’t economical without government gifts of limited liability

August 18th, 2010 No comments

I have a number of blog posts up discussing the BP oil well blow-out and the limited liaibility corporate structures and additional oil drilling liability caps that heighten moral hazard in offshore oil drilling.

I have just run across a post by another blogger, who refers to comments made by ConocoPhillip’s CEO and noted in the Financial Times, which strongly reinforces my view (emphasis in original):

The true shocker here is how heavily offshore oil development depends on anti-market protection from liability in order to be profitable. At least, that’s what ConocoPhillips CEO Jim Mulva unwittingly declared the other day. In an article entitled, “Unlimited liability for Gulf oil spills would kill development,” the Financial Times reports [in an article titled, “Unlimited liability for Gulf spills would kill development”]:

Jim Mulva, ConocoPhillips’ chief executive, says that the unlimited liability some are proposing in Congress to punish operators for further spills in the Gulf of Mexico is inappropriate. That would raise the question of how many of the smaller companies operating in the Gulf could afford to get back out there to work following the lifting of the moratorium and even whether the risk reward equation would favor going out into the waters again for the biggest of companies. He said to analysts:

We will not develop the resources if we have that situation.

It may have sounded like a threat, but it is also a realistic assessment of the situation.It is true that an increasing number of companies have been looking to the Gulf for prospects, given that it has been a good source of oil and natural gas over the years and new technology has made it even more so. But they will not risk their entire futures to get at the resources.

Mulva’s intent, of course, was to argue against imposing unlimited liability for oil spills. But assuming his statement was more than bluster, his implicit admission is that the risks of oil spills are so great that in a free market, the costs of paying for spill damages would outweigh the benefits of developing the resources.

Of course, the situation in the Gulf is hardly a free market, and neither oil companies nor Congressional Republicans have any interest in creating one (corporate welfare is good for the shareholders). Liability for damages from oil spills is capped at $75 million, which means that oil companies do not have to account for the full costs of oil production in their resource planning. It’s an implicit subsidy (or more accurately, a bailout): no matter how bad the damages to the tourism industry, the fishing industry, and the intrinsic value of the coastal ecology, oil companies will only ever have to pay $75 million to compensate them. Either the taxpayer picks up the tab, or the non-oil industries are just left with losses, while Big Oil gets bailed out.

In other words, when Jim Mulva or coastal congressmen say, “lifting the liability cap will hurt production and kill jobs,” what they’re actually saying is, “offshore production only occurs because of market-distorting protections that insulate companies from the consequences of their decisions and lead to overproduction of a resource.” Would making oil companies responsible for damages they cause reduce oil production and oil jobs? Probably. But jobs and money are not reasons to subsidize irresponsibility. There’s no constitutional right to drill for oil: if paying for the full cost of oil spills would make offshore drilling unprofitable, then offshore drilling probably shouldn’t be happening, and it’s not the government’s job to make it profitable.

And let’s not forget that for every offshore driller who’s hard at work, there’s also a fisherman whose fishing grounds are ruined by oil, and a hotel worker whose rooms are empty of tourists. If oil companies are insulated from liability, it means that drilling is necessarily happening in an economically inefficient manner, which likely means that the jobs destroyed by oil are greater than the jobs created by it.

If companies have rights just like people, then they also have responsibilities. Personal responsibility is not just for individuals.

The blogger is largely correct, though he misses the roles of the government (1) in denying property rights – and an ability to control their own lives – to fishermen, and (2) in further encouraging irresponsibility by the grant of limited liaibility to corporation shareholders.

More from the FT:

There are other offshore prospects, in places ranging from Ghana to Brazil to the Black Sea. And while it has long been easiser to work in the Gulf of Mexico than in most other parts of the world, the tightening of rules and enforcement will certainly require not only newer technology but more work.

The companies accept this is needed, and say they are prepared to accept it in the Gulf. Indeed, it may be something they end up having to deal with around the world.

But they will not agree to bet the company on a prospect in the Gulf.


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Not that it matters to libertarians, but the conservative National Post says "Global-warming deniers are a liability to the conservative cause"

August 18th, 2010 No comments

Last month the conservative Canadian National Post ran a surprising editorial. It certainly caught me by surprise, and I thought I would share it with you.

It is somewhat reminiscent of Jim Manzi’s shocking takedown of climate “wingnuttery” by Mark Levin at NRO last April.

I quote liberally (emphasis added):

Bad science: Global-warming deniers are a liability to the conservative cause

  July 15, 2010

Have you heard about the “growing number” of eminent scientists who reject the theory that man-made greenhouse gases are increasing the earth’s temperature? It’s one of those factoids that, for years, has been casually dropped into the opening paragraphs of conservative manifestos against climate-change treaties and legislation. A web site maintained by the office of a U.S. Senator has for years instructed us that a “growing number of scientists” are becoming climate-change “skeptics.” This year, the chairman of the Australian Broadcasting Corporation gave a speech praising the “growing number of distinguished scientists [who are] challenging the conventional wisdom with alternative theories and peer reviewed research.” In this newspaper, a columnist recently described the “growing skepticism about the theory of man-made climate change.” Surely, the conventional wisdom is on the cusp of being overthrown entirely: Another colleague proclaimed that we are approaching “the church of global warming’s Galileo moment.”

Fine-sounding rhetoric — but all of it nonsense. In a new article published in the Proceedings of the Natural Academy of Sciences, a group of scholars from Stanford University, the University of Toronto and elsewhere provide a statistical breakdown of the opinions of the world’s most prominent climate experts. Their conclusion: The group that is skeptical of the evidence of man-made global warming “comprises only 2% of the top 50 climate researchers as ranked by expertise (number of climate publications), 3% of researchers in the top 100, and 2.5% of the top 200, excluding researchers present in both groups … This result closely agrees with expert surveys, indicating that [about] 97% of self-identified actively publishing climate scientists agree with the tenets of [man-made global warming].”

How has this tiny 2-3% sliver of fringe opinion been reinvented as a perpetually “growing” share of the scientific community? Most climate-change deniers (or “skeptics,” or whatever term one prefers) tend to inhabit militantly right-wing blogs and other Internet echo chambers populated entirely by other deniers. In these electronic enclaves — where a smattering of citations to legitimate scientific authorities typically is larded up with heaps of add-on commentary from pundits, economists and YouTube jesters who haven’t any formal training in climate sciences — it becomes easy to swallow the fallacy that the whole world, including the respected scientific community, is jumping on the denier bandwagon.

This is a phenomenon that should worry not only environmentalists, but also conservatives themselves: The conviction that global warming is some sort of giant intellectual fraud now has become a leading bullet point within mainstream North American conservatism; and so has come to bathe the whole movement in its increasingly crankish, conspiratorial glow.

Conservatives often pride themselves on their hard-headed approach to public-policy — in contradistinction to liberals, who generally are typecast as fuzzy-headed utopians. Yet when it comes to climate change, many conservatives I know will assign credibility to any stray piece of junk science that lands in their inbox … so long as it happens to support their own desired conclusion. (One conservative columnist I know formed her skeptical views on global warming based on testimonials she heard from novelist Michael Crichton.) The result is farcical: Impressionable conservatives who lack the numeracy skills to perform long division or balance their checkbooks feel entitled to spew elaborate proofs purporting to demonstrate how global warming is in fact caused by sunspots or flatulent farm animals. Or they will go on at great length about how “climategate” has exposed the whole global-warming phenomenon as a charade — despite the fact that a subsequent investigation exculpated research investigators from the charge that they had suppressed temperature data. (In fact, “climategate” was overhyped from the beginning, since the scientific community always had other historical temperature data sets at its disposal — that maintained by the Goddard Institute for Space Studies, most notably — entirely independent of the Climatic Research Unit at the University of East Anglia, where the controversy emerged.)

…I personally know several denialists whom I generally consider to be intelligent and thoughtful. But the most militant denialists do share with conspiracists many of the same habits of mind. Oxford University scholar Steve Clarke and Brian Keeley of Washington University have defined conspiracy theories as those worldviews that trace important events to a secretive, nefarious cabal; and whose proponents consistently respond to contrary facts not by modifying their hypothesis, but instead by insisting on the existence of ever-wider circles of high-level conspirators controlling most or all parts of society. This describes, more or less, how radicalized warming deniers treat the subject of their obsession: They see global warming as a Luddite plot hatched by Greenpeace, the Sierra Club and Al Gore to destroy industrial society. And whenever some politician, celebrity or international organization expresses support for the all-but-unanimous view of the world’s scientific community, they inevitably will respond with a variation of “Ah, so they’ve gotten to them, too.”

In support of this paranoid approach, the denialists typically will rely on stray bits of discordant information — an incorrect reference in a UN report, a suspicious-seeming “climategate” email, some hypocrisy or other from a bien-pensant NGO type — to argue that the whole theory is an intellectual house of cards. In these cases, one can’t help but be reminded of the folks who point out the fluttering American flag in the moon-landing photos, or the “umbrella man” from the Zapruder film of JFK’s assassination.

In part, blame for all this lies with the Internet, whose blog-from-the-hip ethos has convinced legions of pundits that their view on highly technical matters counts as much as peer-reviewed scientific literature. But there is something deeper at play, too — a basic psychological instinct that public-policy scholars refer to as the “cultural cognition thesis,” described in a recently published academic paper as the observed principle that “individuals tend to form perceptions of risk that reflect and reinforce one or another idealized vision of how society should be organized … Thus, generally speaking, persons who subscribe to individualistic values tend to dismiss claims of environmental risks, because acceptance of such claims implies the need to regulate markets, commerce and other outlets for individual strivings.”

In simpler words, too many of us treat science as subjective — something we customize to reduce cognitive dissonance between what we think and how we live.

In the case of global warming, this dissonance is especially traumatic for many conservatives, because they have based their whole worldview on the idea that unfettered capitalism — and the asphalt-paved, gas-guzzling consumer culture it has spawned — is synonymous with both personal fulfillment and human advancement. The global-warming hypothesis challenges that fundamental dogma, perhaps fatally.

The appropriate intellectual response to that challenge — finding a way to balance human consumption with responsible environmental stewardship — is complicated and difficult. It will require developing new technologies, balancing carbon-abatement programs against other (more cost-effective) life-saving projects such as disease-prevention, and — yes — possibly increasing the economic cost of carbon-fuel usage through some form of direct or indirect taxation. It is one of the most important debates of our time. Yet many conservatives have made themselves irrelevant in it by simply cupping their hands over their ears and screaming out imprecations against Al Gore.

Rants and slogans may help conservatives deal with the emotional problem of cognitive dissonance. But they aren’t the building blocks of a serious ideological movement. And the impulse toward denialism must be fought if conservatism is to prosper in a century when environmental issues will assume an ever greater profile on this increasingly hot, parched, crowded planet. Otherwise, the movement will come to be defined — and discredited — by its noisiest cranks and conspiracists.

Most of the article was cross-posted at David Frum’s FrumForm, which is his vehicle for rebuilding the GOP

Anyone familiar with my presence at LvMI will be aware that I have encountered much the same phenomenon that Jonathan Kay referes to, and have been saying much the same thing in response.

But I’ve also gone to the trouble of fleshing out libertarian approaches to the climate challenge:

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Hell and High Water: in the summer of our discontent, has anyone noticed the very strange weather?

August 18th, 2010 No comments

Well, yes, indeed; many have – not the least the Russians experiencing weeks of never-before-experienced hellish temperatures and the Pakistanis with floods covering a fifth or more of their country. We also had floods battering New England, then Nashville, then Arkansas, and then Oklahoma.

What’s going on?

For those of you who have NOT paid any particular attention, but whose curiosity is piqued, here are a few links that may help, in reverse chronological order.

Each of these articles is worthy of a full read.

This, my friends, is just the tip of the iceberg for the warming that is expected, both from the delayed effected of existing CO2 levels and as economies pump further CO2, methane and other GHGs into the atmosphere. Even if we were to stop on a dime and cease ALL CO2 emissoins, the world is expected to further warm.

Nor does this address what climate change is doing to the oceans.

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Guns, Germs & IP; Or, Is good information not hard to find or socially advantageous to protect? A few thoughts to Stephan

August 17th, 2010 12 comments

I’ve been travelling, so I hope readers will forgive a few late comments on Stephan Kinsella’s well-read July 28 Mises Daily post, “The Death Throes of Pro-IP Libertarianism“. I copy below the comments I left on the post comment thread:

TokyoTom August 17, 2010 at 8:23 am


While I agree with the conclusion that state-created and -enforced IP is no longer justifiable and should be jettisoned, I disagree that IP differs IN PRINCIPLE from other forms of “property” that societies have evolved and/or deliberately developed institutions to protect. The case against IP is not an absolute one, and you both stretch too far and show too little sensitivity to those who have simply accepted IP as a given part of our legal and moral framework.

I have noted before in greater detail a number of these points, in comments I have copied here:

Let me make a few new specific points here:

1. “By treating these dissimilar things — nonscarce, infinitely reproducible patterns of information and physical, scarce objects — similarly, the IP advocates try to treat them with the same rules. They take property rules designed precisely to allocate ownership of scarce physical objects in the face of possible conflict and try to apply them to information patterns. In so doing, they end up imposing artificial scarcity on that which was previously nonscarce and infinitely reproducible.”

Advances in technology greatly aid your argument about nonscarcity and reproducibility over just a few years ago, but not only does this seem historically incorrect, but given scarcity of humans and material objects, information still retains many elements of scarcity. It takes scarce resources to develop, refine, transmit, and acquire useful information, and individuals, groups, firm and societies all invested also in methods and rules to protect such information (for various reasons, such as to ensure recovery or investment, maintain advantages over rivals etc). Formal IP has at least some of its roots in a group decision that the society as a whole would be advantaged if solely private protection of valuable information was relaxed in exchange for public disclosure and limited state protection. Such a decision would in part be motivated by a calculus that treating information as “property” deserving of protection by the state would enhance overall welfare by lowering overall costs of purely private effort to defend such information (the same motivation for formal protection of other “property”; even as “pr@perty” may veryt well be a theft from the commons or public purse).

2. “Technological and other progress is possible because we can learn and build on previous knowledge. The market itself crucially relies on emulation — entrepreneurs emulate the successful action of others, thereby competing and serving consumers, and always bidding down prices and even profits.”

That emulation improves products and welfare is surely correct, and technological progress certainly makes emulation even cheaper. But individuals and groups are less likely to invest in developing information if competitors can freely and easily copy it. If we eliminate IP, we will certainly NOT eliminate the value of information or the incentives that drive people to invest in and protect it – or to engage in spying/other efforts to “steal” information that is privately protected.

3. “The market also enables the production of products that are scarce goods — with ever-increasing efficiency — and, crucially, makes scarce goods more abundant. The market is always trying to overcome and reduce the scarcity that is inherent in physical resources. The human actors on the market use infinitely reproducible, nonscarce knowledge and information to guide their use of scarce resources in ever-more efficient ways, so as to reduce the real scarcity that does exist in the physical world of useful goods.”

The first part of the second sentence is surely wrong in many important cases: in a competitive world, human actors/firms/societies try to gain advantage over competitors in satisfying customers by using difficult to reproduce and/or secret, scarce knowledge and information to guide their use of scarce resources in ever-more efficient ways, Information is valuable; this will not change if IP is eliminated.

4. “It is obscene to undermine the glorious operation of the market in producing wealth and abundance by imposing artificial scarcity on human knowledge and learning”

Over the top and ignores the real incentives and motivations of economic actors. While much human progress comes from emulation, much has also come from the investment by various actors in developing and applying SCARCE knowledge under conditions in which such information was not known and/or could not be reproduced or as efficiently utilized by competitors. This is simply a fact, and hardly an obscene one. It is also a phenomenon that will not change if formal IP is eliminated.



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