Archive for March, 2011

Beyond ‘Nuclear Crony Capitalism’: Does state-created corporations mean we are stuck with a wonderfully confused ‘capitalist’ mess of socialized risk?

March 31st, 2011 No comments

Last night I was Sleepless in Tokyo because Matt Ridley and one of his commenters rewarded, with nice words and questions, a comment I left there on his “Nuclear Crony Capitalism” post.

So naturally I wrote more.

Here’s the relevant comment thread, plus my excited scribblings at the bottom (now up; thanks, Matt!). Skip to the bottom if you’re in a rush:

Posted by, TokyoTom (not verified)

Matt, great post — but I think you’ve only barely scratched the surface on the ‘crony capitalism’ institutionalization of risk.

I’ve spent a bit of time delving into this at my blog that Ludwig von Mises Inst kindly hosts:

– Sorry, but I can’t resist asking: Feel Sorry for Tokyo Electric Power Co?,, a tribute to Lew Rockwell’s ‘Feel Sorry for BP?’)

– Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning:

– My posts exploring the ramifications of the state grant of ‘limited liability’ corporation status:

 – The case of BP:

 – Not surprisingly, similar issues arise with respect to the rest of the Govt-licensed energy sector and climate:

 Thus small things contribute to the Road to Serfdom: and

I hope you’ll take your concern for nuclear crony capitalism even further.


Wednesday 30th March 2011 – 04:39am


Posted by, Matt Ridley


very interesting. Thanks. will follow up.


Wednesday 30th March 2011 – 04:54am


Posted by, Robin Guenier (not verified)


This is an intriguing post …. If one agrees (and I do) that the moral hazard enjoyed by financial institutions is deplorable, then logically it’s impossible not to take the same view of crony capitalism and nuclear power. And, as j ferguson and Tom have pointed out, it doesn’t end there. For example, I’ve been involved with the UK defence industry and recently with the appalling NHS computer system – in both cases, I’ve seen huge overruns and vast sums wasted. Classic examples, I suggest, of “government and capitalists colluding against the market”: neither the government nor its suppliers are penalised; all the pain is passed onto the public. And, if that is unacceptable – and surely it is – it’s hard to dispute Tom’s conclusion that the state grant of limited liability may be the problem: “one of the key roots of snowballing corporate statism”.

And yet … and yet: the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liability. Moreover, many major projects that would not have been implemented without an alliance between capitalists and government have turned out to be widely beneficial despite seemingly inevitable delays and cost overruns.

Is there a distinction to be drawn and, if so, where?


Wednesday 30th March 2011 – 07:32am


Posted by, Matt Ridley


Yes. I agree with both points you make and see what you mean about limited liability’s role and the importance of govt-driven infrastructure. Compulsory purchase for railways and canals springs to mind: easier in Birtain than in France.

Not quite on the same lines, but sometimes I get criticised for being too hard on government and I reply that if Carnegie and Rockefeller and Maxwell were bad, then they weren’t half as bad as Hitler, Mao and Pol Pot.

I hope to get time to dig further into this issue.


Wednesday 30th March 2011 – 10:59am

My follow-up thoughts (readers may be disappointed that I haven’t loaded this down to cross-references to relevant posts from this blog):

Robin, your statement that “the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liablity” is a statement of fact – not one necessarily of causation – but so has been our financial house of cards: banks are corporations, shareholders have limited liability (and megabanks are public cos in which shareholders are even further removed from oversight), and depositors are insured by Uncle Same. As a result, depositors don’t bother to check out what a crapload of risk that traders and execs are piling on in order to get bonuses, and Uncle Sam and his legions of wizards set up regulations that the smart boys at Goldman and lawyers figure out how to finesse to load up ever more risk at the lowest possible capital – BANG! And all thanks to the wonders of institutionalized misincentives!

Sure, we got wonderful things from complex organizations, all of which remain in check somewhat by competitions. But there’s been a lot of abuse, alot of risk-shifting, alot of Superfund sites, alot of barriers to entry raised by the very regulations whose purported intent is to rein in the bad behavior, massive statism, and a ball and chain of costly and intrusive IP legislation and enforcement.

I’ve given a very short summary of the dynamics at this post but it’s a fairly obvious and understandable game of whack-a-mole, where government and the big boys – with their unlimited lives, purposes, facelessness, deep pockets and revolving doors – always seems to benefit while ordinary citizens and smaller firms and potential rivals get whacked.

It is very clear that limited liability of shareholders is a gift from government at the expense of un-consenting creditors (‘victims’ IOW), and thus is a subsidy from the public as a whole to the wealthier classes who owned corporations and still by and large are the shareholder class.

Corporations used to be very rare – the grants have a very dubious history, typically one of false justifications of offering a ‘public good’ in exchange for monopoly rights. The owners of very limited life, limited purpose firms somehow always managed to get the special deal extended. So we got bigger firms and more corruption, and labor unions and then regulations and workers and citizens finally started to get fed up.

The widespread statism and government-provided social welfarism – now falling into cynical kleptocracy and fuelling a breakdown in initiative, integrity and other virtues Hayek saw are necessary for market-based wealth generation to works to work – we now see are part of the price we’ve paid. The other part of course is damage to peoples’ lives, property, communities and to whatever public or community property that corporations can get their hands on and strip, without have an owner’s incentive to balance possible revenues over the long run.

Is this kit and caboodle a necessary part of “capitalism”? I don’t think so. Wall street banks and investment firms were private partnership for most of their lives, Amex was a listed corporation who owners had UNLIMITED liability, and Lloyds of London itself was not a firm but a private MARKET of names who all had unlimited liability. Many firms used to have only partially paid-in shares, so that managers had a call in case more capital was needed for new projects or to pay off debt.

Just because we’ve democratized corporate formation by opening the floodgates of socializing risk to anyone doesn’t mean ways can’t be found to put an end to institutionalized moral hazard. Eliminating unlimited liability would shift risk and responsibility for oversight back to a conveniently truant shareholder class from government and the public at large. It would of course mean that people not in a position to evaluate risks would be less likely to invest, making firms work harder to earn trust and get capital. Credit evaluation, rating agencies and insurers would all compete to step into the breach and to lower and spread risk.

Better-managed firms are more profitable than the big Frankensteins we have lumbering around these days; while reform would not happen overnight, it is not only desirable but possible. Firms whose shareholders bear the risk that they may be held liable for damages can be expected to be more cautious and thus could be exempted from the regulations that have been found needed for the Frankensteins. Thus both risks and barriers to entry could be lowered, and consumers and could determine what works best. Other initial steps could be to encourage firms whose shareholders have only fractionally paid-in shares. In the US, at least, corporations are creatures on state law, so just one state is needed to start such an experiment (which would be possible and protectable under the Constitution).

Well I’ve run on quite a bit in my excitement. My sincere apologies! Let me toddle off for a wee bit of sleep.



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Matt Ridley, the "Rational Optimist," blasts Japan’s "Nuclear Crony Capitalism" but fails to examine limited liability corporations

March 30th, 2011 No comments

Matt Ridley, British author of The Rational Optimist: How Prosperity Evolves, and populat TED presenter “When Ideas Have Sex“), has a couple of blog posts out in response to Japan’s troubled post-earthquake and post-tsunami nuclear reactors owned by TEPCO.

In a somewhat ironic post, “Nuclear Crony Capitalism“, Ridley first notes that the troubles at TEPCO’s Fukushima plants have caused environmentalist George Monbiot to change his mind about nuclear power  — and to SUPPORT it, as demonstrating the low risks of nuclear power. (I find this perverse by both Monbiot and Ridley, as radiation releases from four of the reactors have already done substantial damage to people, property and livelihoods in the Fukushima region, as well as to cause grave concerns in Tokyo and indeed, globally. Moreover, the situation is not yet stabilized, strong earthquakes continue, and strong radiation in the vicinity of the plants is seriosuly hampering efforts to regain control over the plants and ope-air spent fuel rod pools.)

Yet despite his views on the safety of nuclear power (he noted a few days ago in the WSJ that much safer designs may be available, and that the TEPCO designs are a product of the Cold War and nuclear bomb production designs), Ridley castigates Japan’s government and nuclear power industry.(emphasis added) [readers, html is a pain. If the quote isn’t here, it’s the italicized text that wants to be at the bottom.]

What worries me is the economics of an electricity generating industry that requires massive capital projects, whose costs usually over-run and whose costs per kilowatt hour are roughly double those of the newest gas turbines. … But a perceptive article by Shikha Dalmia explains where nuclear’s flaws come from — its symbiotic relationship with government. Nuclear power requires, demands and gets subsidies of many different kinds.

That’s exactly the problem with crony capitalism, whether in finance or energy or anything else. The `market’ and `capitalists’ are not on the same side and against `government’. No, its government and capitalists colluding against the market, which is on the side of the people. The `financial market’ proved to be no such thing; it was a casino for favoured clients run by central banks. The `energy market’ is no such thing. It is a scheme run by governments for favoured clients in the nuclear, renewable and environmental-pressure group industries.

As Adam Smith so astutely observed,

The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.


Nice to see Ridley both recognizing the corrupt and skewing dynamics, AND taking not merely government but the industry itself to task, TEPCO and its finaciers are, after all, real people who have moral responsibility for their own actions – right? – whether they are aware of such responsibility or not.

Unfortunately, Ridley, like Dalmia, fails to extend his analysis to the state-created corporate structure itself, which systematically shifts risks from shareholders and managers to the public at large, particularly via the grant of limited liability to shareholders, which reduces incentives for shareholders to care about risks to others and exacerbates the “agency problem” which leaves managers as essentially unsupervised actors who typically do not bear liability for so-called “corporate torts” – thus leaving the “corporation” as a legal fiction without a clear locus of responsibility or liability.

The grant of limited liability is of course the driving feature for choosing the main corporate form over other alternatives (Amex was long a coproaton whose shareholders had unlimited liability), and why corporations establish subsidiaries (US nuclear plants are virtually all held by different legal entities), and why traditional partnerhips have pushed for LLC and LLP entity forms that retain partnership-like tax treatment but no personal liability.

One hopes that some day our leading lights will devote a little time to exploring the obvious perverse incentives and massive negative consequences generated by the state-created corporate form. What we have instead is a sympathy for faceless corporate “victims” of a faceless state, and a beside-the-point defense of the poor existing, irresponsible shareholders, which didn’t bargain for a downside risk. Shall libertarians forever defensd this Heads I Win, Tails You Lose mentality? Do they have so little faith that, if limited shareholder liability was NOT granted by the state, that shareholders would not increase their diligence, or engage insurers to mitigate risks?

I note that I pointed out the issue of the corporate form itself to Matt Ridley, he responded with a “very interesting”. Stay tuned!



Posted by, TokyoTom [follow link to cross-post here]

Matt, great post — but I think you’ve only barely scratched the surface on the ‘crony capitalism’ institutionalization of risk.

I’ve spent a bit of time delving into this at my blog that Ludwig von Mises Inst kindly hosts:

– Sorry, but I can’t resist asking: Feel Sorry for Tokyo Electric Power Co?, ‘a tribute to Lew Rockwell’s ‘Feel Sorry for BP?’)

– Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning,

– My posts exploring the ramifications of the state grant of ‘limited liability’ corporation status:

– The case of BP:

– Not surprisingly, similar issues arise with respect to the rest of the Govt-licensed energy sector and climate:

Thus small things contribute to the Road to Serfdom:

I hope you’ll take your concern for nuclear crony capitalism even further.


Wednesday 30th March 2011 – 04:39am


Posted by, Matt Ridley


very interesting. Thanks. will follow up.


Wednesday 30th March 2011 – 04:54am
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Shikha Dalmia of Reason Foundation doesn't feel sorry for TEPCO

March 30th, 2011 No comments

Shikha Dalmia, senior policy analyst at Reason Foundation, had a perceptive essay out last week that draws attention to the perverse role of government-provided incentives in Japan’s nuclear power industry. (Dalmia is columnist at Forbes, writes regularly for Reason magazine, and was co-winner of the first 2009 Bastiat Prize for Online Journalism.)

The article appeard in The Daily on March 24, and at Reason Online on March 29. I excerpt beloe parts of the article as it first appeared: Glowing endorsement Japan has pushed nuclear energy hard — at the expense of safety. (e,phasis added):

Nuclear advocates are dismayed that radiation fears over Japan’s Fukushima plant might kill an industry that has a better safety record than virtually any other. But the public in Japan and elsewhere has every right to question the safety of nuclear power that everywhere receives government support. The Japanese government, in particular, has aggressively pushed nuclear in its quest for energy independence, perverting with political considerations the market’s natural ability to take safety issues into account.

And judged purely by deaths per terawatt hours, nuclear is 10 times safer than solar and a thousand times safer than coal or oil. 

But that doesn’t mean there is nothing to worry about with nuclear. Its potential for catastrophe is orders of magnitude greater than any other technology. Hence, only when investors are willing to foot the entire bill for its construction and liability can we believe that nuclear is truly safe.

That, however, is not the case anywhere — least of all in Japan.

Nuclear meets about a third of Japan’s energy needs (compared to 20 percent in America) not because it is more competitive than the alternatives; it is not. Nuclear’s exorbitant upfront capital costs and long — and uncertain — lead times make it every bit as unattractive to investors in Japan as elsewhere, especially compared to other fuels.

But nuclear appeals to Japan’s mercantilist rulers, who, since the mid-’60s, have regarded the country’s lack of indigenous energy resources as a major strategic vulnerability that must be corrected at all cost. They have committed themselves to increasing Japan’s energy independence ratio from the current 35 percent to 70 percent by 2030. …

Such thinking has prompted Japanese lawmakers to push nuclear more aggressively than street vendors hawking broken Mao watches in Tiananmen Square. From 1990 to 2000, nuclear’s share of Japan’s energy mix has gone from 9 percent to 32 percent.

To get there, Japan has poured lavish subsidies into nuclear, starting with research. Around 65 percent of Japan’s energy research budget goes toward nuclear — the highest of any country — with the industry spending $250 million, well below 10 percent of what the government spends. Even France, which gets 80 percent of its energy from nuclear, spends three-and-half times less than Japan.

Beyond research, the government offers the nuclear energy industry loans that are a full percentage point below commercial levels. And for four decades, Japan has taxed the utility bills of electricity consumers, distributing the proceeds to communities willing to house nuclear plants. In essence, nuclear’s competitors are being forced to act against their own interest to bribe local communities to accept a risk against the communities’ interest. 

But the mother of all subsidies is the liability cap that nuclear enjoys. In the event of an accident, the industry is on the hook for only $1.2 billion in damages, with the government covering everything beyond that. Japan’s cap is generous even by American standards, which require the industry to cover $12.6 billion before Uncle Sam kicks in. ,,,

The liability cap effectively privatizes the profits of nuclear and socializes the risk. It uses taxpayer money to diminish the industry’s concern with safety — which government regulations can’t restore. In 2008, Tokyo actually started offering bigger subsidies to communities that agreed to fewer inspections. The problem of regulatory capture is particularly endemic in Japan given that regulators seek industry jobs upon retirement, and hence often cozy up to companies they are supposed to oversee.

Nuclear’s advocates argue that, if anything, Fukushima testifies to just how safe nuclear is given that the reactor reportedly shut down as designed in the face of a 9-magnitude earthquake even though it was built for only 7.5-magnitude. Had a freak tsunami not knocked out the backup generator needed to cool down the fuel rods, none of this would have happened.

Perhaps. But had the industry been underwritten by private companies that risk getting wiped out by lax procedures instead of a government that risks nothing, might they not have refused to insure a reactor in an earthquake-prone zone or demanded better seismological studies than those available or ensured that backup generators were built to withstand a tsunami?

Only when the nuclear industry fully internalizes safety costs will we know that it is actually safe. Until then, we can only regard Fukushima as an avoidable tragedy.

I believe that Dalmia has left out the rate guarantees that utilities typically receive. In addition, she has ignored the “limited liablity” corporation structure that eliminates any risk of personal liability for all shareholders. These aspect of course also affect the degree to which shaeholders pay attention to the risks that nuclear power plants pose to others or otherwise to diligently oversee management, and rate guarantees are a hidden tax on consumers and a subsidy to nuclear power.

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See how mercilessly Japan has been physically shaken by the quakes

March 30th, 2011 No comments

This link plays a visualization of the size, location and depth of the quakes that we have been feeling in Japan.

Since March 11. the day of The Big One, we’ve had a phenomenal 850 quakes (as of March 30, Japan time), virtually all of 4.5 magnitude and greater (roughly half between 4.5 and 5.0, and half 5.0 and LARGER)!

The parameters can be adjusted so you can speed up or it slow down, and adjust the period of time and the magnitude of earthquakes shown:

You can zoom into the map with your cursor; the greatest tsunami hit all of the Tohoku coast, with horrific damage from monstrous tsunamis (three waves) funnelled into the narrow bays containing old fishing towns and once rich with abalone, scallop and seaweed farms. University researchers have discovered that in one port the incoming waves were as high as 30 meters or 97 FEET high!  (That’s up to the middle of the top floor of a 10-story building.)

The damaged TEPCO nuclear reactors are along the Fukushima coast south of Sendai and north of Mito – and the physical damage and difficulties there are of course compounded by the ongoing quakes.

The link at the top of the page takes you to a “Daily Energy Release chart”, which show that the number of quakes has tailed off – though we are still getting around 15 quakes a day – with the strongest daily quake being about 6.0.

It is feared that 30,000 people lost their lives in these towns, which have been almost completely destroyed.

An official “sonification” of the first two days of quakes is below:



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Are Hayek’s essential "market morals" breaking down? Hmm … Is peace breaking out, or are things getting ugly?

March 30th, 2011 No comments

[Apologies for the weird font sizes – guess I’m too old to figure out the html stuff that creeps in when I cut and paste!]

I wanted to post a few additional and somewhat scattered thoughts I have had relating to the 1986 essay of Hayek that I recently stumbled across, “The Moral Imperative of the Market”.

What morals do we end up with as “market morals” are eroded?  In larger communities, the morals of a cynical or self-deluded selfishness and self-justification, accompanied by growing tribalism, insularity, suspicion, hostility, avarice, prejudice, jingoism and intolerance.

As the market breaks down, so also do market dynamics of broad exchange and sophisticated institutions, and things become each man for himself, finding friend and families to hunker down with, a hardening towards and less concern for others – who indeed may be viewed as either a threat or as fair game.

IOW, it’s the same load of aggressive, selfish and narrowly tribal stuff that once was ESSENTIAL to bands of humans when when we lived in a state of Nature and life was brutish and short, and that I’ve been giving other members of this and other communities grief over ever since I was marooned on these fertile but once hostile shores:

Cooperation comes naturally to man – among those we feel we can trust – but within limits, as so too does suspicion come naturally as to “others” who look like they might pose a threat. In building extended markets, we are always struggling with our predilection to form “Bands of Brothers”. In doing this work, we are always making use of our sophisticated yet at times quite reflexive native endowment.

As I noted a couple years back (you know, in ancient times when Al Gore won the Nobel Peace Prize) in a comment to libertarian science correspondent Ron Bailey at Reason Online:

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

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

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

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

Let all of us here at LvMI (and any strangers!) please be aware of our predilections, while we continue with the hard work of building strong, vibrant and open free societies.

I know, comrades, that you’re all dying for links to some of my relevant posts, which I certainly won’t begrudge to you :

Snicker-snack! We hold these truths to be self-evident: That WE’re right, and THEY are stoopid, deluded, evil AND cunning, out to destroy all that is good and holy

Bill Gates, Roger Pielke, Avatar & the Climate (of distrust); or, Can we move from a tribal questioning of motives to win-win policies?

I Can’t Stand Cant, Or, LeBron James and our Collectivist Scorn of “Collectivists”

Nick Kristof on politics: why we conclude that I’m right, and you’re evil (with a handy-dandy listing of a number of earlier fun posts!)

And a clip of a comment I made to Stephan Kinsella a little while back:

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.

Mind Games: Bret Stephens of The Wall Street Journal panders to “skeptics” by abjuring science and declaring himself an expert on “mass neurosis”

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Peter Schiff says we should eliminate corporate and personal income taxes in favor of a national sales tax

March 29th, 2011 No comments

Here, in this March 28 interview at with Henry Blodget:

PETER SCHIFF: The US Should Abolish Corporate And Personal Income Taxes (jump to 3:15 if you’re in a rush)

Would an open discussion of Schiff’s proposal be a move towards sanity, or further away?

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NYT tells us about more IP nonsense ripoffs: post-death rights to exploit famous people's names+likenesses

March 28th, 2011 2 comments

Below is an excerpt of an interesting recent NYT piece by Ray D. Madoff, a professor at Boston College Law School and author of “Immortality and the Law: The Rising Power of the American Dead.”

The New Grave Robbers

CAN a wild wig and a bushy mustache be packaged and called an Albert Einstein costume? According to Hebrew University of Jerusalem and its American marketing agent, the answer is no — at least not without permission. The university says that when it inherited Einstein’s estate, the bequest included ownership of Einstein’s very identity, giving it exclusive legal control over who could use Einstein’s name and image, and at what cost.

Einstein is not the only example. While we might think of people like the Rev. Dr. Martin Luther King Jr., George Patton, Rosa Parks, Frank Lloyd Wright and Babe Ruth as part of our cultural heritage, available for all to use, the identities of each of them, and thousands more, are claimed as private property, usable only with permission and for a fee.

This phenomenon is fairly recent — and it’s getting out of control. 

Sadly, Madoff naively thinks that the answer to the problem is a Federal ‘solution’, as if that will rein in rather than give free rein to abuses; copyright, patents and trademarks, anyone? 

Yet, because these are issues of state law, the litigation has not brought clarity on a national level.

Congress should step in and enact a federal right of publicity. In doing so, it should establish clear First Amendment protections and set forth a relatively short term for the right of publicity to survive death (perhaps 10 years).

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Sorry, but I can't resist asking: Feel Sorry for Tokyo Electric Power Co?

March 27th, 2011 2 comments

(Note; tongue firmly in cheek: see my straight post earlier.)

Well, maybe they weren’t WISE to build a row of nuclear power plants on a coastline known for earthquakes and a history of prior massive tsunamis, but surely the earthquake and tsunami are not TEPCO’s fault, right?

And it’s not THEIR fault that

  • their founding shareholders took advantage of Japanese limited liability incorporation laws that free shareholders from any concern about personal liability (and, as TEPCO’s shares are “fully paid-up”, from any future cash calls by management) that would otherwise exist for private enterprises;
  • the Japanese government allowed them to qualify as a ‘public company’ and thus widely raise capital from the public, under regulations that isolate managers from shareholders and create barriers to entry);
  • the Japanese government licensed TEPCO as a public utility, effectively granting it a monopoly in the greater Tokyo area,
  • the Japanese government ensured that TEPCO could raise the long-term capital necessary to fund the nuclear power plants,
    • by authorizing to set rates guaranteeing TEPCO’s returns on its investments by government,
    • by licensing the power plants themselves and approving their location, suppliers and safety, and
    • by giving TEPCO express liability caps for damages that radiation releases may cause others if an “act of nature” occurs?

And surely none of the concatenation of these acts of government, the construction of the plants and the earthquake or tsunami is the PERSONAL responsibility of any of TEPCO’s emploees, managers or executives, right? (Much less of the poor shareholders!) After all, having a corporation means that we get to embark on mega-projects that pose mega-risks, all without any real people being  personally responsible! How else, without these layers of protection for personal responsibility provided by government, would progress ever be made?

Thus, we can see clearly that this was all nothing more than a simple ACCIDENT, in which “TEPCO” – whoever the heck we consider that to mean – is the BIGGEST VICTIM – both of the earthquake/tsunamis and of Japanese silly government and citizens and customers who now clamor for TEPCO to pour more BILLIONS down a money hole! Outrageous – all of these snivelling people should just go away, and lump it, so that TEPCO can more easily figure out what it should do next. Cleanups are for governments and the smaller victims.

Such a wonderful system, allowing such marvelous works! Though unfortunate calculations might be made, the system allows us to quickly move ahead, as if nothing had happened. Naturally, TEPCO might require further assistance from government and government-protected banks, so that TEPCO can build more engineering marvels.

Boy, aren’t Austrian insights wonderful?

[Those of you who missed or who wish to refresh your recollection regarding my posts last year on a very related case, might enjoy the following link:]

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Hayek on the grim threat posed by the erosion of “market morals”; Who, exactly, is leading us down the primrose Road to Serfdom?

March 27th, 2011 No comments

I recently ran across excerpts to what looks like an interesting essay by F.A. Hayek; I copy them below for the benefit of interested readers.  (I could not find a  complete or.pdf version.) [Update: At my request, Jeffrey Tucker kindly tracked down the rest of this essay and put it up here.][Links may be broken due to migration of blog.]

I ask readers to ponder the relevance of Hayek’s remarks in light of the huge expansion of government and of manipulations by the Fed, the growth of large and statist “public” corporations whose executives are free from shareholder control (because limited liability incorporation statutes free shareholders from personal concern about risks of injuring others), and of snowballing moral hazard (particularly obvious in connection with our heavily regulated banking sector).

It seems to me that one can as easily lay blame for our current problem as much at the feet of statist corporations and excesses of government – of the sharp elites who take advantage of both – as one can on “socialists” and “envirofascists” who either want to rein in corporations or are looking for what they see as their “fair share” from a now bankrupt government.

F. A. Hayek, “The Moral Imperative of the Market” (in Martin J. Anderson (ed.) The Unfinished. Agenda: Essays on the Political Economy of Government, 1986)

Emphasis added:

Until 130 or 150 years ago, everybody in what is now the industrialised part of the Western world grew up acquainted with the rules and necessities of what are called commercial or mercantile morals, because everyone worked in a small enterprise where he was equally concerned with, and exposed to, the conduct of others. Whether as master or servant or member of the family, everybody accepted the unavoidable necessity of having to adapt himself to changes in demand, supply and prices in the market-place. A change began to happen in the middle of the last century [1800s]. Where previously perhaps only the aristocracy and its servants were strangers to the rules of the market, the growth of large organisations in business, commerce, finance, and ultimately in government, increased the number of people who grew up without being taught the morals of the market which had been developed in the course of the preceding 2,000 years.


For probably the first time since classical antiquity, an ever-increasing part of the population of the modern industrial state grew up without learning in childhood that it was indispensable to respond as both producer and consumer to all the unpleasant things which the changing market required.

This dichotomy explains the increasing opposition to the market system that has expanded far beyond the specifically socialist parties of the last century. In the course of history almost every step in the development of commercial morals had to be contested against the opposition of moral philosophers and religious teachers – a story well enough known in its outlines. We are now in the extraordinary situation that, while we live in a world with a large and growing population which can be kept alive thanks only to the prevalence of the market system, the vast majority of people (I do not exaggerate) no longer believes in the market.

It is a crucial question for the future preservation of civilisation and one which must be faced before the arguments of socialism return us to a primitive morality. We must again suppress those innate feelings which have welled up in us once we ceased to learn the taut discipline of the market, before they destroy our capacity to feed the population through the co-ordinating system of the market. Otherwise, the collapse of capitalism will ensure that a very large part of the world’s population will die because we cannot feed it.

We can nonetheless demonstrate that unless people are willing to submit to the discipline constituted by commercial morals, our capacity to support any further growth of population other than in the relatively prosperous West, or even to maintain it at its existing numbers, will be destroyed.

Grim words, that loom large these days.

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Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning

March 26th, 2011 4 comments

Thanks for indulging the rambling title, dear readers. My thoughts wander even as try to gather them.

I thought I would share with you some of the observations I’ve been making – tweeting, largely – on the troubled nuclear reactors that TEPCO so thoughtfully lined up on the Fukushima coast to meet the massive tsunamis on March 11.

A environmental journalist who posted the Atomic Boy’s Upset Stomach YouTube video called it little more than government-industry propaganda that glosses over the colossal abrogation of responsibility that led to the Fukushima crisis.”  While I don’t think the video was government- or industry-sponsored, I share his further sentiment (emphasis added):

there’s a gaping omission right at the beginning. Nuclear Boy has a stomach ache. No kidding. Why? …. Could it be because the government of Japan let the Toyko Electric Power Company build a series of nuclear reactors next to a seismically active fault line?

Sticking with the bowel-malfunction metaphor, perhaps the video’s creators could have produced a few frames testifying to the reality that Nuclear Boy’s parents fed him some poison because they forgot to read the label carefully. Something along those lines.

Is that too much for Japanese kids to swallow (so to speak?) I don’t think so. Responsibility is something we all try to teach our children as early as possible. It’s important that Japanese leaders acknowledge the real reasons why they (and their children) are going to have to spend tens of billions of dollars to replace the Fukushima reactors years earlier than expected. Reactors that require an independent source of electricity to maintain coolant levels are, of course, a bad idea, and one that today’s generation of reactor designers have abandoned. But building them in an earthquake zone is tantamount to lunacy.

This prompted me to leave a comment with some of my thoughts (emphasis added):

 James, your criticisms are almost spot-on.

The risk-shifting start with ‘limited liability’ corporations that frees shareholders from responsibility, escalates with ‘public companies’ (regulations isolate managers from shareholders and create barriers to entry), and is ramped up even more for utilities, which are effectively granted monopolies and guaranteed returns on investment by government. Operators of nuclear plants are then given express liability caps for damages that radiation releases may cause others.

None of the utility managers/executives will have PERSONAL liability, of course.

Given all of these government policies that truncate responsibility, can there be any surprise that risk analysis and decision-making produces obviously flawed results — and ongoing efforts to cover up and hide blame?

Here are some recent tweets on this:

Nagao versus TEPCO:Case of now dead nuclear worker reveals how Japan protects corps that exist to fulfill state policy

Japan megabanks to extend TEPCO $25 billion lifeline,as Govt is sure to limit TEPCO’s liability for damages #eqjp #p2

These days,it’s ‘capitalists’ who r the biggest socialists:’Japanese Gov prepares to protect TEPCO frm liability’ #jpeq

Moody’s on the obvious:”business risk of operating nuclear pwr plants in Japan is higher thn previously contemplated”

Cato’s Jerry Taylor: Nuclear power is “solar power for conservatives”+needs “a policy of tough love” TT’s Lost in Tokyo

Posted by: TokyoTom | March 25, 2011 9:12 AM

More in posts to come.



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