TT's Lost in Tokyo — by TokyoTom

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!

(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:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=victim+bp.]

In the not-unsympathetic hour-long presentation that BBC broadcast on January 31 (after surviving a legal challenge), climate ‘skeptic’ Christopher Monckton (the Viscount Monckton of Brenchley) says something about climate science that I can agree with and that is important:

The central question is this: it’s not whether CO2 or other greenhouse gases can cause warming, because we’ve known for 200 years that they can.

It’s not whether we are causing the CO2 in the atmosphere to rise, because we are.

The only question that really matters is, given the rate that we are adding CO2 to the atmosphere, is how much warming that will cause, if it continues.

In other words, Monckton is correct that the core climate science issue is about what is known as “climate sensitivity”; that is, how much warming is going to be triggered by the rapid ramping up in atmospheric CO2 as we use fossil fuels.

Climate science skeptics like MIT’s Richard Lindzen and company adviser Pat Michaels agree and suggest that climate sensivity will be low (though in this film Lindzen rather jaw-droppingly suggests that “I can live with 5 degrees; you can live with a degrees” Fahrenheit increase in avergage global temperatures!).

The producer, Rupert Murray, suggests that the skeptics wrongly overstate their case and underplay the risks. Murray leaves unstated his premise (and that of the climate scientists he includes) that, if one accepts more conventional views of climate science, then one must also agree that government-imposed restrictions on personal freedom are necessary in order to moderate the threats posed by our use of fossil fuels.

Interestingly and sadly, rather than examining whether there may be common ground in policies that reduce climate risks, Monckton and other prominent skeptics like Lindzen and Michaels (and British commentator James Delingpole), all also appear to make the same assumption that the only possible policy responses are those that reduce personal freedom. Thus, rather than a focus on the content and merits of policy alternatives, we have a rather frantic search to find reasons to dismiss climate risks, and to question the motives and sanity of those who are concerned about them – all, of course, while ignoring the question of what economic interests benefit from the status quo. This behavior is, of course, also mirrored by many of the “warmers”; both sides have their own “Bootleggers and Baptists” coalitions lined up.

Not surprising when so much is at stake, and all are fighting over the use of government. Thoughtful people among the skeptics will acknowledge that the climate is a shared commons that can only be managed via collective action; thoughtful people among the “warmers” likewise should recognize that government itself is a commons that continues to be mismanaged for the benefit of elites and the expense of most citizens (witness our financial crisis and the BP disaster).

As Nobel Prize-winner Elinor Ostrom coninues to point out, trust is a sine qua non for effective management of common resources. Unfortunately, however, that trust is precisely what we are missing the most – and for good reason, as our politicians, bureaucrats and leading corporations have proven themselves unworthy of it.

It should not go unnoticed, however, that a policy to destroy public trust and foster our love of partisan acrimony is one that would be very effective in protecting the interests of those who benefit from the status quo. Creaming the commons while socializing risks is an inherent aspect of corporate business models (starting with the state grant of limited liability to shareholders).

Here’s a link to the video; my apologies that I couldn’t figure out how to embed it here:

http://www.bbc.co.uk/programmes/b00y5j3v

[Update: It seems that he BBC has forced the removal of all non-BBC postings of the program, and only viewable via servers located in the UK. As skeptic Anthony Watts puts it: “the BBC does not allow people outside of Britain to watch the video; some sort of cranial-rectal problem I’m told, a proxy server in the UK is needed to view it if you live elsewhere”. Here is James Delingpole’s take on the the program – prior to actually seeing it: http://blogs.telegraph.co.uk/news/jamesdelingpole/100074116/meet-the-sceptics-another-bbc-stitch-up/. And here is one take by a relatively perceptive viewer: http://frank-davis.livejournal.com/140337.html.]

 I left this comment on a post at Andy Revkin’s Dot Earth/NYT blog about the January run-in between the Sea Shepherd organization and the Japanese whaling fleet (emphasis added):

Yes, another BP post!

The Guardian ran a story last weeks that illustrated some of the human costs of BP’s oil debacle. Lew Rockwell and Stephan Kinsella insist  that the legal fiction known as “BP” is the largest “victim”, but I find their moral clarity rather obtuse, if not perverted.

As men live and work in communities and make their livelihoods in coordinated activities, I’m not sure I agree with Stephan Kinsella’s insistence (in responding to my arguments that state-grants of limited liability to shareholders are unjustifiable and have significant pernicious consequences) that our focus in measuring responsibility must always be on individuals; I do, however, agree that such an examination may be quite helpful – even as I note how Lew, Stephan and others ignore their own prescription when rushing to defend massive, faceless organizations like “BP”, or when fulminating about evil, man-hating  (and corporate-funded) “enviro-fascists”.

With that in mind, I ran across the following article in The Guardian last week that presents human face of what “BP” (and its dirty partnership with the federal and state governments who have deprived users of natural resources of any rights to control such resources) has wrought in the Gulf (my emphasis):

BP oil spill ruined my life, says Louisiana shrimp king; Dean Blanchard’s firm used to account for 11% of the US shrimp supply. Now, he is reduced to supplying fuel and water to BP clean-up crews

(Susan Goldenberg, June 11)

Of all the folks in Louisiana spoiling for a fight with Tony Hayward, none perhaps brings more gusto to the challenge than Dean Blanchard, the local shrimp king.

The outer walls of the trailer office of his seafood empire are plastered with homemade signs reading “BP=Bayou Polluter” and “President Obama: BP took my business and my money.”

The frontroom is painted shrimp pink, and Blanchard is working himself up imagining what he would like to do to the BP chief executive if he ever got the chance: fist fight, public wrestling match, jail time?

“He took away everything I love most in the world. I am going to hunt that son of a bitch down like a ‘coon,” he said. “He wants his life back after all he has done to us? The hell with him.”

Then he speculates about peeing in the Queen’s water fountain. “What do you think would happen to me? I’d go to jail for that, and it would be relatively minor environmental damage.”

He may not immediately look the part in his faded shorts and blue vest and the jumble of buildings around the docks, but in the shrimp world, Blanchard is Hayward.

BP ranks in the top three oil companies; Blanchard says his are the third biggest shrimp docks in the world, with some 6,000 fishermen bringing him their catch. His company accounts for about 11% of the US shrimp supply.

In the pre-spill era, that would have put Hayward and Blanchard on near equal footing, he reckons. Oil and shrimp were the two poles of existence in this part of Louisiana. Offshore rigs and refinery tanks are as ubiquitous as fishing trawlers.

Blanchard had a foot in both worlds. One grandfather got rich on shrimp, establishing the business he now operates near BP’s local command centre. The other grandfather got rich from oil.

Now, with the gusher on the ocean floor and fishing banned in much of the Gulf, there is just oil clean-up. At the Sand Dollar marina, redeployed fishermen and shrimpers, hauling containment boom through the water instead of nets, share space with the coastguard and national guard.

The money is only a fraction of what it would be for a successful shrimp season and 2010 was shaping up to be a banner year.

“Every 10 years, when you get a cold winter, you get a really good shrimp crop,” Blanchard said. “We were licking our chops.”

On a good run, a big shrimp boat could earn $1m (£686,000) a day. The going rate for fishing for oil is $3,000, less for smaller boats – not a lot once divided among captain and crew. Several of the men say they have yet to be paid.

Blanchard says his losses are on a far grander scale. “I’ve lost $15m worth of sales in the last 50 days. That would have been $1m in my pocket,” he said.

A few of the big freezer boats are still going out, but Blanchard says he is reduced to selling BP fuel and water for its contract clean-up crews, and renting out dock space. By his terms, it’s a pittance and he has no idea when he will get back to work.

“What I make off of BP I could make in eight hours,” he said.

He is equally scathing of BP’s oil clean-up strategy. “I could take two 32oz Big Gulp cups from the 7-Eleven and do more than what they are doing,” he said.

Blanchard is far from the only angry man in town. The mayor, David Camardelle, was in Washington this week to testify before Congress. He nearly broke down. “The shrimp died. It’s a ghost town. The boom doesn’t work,” he said.

Around the corner from his operations, a family has erected 101 simple white crosses memorialising what has been lost to the spill.

There is sea food industry, with crosses for tuna, shrimp and oyster catches, but also “beach sunrises”, “seafood gumbo”, “redfish rodeo”, “family time”, “porch sitting” and “dog on beach”.

And for all his bluster, Blanchard is overwhelmed by the loss.

“I think I did everything right, and here this idiot came and didn’t know how to run his business and put me out of my business. People used to respect me in this town. Now I wake up in the morning and I don’t know what to do.”

I’ve yet to run across an LvMI post at all sympathetic to people to like Dean Blanchard, much less one in which a poster bothered to put a thinking cap on to make any useful suggestions, such as an insistence on rolling out “catch rights” for fishermen, and rights to veto or monitor petroleum exploration and development.

I note that I have already posted extensively on oceans/fisheries management; for interested readers here are links to some of those posts:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=ocean

http://mises.org/Community/blogs/tokyotom/search.aspx?q=fisheries

http://mises.org/Community/blogs/tokyotom/search.aspx?q=whale

More later.

Unfortunately, on energy issues Rand Paul, Republican candidate for the US Senate from Kentucky, sounds like very much like the classic Republican statist/apologist for corporate irresponsibility.

I find myself agreeing with “investigative satirist” Harry Shearer:

What’s escaping public notice so far, though, is his take on a far more contemporary issue: accountability. Here’s Rand Paul on the BP oil spill:

I think it’s part of this sort of blame game society in the sense that it’s always got to be someone’s fault instead of the fact that sometimes accidents happen.

The reason this quote isn’t inflaming debate the way Paul’s Libertarian dance around the Civil Rights Act has is simple: on this issue, Paul is not fringe-y or extremist or unusual; he’s spouting a line we’ve heard incessantly, from defenders of BP, from apologists for the US Army Corps of Engineers (in the case of the flooding of New Orleans), from architects of the Iraq War. Paul is channeling Donald Rumsfeld: “Stuff happens.” Nothing to see here, move on.

The deeper meaning of the quote is the standard Republican assault against lawyers who have the temerity to challenge, in court, established power. Just this week, the Louisiana legislature defeated a bill that would have punished the Tulane Legal Clinic for its work taking government agencies to court. The bill had the support of the Louisiana Chemical Association.

The political spin on Paul is that he’s worrisome because he’s not within the standard lines of the modern political debate. I’d suggest he’s worrisome because he is.

Paul made similar statements in support of BigCoal:

Earlier this year, for example, Paul told the Fox Business Channel that he believes government agencies should reduce their regulation of the energy industry. “Get the EPA out of our coal business down here,

Unfortunately, Paul’s calls for less federal regulation are not counter-balanced by calls for other means to ensure corporate responsibility, much less by any awareness of how BigCoal has effectively captured the levers of government in the Appalachians, including the courts.

As a result, on this area at least, Paul is giving libertarians a bad name:

http://www.youtube.com/watch?v=FgEQ3R6QWz8

Another BP post!

As I noted yesterday, liberal blogger Matt Yglesias has a useful blog post up – “Agency Problems and Corporate Misconduct” – in response to Scott Sumner; unfortunately his comment thread has fallen into blind, clear-sighted partisan bickering.

 The post itself is short and worth a read; I left the following comment:

Another BP post!

1. Over on his The Money Illusion blog, Chicago-school economist Scott Sumner has a curiously uninsightful post up on the BP oil spill: “Stuff Happens“. Perhaps some of my friendly enviro-hater readers here might like it, but I didn’t. I left the following comments (still pending approval as I copy them here) (emphasis added):

Scott, what you’re rather glaringly missing with your cost-benefit analysis – which blithely ignores the real face of “externalities” – is the institutional setting, which can be summed up as a tragedy of the government-owned and (rather expensively) mis-managed comonns.

Ed Dolan is exactly right about incentives problems facing BP and regulators, none of whom really directly own the downside risks, which instead are borne by fishermen, oystermen, shrimpers, the tourist industry, those who value wildlife and a clean environment, and those who consume what harvesters catch. Some of these are very marginalized communities, but all face tremendous difficulties organizing and expressing their interests effectively with respect to resources on which their very livelihoods may depend, but in which they have no ownership rights.

On the other hand, the oil industry are very powerful actors, very well organized and represented in the corridors of power and influence (remember Cheney’s secret energy meetings, and that BP was one of Obama’s largest donors?), and are adept at shifting risks to others (though self-damage is possible when catastrophic losses occur). As Ed Dolan rightly notes, this is built into their very nature as a result of the government grant of limited (zero) liability to shareholders, who have disincentives to monitoring too closely or to questioning whether profits come at the expense of others who – because of government ownership – have no effective voice regarding losses they bear.

It’s hard to feel much sympathy for either the oil cos or government in theis Avatar-like situation, but I don’t mean to castigate either as “evil”. Rather, we simply need to take a close look at the problems of Moral Hazard that our government interventions – from grants of limited liability, to government resource ownership and concomitant inept and occasionally management – have been fuelling.

Answers lie not in gross CBA analysis, but in letting resources users own the rights to manage and harvest wild resources (which would give them direct claims agains polluters), AND to determine when and where seabed resources are developed. (NOAA’s successful experiments with “catch rights” need to be vastly scaled up.) We would still have oil & gas development, but the fishermen would do a vastly better job of policing the oil companies – who would have to face other resource users with full incentives and abilities to protect their livelihoods. (Obversely, oil companies would also be better managers if they had control over the very valuable fish harvest rights in particular blocks, and would manage to in a way that would reflect such value.

Sincerely,

Tom

Austrian-leaning Ed Dolan, whose recent post on Moral Hazard and agency issues I have just noted, joins in on the comment thread. 

Sadly, Sumner is not alone in paying little attention to those who are at the short-end of the messy oil stick.

2. Liberal blogger Matt Yglesias has a useful blog post up in response to Scott; unfortunately his comment thread has fallen into blind, clear-sighted partisan bickering.

3. I see Richard Posner now has a similar blind piece of blather up at the Washington Post: “From the oil spill to the financial crisis, why we don’t plan for the worst”; more on Posner perhap’s later.

4. Sadly/fortunately, for those of you who haven’t seen or (or could use a little further diversion) this litle one-minute “BP kittens ” YouTube video does a better job than virtually all discussions I’ve seen in noting relevant agency and institutional failure issues.

Another BP post!

Warning: salty language from salt-of-the-Earth people kittens:

[View:http://www.youtube.com/watch?v=zt617zYAbng:550:0]

The creator can be found here on Twitter: http://twitter.com/tremendousnews.

This seems to be getting some play, so head’s up you culture-watchers!

While this unfortunately skirts addressing the Federal Government’s role in engendering the BP catastrophe, one has to wonder — Does it make any sense to treat corporations as “persons”, given the differences in incentives structures?

[Note: Snark inside.]

As I mentioned earlier, Bill Gates has recently posted his thoughts on how to address climate issues.

Since we know Gates has been funding scientific inquiry into (and patent rights regarding) methods to dampen “climate change” affects that are expected by many to arise as a result of CO2 emissions and other factors, astute group-thinkers know that Gates has already embraced lunacy.

I invite the free thinkers to read more about Gates’ wild and crazy thoughts (such as my own refrain that libertarians and conservatives should take advantage of climate concerns to put pressure on removing barriers to innovation); here are a few excerpts (emphasis added):