Category Archives: Economics

Why Capitalism? Why Not Capitalism?

Reason has an interview in their November issue,  with Jason Brennan, professor of philosophy at Georgetown, and author of the recent book “Why Not Capitalism”, published here in the piece “Why Capitalism?”.

From the blurb:

Most economists believe capitalism is a compromise with selfish human nature. As Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Capitalism works better than socialism, according to this thinking, only because we are not kind and generous enough to make socialism work. If we were saints, we would be socialists.

In Why Not Capitalism?, Jason Brennan attacks this widely held belief, arguing that capitalism would remain the best system even if we were morally perfect. Even in an ideal world, private property and free markets would be the best way to promote mutual cooperation, social justice, harmony, and prosperity. Socialists seek to capture the moral high ground by showing that ideal socialism is morally superior to realistic capitalism. But, Brennan responds, ideal capitalism is superior to ideal socialism, and so capitalism beats socialism at every level.

Clearly, engagingly, and at times provocatively written, Why Not Capitalism? will cause readers of all political persuasions to re-evaluate where they stand vis-à-vis economic priorities and systems—as they exist now and as they might be improved in the future.

I am in the midst of reading the book now, and if I think it’s warranted, I’ll post a review of it later this week. However, the thesis of the piece is that capitalism works, because it is in concordance with human nature. All other economic systems are dependent on humans denying or modifying their nature.

While I agree that the basic thesis is correct; my personal belief is that it’s even more basic than that.

Why Capitalism?

Because capitalism is not a system which has to be promulgated, enacted, imposed, or enforced.

Capitalism doesn’t depend on any government,  group, or single individual, deliberately controlling or changing anything. It’s the natural result of voluntary and rational response to economic incentive and feedback. If things are left alone to work out as people will, the result is capitalism.

What capitalism ISN’T, is the gross parody promulgated by socialists and other leftists. In real world terms, this misconception of capitalism is closest to 18th-19th century imperialist mercantilism… Which isn’t surprising, given that mercantilism was in fact the dominant economic system when Marx and Engels were writing.

Capitalism is simply the end result of spontaneous self organization of autonomous rational actors, and their response to changing conditions, intelligence, incentive, and feedback; including market conditions, and pricing.

We had capitalism, tens of thousands of years before we even had governments, never mind the invention of the term.

Capitalism is the default mode of economic interaction.

It’s basically gravity.

The video interview of Professor Brennan:

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

Denver Post Editorial Board Responds to Pot Halloween Candy Paranoia With Common Sense

Supposedly, Colorado parents have a ‘unique challenge’ this Halloween. You see, because enough Colorado voters were bamboozled into legalizing pot for recreational purposes in 2012 (in addition to the already legal for medicinal purposes), now parents have to worry about cannabis laced candy in their trick-or-treat bags. There have even been products made available to test questionable candy of the presence of THC.

The editorial board of The Denver Post’s response? Perhaps parents should be checking their little goblin’s candy anyway.

[T]his year should be no different for parents, who should always employ common sense on Halloween. Throw out any unwrapped candy and inspect all packaging before letting your kids gorge on treats.

If the package looks suspicious, tampered with, torn, unwrapped or in unfamiliar packaging, throw out the candy. That should be the same message every year.

Wow, how hard was that? The board also points out that these ‘edibles’ aren’t cheap. The example they use: a package of 10 pot laced gummy bears retails for about $27 before taxes. Who is really going to be that motivated to spend that much money to get strange children high? I suppose it only takes one to start a new wave of ‘Reefer Madness’ circa 2014*.

My bold prediction: there won’t be even one reported case of a child receiving pot laced candy in Colorado.

*Maybe a bit conspiratorial on my part but who would be more motivated to give children pot laced candy, those who are in favor of its legalization or those opposed?

Ebola: Saving Life As We Know It, But Not You Specifically

ebola-quarantine-area

As the first U.S. citizen remains forcibly quarantined over Ebola fears, now seems a good time to revisit the role of government in our lives. Some so-called “conservatives” seem to have undergone a sudden evolution to the position that it is the government’s job to keep us perfectly safe from all risk.

One cannot help but wonder, is this their new position on guns as well?

One person has died in the U.S. from Ebola.

We lose 32,000 times that many every year to guns. Is there no cost too high, no civil liberty that cannot yield, in the quest to defeat that risk?

What about cars?

In 2012, 92 people died every day in automobile accidents. How many civil liberties can be ceded to protect us from death-by-car?

Anyone who thinks there is no cost too high to pay to keep Ebola from tarnishing the pristine lands of America is a statist in sheep’s clothing.

The government’s job is to preserve Life As We Know It. To do that, it does not need to save you, specifically. And it certainly does not so direly need to save you, specifically, that it should declare marshal law and shut down global travel.

In the years since 1976, the U.S. has lost between 3,000 to 49,000 people per year to influenza. By my math, that means we could lose another 48,999 people to Ebola this year and still not suffer much impact to Life As We Know It.

But you know what would impact Life As We Know It?

Massive losses in wealth due to travel bans, “aversion behavior,” quarantines and fear.

For example, Michael J. Casey, writing for the Wall Street Journal reports an interesting study about the effects on the global economy of a flu pandemic:

One study led by U.K economists that modeled the global economic fallout from a hypothetical influenza pandemic predicted only a 0.5% GDP loss from the base effect of the disease itself but up to 8% due to policies intended to mitigate its spread, such as school closures.

Think about it. Tourism to and from Africa ceases. Tourism between the U.S. and the rest of the world slows. Hotel rooms sit empty. Restaurants close early. No one rides the bus or takes taxicabs. A lot of people who would otherwise be working—and spending—are quarantined for weeks at a time. Equity indexes fall. Shares in travel firms dive alongside companies heavily invested in Africa. International financial institutions with interests in the region take a hit. The prices of iron ore and oil rise.

Your job might cease to exist. Your retirement account might be wiped out. The value of your house might plummet.

Is there still no price too high to pay when it is clearer that it will be you who must pay it?

However distasteful it might seem, the government must weigh the lives saved against the cost (in both dollars and civil liberties sacrificed) of saving them. Just like the Federal Reserve has a conflicting dual mandate to maximize employment and keep prices stable, the government has a conflicting dual mandate when it comes to Ebola—to protect us from Ebola and to protect the worldwide economy and our civil liberties from collateral damage in the fight to stop Ebola.

Take heart, gentle lambs.

Just because it is not the government’s job to spare no cost keeping you safe, does not mean you cannot make it your own priority. Disabuse yourself of the notion that only the government exercises any control over the big stuff, the important stuff, the dangerous stuff. You are free, all on your own, to spare no expense keeping yourself safe. Wash your hands more and touch your face less. Drive your car instead of using public transportation. Start prepping.

Stay home from work, like you think all those returning aid workers should.

Well go ahead.

You first.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Tesla Whines About Protectionist Legislation for Auto Dealers While Using Government Largesse to Compete

Last week, I wrote about rent seeking auto dealers lobbying for protection from competition with manufacturers utilizing direct-to-consumer sales models. I mentioned direct-to-consumer manufacturer Tesla by name, and suggested such legislation would prevent consumers from enjoying the savings that might otherwise be realized from Tesla’s efforts to “eliminate the middle-man.”

I should have taken the opportunity to address Tesla’s own abundant receipt of government largesse.

And to be clear, “government” largesse is always paid for by the taxpayers.

In a piece entitled “If Tesla Would Stop Selling Cars, We’d All Save Some Money,” Forbes contributor Patrick Michaels details all the ways Tesla benefits from government handouts. Michaels concludes that taxpayers shell out $10,000 for every car Tesla sells.

Michaels starts with a claim that purchasers of Tesla vehicles receive a $7500 “taxback bonus that every buyer gets and every taxpayer pays.” Since the tax credit appears to be non-refundable, I would not count it as a cost to other taxpayers, as Michaels does.

But the federal tax credit is only the tip of the crony capitalist iceberg for Tesla.

There are also generous state subsidies paid by taxpayers to the wealthy people who buy Tesla’s expensive vehicles. Purchasers in Illinois, for example, can receive a $4,000 rebate from that state’s “Alternate Fuels Fund,” a $3,000 rebate to offset the cost of electric charging stations, and reduced registration fees. California likewise offers a long list of rebates and subsidies to buyers of electric vehicles.

One of the hidden costs to consumers comes in the form of the increased price tag on cars sold by manufacturers who do not qualify for California’s mandated emissions credits, which they instead have to buy from Tesla, allowing it to earn a profit despite selling cars at a massive loss. As Michaels explains:

Tesla didn’t generate a profit by selling sexy cars, but rather by selling sleazy emissions “credits,” mandated by the state of California’s electric vehicle requirements. The competition, like Honda, doesn’t have a mass market plug-in to meet the mandate and therefore must buy the credits from Tesla, the only company that does. The bill for last quarter was $68 million. Absent this shakedown of potential car buyers, Tesla would have lost $57 million, or $11,400 per car. As the company sold 5,000 cars in the quarter, though, $13,600 per car was paid by other manufacturers, who are going to pass at least some of that cost on to buyers of their products. Folks in the new car market are likely paying a bit more than simply the direct tax subsidy.

Slate’s Scott Woolley details another way in which Tesla has cost taxpayers money. In 2009, Tesla received a $465 million Department of Energy loan that allowed it to weather a financial maelstrom. Unlike Solyndra (and Abound Solar and Fisker Automotive and The Vehicle Production Group LLC), Tesla managed to repay the loan in 2013. According to Michaels, it did so by reporting its first ever quarterly profit (earned from the sale of the emissions credits), which sent its stock soaring and enabled it to borrow $150 million from Goldman Sachs, and then issuing a billion in new stock and long-term debt.

But Tesla paid the U.S. taxpayers back at a rate far below what venture capitalists would have earned on the same loan. As an example, Tesla’s CEO Elon Musk also made a loan to Tesla. Musk got a 10% interest rate and options to convert the debt to stock, which he did, resulting in a 3,500% rate of return on his investment.

In contrast, the U.S. taxpayer received a 2.6% rate of return.

In other words, in our crony capitalist system, taxpayers take the loss on bad loans like the one to Solyndra, but do not enjoy commensurate reward on good loans like the one to Tesla.

But there is still more. Tesla cannot keep earning emissions credits, which allow it to earn a profit despite selling its cars at a loss, unless it can keep selling those cars. Josh Harkinson, writing for Mother Jones, writes that:

Its first-quarter profit, a modest $11 million, hinged on the $68 million it earned selling clean-air credits under a California program that requires automakers to either produce a given number of zero-emission vehicles or satisfy the mandate in some other way. For the second quarter, Tesla announced a $26 million profit (based on one method of accounting), but again the profit hinged on $51 million in ZEV credits; by year’s end, these credit sales could net Tesla a whopping $250 million.

Tesla’s ability to continue selling the cars that earn the credits is in question. The market for $80,000 cars has a limited number of buyers. Tesla must expand its customer base with a more affordable product.

One way to achieve that would be to cut the vehicle’s range. But subsidies, credits and fuel savings notwithstanding, consumers have little taste for lower ranges—even at a much lower price. Another way for Tesla to lower the cost of its vehicles is to cut the cost of its batteries without sacrificing the range. As Harkinson observes:

That, however, may again depend on massive subsidies—in this case funding to battery researchers and manufacturers by the governments of Japan and China. Over the past five years, Japan’s New Energy and Industrial Technology Development Organization, a public-private partnership founded in 1980, has pumped roughly $400 million into developing advanced battery technologies. Tesla’s Panasonic cells also might be pricier if not for subsidies the company received to expand its battery plants in Kasai and Osaka.

When Republican Gov. Rick Snyder signed the bill reaffirming Michigan’s protectionist legislation for traditional automobile franchise dealers, auto blog Jalopnik reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In the context of the substantial aid Tesla receives from federal, state and foreign governments, it is easier to have some sympathy for the plight of traditional manufacturers—and their dealers.

Ultimately, that sympathy shines a spotlight on the problems created when government starts “tinkering” in the market. Inevitably, that initial, well-intentioned tinkering necessitates ever more intrusive secondary tinkering aimed at remediating the unintended side effects of its initial foray into the market.

Consider health care. Inflation in the cost of U.S. health care began to outpace the general rate of inflation when the government began subsidizing health care costs. Nobel laureate economist Milton Friedman has estimated that real per capita health spending is twice what it would be in the absence of third party payments, and that Medicare and Medicaid are responsible for 43% of that increase. The remaining portion can be blamed in large part on the third party payments from mandated employer health care coverage, further separating patients from the cost of their care and eliminating the market forces that would otherwise keep costs down. Add to the foregoing the government-enforced monopolies on health care education, leading to 22% fewer medical schools in the United States now than one hundred years ago, despite a 300% increase in population, and attendant provider shortage. All that well-intentioned tinkering created a whole host of ugly, unintended side effects, necessitating more tinkering. The federal government responded with the Affordable Care Act and its accompanying thousands of pages of new regulations.

Everywhere the pattern repeats. The cost of higher education outpaces general inflation precisely because the government wants to help people pay for it. The unintended side effect is increasing numbers of graduates with useless degrees and few job prospects, necessitating further tinkering in the form of loan relief, jobs programs and minimum wage hikes. The Federal Reserve suppresses interest rates to artificial lows in the well-intended effort to speed recovery from the bust of the dot-com bubble. The unintended (in this case, it may actually have been intended, at least by Paul Krugman) side effect is a new bubble in housing. When that bubble bursts, the government must step in to bail people and banks out of their bad investments, create new bureaucracies and new regulations making it harder for people to qualify for loans (in contrast to previous tinkering designed to make it easier).

Lather, rinse, repeat.

I am not a radical free-marketer because I dislike poor people or have a special love for corporations. I am a radical free marketer because I know no amount of tinkering ever produces results as beneficial as what the market produces, naturally and efficiently, all on its own.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Could The Fuel Of The Future Come From Whisky?

This is a possibility according to a new Scottish startup company. Celtic Renewables Ltd. hopes to turn the waste products in Scotch whisky production into a biofuel.

Science Alert.au has more:

Whisky making requires three ingredients: water, yeast, and a grain. However, only 10 percent of those products end up as whisky, the remaining 90 percent is wasted during distilling. These waste products are either released into the sea or turned into animal feed.
Celtic Renewables Ltd is a start-up company in Scotland that is working to reuse the waste products from the Scottish Malt Whisky industry to develop biobutanol – an advanced biofuel that can be used instead of fossil-derived fuel. This will in turn reduce oil consumption and CO2 emissions, and provide an energy guarantee for rural areas that have a booming whisky industry.
The team have refined an old industrial fermentation technique, and managed to change draff (husk residue left by fermented grains) and pot ale (liquid produced during the mashing process), into 1-butanol and ethanol – which can both be used as fuel.

According to About Autos, the advantages of biobutanol over ethanol is that it has a higher energy content than ethanol. Biobutanol can be blended with gasoline at higher percentages and doesn’t need a separate distribution network, unlike ethanol. Finally, unlike ethanol, biobutanol is not corrosive.

However, the major disadvantage of biobutanol over ethanol is that ethanol has a much larger production capacity and has been the beneficiary of subsidies all over the world. Hopefully this company can change that and this technology can be adapted to other whisky producing areas of the world such as Canada and the United States.

 

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.
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