Coyote Blog

I am willing to believe that the initial push into alternative energy subsidies was undertaken with good, honest (though misguided) intentions to change the US energy mix.  But once such a program is begun, it inevitably gets turned into cronyism.

The best example is probably corn ethanol.  A combination of subsidies and mandates have pushed an enormous proportion of our food supply into gas tanks, for little or even negative environmental effect.   Environmentalists and the Left turned against it, but for a few large corporations like ADM, the subsidies have become life and death, and they do anything they have to to get Congress to maintain them.

The best evidence that corn ethanol shifted from a green program to pure cronyism was the imposition of large import tariffs.  The only possible purpose of these tariffs was to enrich farmers and a few manufacturers.  After all, if one really cared any more about getting more ethanol in the fuel supply, one would welcome low cost imports.

Well, the Solyndra debacle has started to make clear that cronyism has taken over solar subsidies as well.  Every day we find yet another high-ranking Obama supporter with his thumb on the scales tilting the DOE funding decision toward Solyndra.

Now we will see the ultimate test:

A group of U.S. solar-panel makers Wednesday called on the federal government to punish Chinese rivals with extra duties for allegedly dumping their products on the U.S. market…

The U.S. makers are asking the Department of Commerce and the International Trade Commission to impose a duty on panels imported from China, a market that totaled $1.6 billion in the first eight months of 2011. SolarWorld accused Chinese manufacturers of selling solar panels at less than half of what the production costs would be in a comparable free-market economy, and is asking for tariffs to make up the difference.

One could argue that this is in direct response to the Solyndra failure.  Solyndra's failure has been blamed on low cost panel manufacturing in China.   Again, if we care just about energy, we should be thrilled about low-cost Chinese solar panels.  If the Chinese government wants to somehow subsidize our consumption of solar panels, great!

Watch this proposal.  Any politician that jumps on this solar tariff bandwagon will be saying "My statements about wanting to see more solar usage is just a bluff, I only really care about subsidizing a few selected businesses."

My new column is up at Forbes, and it is one of my favorites I have written for a while  (at least it seems so with my current scorpion-induced double vision).  It begins with Krugman's recent statement that the Left understands the Right and libertarian positions better than the Right and libertarians understand the Left.

I first demolish this as a pretentious crock, but then wander to more important topics

But I do understand the leftish position well enough to identify its key mistake.  As I mentioned earlier, we libertarians are similarly concerned with aggregations of power.   We have, at best, a love-hate relationship with large corporations, for example, enjoying the bounties they can bring us but fearing their size and power.

But what the Left ignores is that there is absolutely no power imbalance as large as that between the government and its citizens.    After all, you may get ticked off when Exxon charges you $4.00 a gallon for gas for reasons that aren't transparent to you, but you can always tell Exxon to kiss off and buy from someone else, or ride a bike, or stay home.    Because Exxon does not have armies and police and guns and prisons.

Every single time we give the government the power to right a perceived imbalance, we give the government more power than the private entity we are trying to contain.  In effect, we make things worse.   Because we want the government to counter-act the power of oil companies, Congress now has the power to dump large portions of our food supply into motor fuel, to the benefit of just a few politically connected ethanol companies.

One of the reasons the Left often cannot adequately articulate the libertarian position is that the notion of bottom-up emergent order tends to be difficult for many to understand or accept (this is mildly ironic, since the Left tends to defend the emergent order of Darwinian evolution against the top-down Christian creation vision).

The key to much of libertarian economics is not that libertarians trust private actors, but that libertarians trust natural correction mechanisms in free markets far more than it trusts authoritarian power of the government.   When, for example, large corporations become sloppy and abusive and senescent, markets will eventually bring them down.

In fact, when government is given power, nominally to correct such imbalances, they tend to use it to protect those in power as often as they do to protect the disenfranchised. Government restrictive licensing of hair dressers, interior designers, and morticians; bailouts of GM, Chrysler, and AIG; corporate welfare to GE and ADM; and use of imminent domain to hand private property to favored real estate  developpers -- all are examples of finding government cures for perceived private power imbalances that are worse than the disease.

Isacc Asimov, in a book called Foundation that Paul Krugman recently rated as one of the most influential on his life, related this fable:  Once there was a man and a horse, who were both imperiled by a wolf.  The man approached the horse, and said that if the horse would put its superior speed at his disposal, he could kill the wolf.  And so the horse agreed to take the man's saddle and bridle, and helped the man kill the wolf.  The horse said, "great job, now remove your saddle and we can both be free," and the man said "never!"

I hope the moral of the story is clear.  In trying to deal with the threat of the wolf, the horse gave the man so much power he became an even bigger threat.  So too when we look to government to solve our problems.

Read the whole thing, as they say

Alex Tabarrok discusses the new movie about Mark Whitacre and price fixing at Archer Daniels Midland.  ADM apparently was caught holding meetings with competitors to fix prices of certain chemical commodities, specifically Lysine.

Here was ADM's mistake, and it is one they have clearly learned from:  in the modern American corporate state, there is no reason to engage in illegal private price fixing or cartel arrangements when corporations can achieve similar ends legally and openly through the government.  If ADM was concerned about difficult competition depressing pricing, they could have emulated any of these examples:

• Run to Congress to beg for strong tariff's on foreign sources of their commodity product (as do the sugar and ethanol industries)
• Run to Congress and have them institute minimum pricing or buy up excess supply (as do many agricultural producers)
• Run to Congress to seek supply restrictions (as does the taxi business)
• Run to Congress and have them restrict new competition and sources of supply through licensure (as do a variety of industries, from real estate to funeral homes to medicine)
• Run to Congress to have them pass onerous legislation that makes it difficult for new capacity to be added in the business (as does the waste disposal industry)
• Run to Congress to seek subsidies for their product in the name of some public good - it doesn't even have to be true (as does, well, ADM with ethanol)
• Run to Congress to seek regulations that favor your particular production and product technologies while hamstringing your competition (as does GE with light bulbs)
• Run to Congress and have them enforce an industry price-fixing arrangement -- its legal when Congress does it (as do the Milk producers)
• Run to the FTC to bring anti-trust actions against your competition (as did Netscape and Sun against Microsoft)  This is an interesting article on this, which says in part, "Most [antitrust] cases are not brought by public representatives, whether elected or self-appointed, but by private companies, often rivals of the defendant who are being driven out of business. Businessmen believe that competition is good if they win but bad if the other guy wins."

Of course, all of this takes a little care.  The competitive relief must be couched in something like "consumer protection" or "saving jobs" or "going green" or "fairness," but there are plenty of good examples of consumers getting the shaft in the name of consumer protection that it shouldn't be too hard to come up with something.  Developing a high profile in an early Presidential primary state like Iowa doesn't hurt either.

As I said in the title, ADM has certainly figured this out, if their approach to the ethanol business is any guide.  In ethanol, they have resorted to any number of these tactics simultaneously.

Via QandO, Nancy Pelosi said this:

"It is important to our children's health and their global competitiveness to rid this nation of our dependence on foreign oil and Big Oil interests"

So Nancy Pelosi wishes to rid the nation of American oil companies.  Hoping that this country has come too far to consider something so insane as nationalization, this presumably means replacing oil with some other substitute.  But since energy consumption still will be huge in the future, presumably we are just replacing big oil with big ... something else.  I would never say that oil companies are completely free of rent-seeking impulses, but they are paragons of free market reason compared to companies like ADM, aka big Ethanol, whom Pelosi is likely to favor.

When I see statements like this, I am left to wonder whether folks on the left really believe this, or if it is just throwaway political rhetoric which no one really expects intelligent people to believe (key passage in bold):

But how are people dealing with these drops on their own today?
Mostly by going into debt. As I show in my book, median household debt
as a share of income for married parents was more than 125 percent of
income in 2004. The economist Herb Stein once said, "If something can't
go on, it won't." And the debt hemorrhage of the American family simply
can't go on.

If the returns of rising risk add up to the ability to borrow more
to dig oneself out of short-term holes (thus digging a deeper long-term
hole), then I think we can safely say that most Americans would be
happy to give up the returns to obtain greater security.

But here's the kicker: We can provide security and help our
economy. Just as businessmen and entrepreneurs are protected against
the most severe economic risks they face to encourage economic
investment and growth, we are most capable of fully participating in
our economy, most capable of taking risks and looking toward our
future, when we have a basic foundation of financial security.

How are businessmen and entrepeneurs protected?  By who?  I own and run my own small business, and I have yet to encounter
anyone who has given me any help or succor in our bad years. Or good
years. I don't even get covered by the minimum safety net type stuff my
employees have (workers comp, unemployment) without paying extra out of
my own pocket, which they don't have to do.

This is exactly the kind of throwaway absurdly false statement that
makes it impossible for me as a small business owner to take anyone on
the left seriously, however much I am attracted to them for their
position on a variety of social and war issues. I am sure that this is
the type of statement that most of his readers on the left nod their
heads to, sure that all of us business owners are all dialed into the
fat life somehow via the government, when in fact I spend most of my
life dealing with the myriad of government-required wastepaper that
makes it nearly impossible to run a business at all.

  I am certainly willing to believe that there are certain Fortune
100 companies that recieve all sorts of government rents -- Steel
companies, in the form of protectionism; Wal-mart, in tax abatements
and eminent domain handouts; ADM, in the form of ethanol subsidies;
tobacco companies, in the form of government roadblocks to new
entrants.

However, these type of large politically connected corporations make
up about .001% of the total mass of corporations. And, entrepeneurs,
unless they are already rich and powerful from a previous business,
never get any breaks and in fact often face government roadblocks set
in place by powerful incumbents with political pull. I am all for
eliminating these coporate welfare handouts and incumbent protection
schemes. Before you scream aha! remember that 3 of the 4 government
rent recipients I listed as examples are beneficiaries of programs from
the left side of the aisle.

I discussed this risk-shift concept in more depth here.  One thing I didn't mention in the previous article was the author's attempt to tie household debt to income risk.  I skimmed the book and didn't see any
empirical linkage between rising income uncertainty and household debt.
I am willing to believe they both went up at the same time, but
correlation is not equal to causation. Ten years ago, when folks
lamented rising household debt, it was an issue of personal
responsibility and having the discipline to live within one's means.
Are we past that now? Is debt really going to be added to the list of
things nowadays that are-not-my-fault?

Update:  If he is referring to stuff like this, I share his outrage.  But it doesn't justify his general statement.

Today, Instapundit linked to this Howard Kurtz article, with the following line as a teaser:

But seriously, folks, has Congress become something of a joke?

I was excited to read on.  You bet Congress is a joke.  An out of control joke.  But then, in the next paragraph, he says this:

Are these toothless lawmakers no longer capable of passing anything with bite?

Bite?  BITE?!  Everything Congress does bites.  Every single day it does something to increase regulation or paperwork requirements or adds another necessary license or government approval process or tax or subsidy.  I may spend as much as half my time in my business just on government compliance and taxation issues.  Is that really Kurtz's concern, that the Congress does not pass enough legislation with bite??

Later in the article, he says something else I thought I would agree with:

isn't it telling that the one thing lawmakers can agree on is handing
out goodies as opposed any measure that involves the slightest
sacrifice?

Absolutely, I thought.  All Congress does is spend money on useless hurricane "relief" and earmarks and bridges to nowhere  and subsidies for ADM and don't forget that new prescription drug entitlement that will cost a ton of money once someone figures it out.  So given a Congress hell bent on spending like a drunken sailor, what does Kurtz use to illustrate his point of "handing out goodies?"

Of course, there is one issue on which Congress seems poised to act: extending tax cuts

I know that we libertarians have fought this issue and never seem to be able to win, but having the government let private citizens keep more of the money they earned is not "handing out goodies".  Handing out goodies is when you take tax money from one person and give it to another who did not earn it.  Tax cuts are one of the few things that inhibit handing out goodies.  Run far away from anyone who claims that tax cuts are handing out goodies, because it means that they consider your money to be the government's, and what portion you keep is yours not by right but by the grace and goodwill of the Congress who determines how much you get to keep.

I can't speak to the "future technology" that Bush alluded to in his SOTU address, but the history of ethanol gives me no confidence that there is anything here.  Ethanol is all about rent-seeking, not energy Independence.  Quality studies have consistently shown that the whole life-cycle energy use of ethanol is far higher than what it provides.  In other words, at least with current technologies, every gallon of ethanol used actually INCREASES total petroleum use.  Its hard to find any scientist outside of the ADM boardroom or the state of Iowa that takes ethanol seriously.  If we took the small step of moving the Iowa caucuses out of the first primary position in the presidential race, ethanol might go away.

Right now, I am running out the Phoenix Mardi Gras, where a golf tournament often breaks out mid-party, so I don't have a lot of time.  However, trust me that this USA Today article has bent over backwards to cherry pick scientific studies in favor of ethanol.  The figures mentioned for ethanol providing 26% more energy than it consumes are the absolute most optimistic study, not the consensus average, of scientific studies.  Also, the Berkley study is on "potential" technologies, and even it admits that using current technologies actually deployed ethanol consumes more energy than it provides. But even at 26%, note that this means that more than 4 gallons of ethanol substitute net out only 1 gallon of gasoline, which is pretty pathetic.  Anyway, more later.  I am sure others in the blogosphere will be hacking away at this mess today, and I will try to link some of them tonight.

Update: I am in sports heaven today, at the golf tournament all day and watching the Superbowl tonight, so I still have not gotten back to this topic in depth, but our commenters have taken over for me on this one anyway, so I may just kick back with another beer let y'all do the work for a while.  No one would be happier than me to find that we could grow things cheaply to net increase our supply of clean fuels.  Unfortunately, I am not optimistic about the interaction of the government with any market for things that grow.

For some time, I have secretly harbored the theory, without any scientific knowledge to back it up, that somehow bioengineering might long term lead to the most efficient solar conversion technology.  And in a sense, this is what we are talking about here -- finding a
biological solution to converting sunlight into energy in a usable form.  I suspect we are on the cusp of an exponential growth curve in biology like we experienced with thermodynamics, electromagnetics, and semiconductors over the last two centuries.  But if we are at such an inflection point, it just highlights how hopeless it is for government in general and George Bush in particular to pick winners at this point.  What combustion technology might the government have locked us into in 1800?  What computing technology might we have been locked into in 1950?

More at the Knowlege Problem.