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Source link: http://archive.mises.org/13038/carters-energy-fascism/

Carter’s Energy Fascism

June 22, 2010 by

Several months into his new administration, President Carter was worried. How was he going to get power, and how was he to establish himself as a forceful, commanding president? Carter discovered his proposed route to power: his energy scheme. FULL ARTICLE by Murray N. Rothbard

{ 88 comments }

P T Bull June 22, 2010 at 8:32 am

I remember well driving around during the carter administration trying to find a gas station that was open and not out of gas. The long lines to a station that still had some, the notification to those in line that it ran out of gas. The search for obscure locations where the station tended to have gas when others did not, the neighbor who was an emt and had a special pass to get gas from stations that said they were out of gas.

My liberal indoctrination in the public school system, and the liberal media, did not explain how this gas shortage came about, and, like the high inflation, it just seemed to be a fact of life that we could do nothing about. Between that and the endless hand-wringing during the hostage crisis, I came to detest carter.

michael June 22, 2010 at 9:12 am

It may be that the “liberal media” didn’t give you a full explanation for the 1979 gasoline shortage. But neither does this article, which is a classic piece of disinformation. Here’s what actually disrupted our gas supply:

“The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil sector, with production being greatly curtailed and exports suspended. When oil exports were later resumed under the new regime, they were inconsistent and at a lower volume, which pushed prices up. Saudi Arabia and other OPEC nations, under the presidency of Dr. Mana Alotaiba increased production to offset the decline, and the overall loss in production was about 4 percent.[2] However, a widespread panic resulted, driving the price far higher than would be expected under normal circumstances.

“In 1980, following the Iraqi invasion of Iran, oil production in Iran nearly stopped, and Iraq’s oil production was severely cut as well.

“After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production, which caused OPEC to lose its unity. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production. Ending of price controls allowed the US and Europe to get more oil from Prudhoe Bay and the North Sea.”

http://en.wikipedia.org/wiki/1979_energy_crisis

Rothbard didn’t mention any of that, because it wouldn’t have contributed to the bee he was trying to put under your bonnet. You have to believe there were no good reasons behind Carter trying to form a coherent energy policy, such as a looming chronic energy shortage we were entering into, and a perpetual cash hemorrhage if we kept on buying our energy from abroad.. but rather that it was just the malign scheme of some power-hungry MARXIST.

Compare this standard, middle of the road interpretation of the reasons leading to Carter’s energy policy with Rothbard’s version. You’ll quickly come to the conclusion someone’s lying.

http://millercenter.org/academic/americanpresident/carter/essays/biography/4

This should stimulate you to inquire more deeply, to find out which one it is.

Inquisitor June 22, 2010 at 10:59 am

Your own posts all reek of disinformation. Since when is wikipedia the herald of all that is True? Yes, socialists lie. You included.

Inquisitor June 22, 2010 at 11:40 am

BTW do tell why Rothbard should’ve mentioned it and how it actually contradicts his own rendition, because even if that were factored in, it’s still exactly what he called it… I’d still favour Rothbard’s interpretation over your own starry-eyed nonsense.

Ronald June 22, 2010 at 1:45 pm

“This article was originally published in the Libertarian Review, Vol 6 no. 3 (July 1977) pp. 12–13, 48.”

Pretty much explains why Rothbard didn’t mention the Iranian Revolution (1979). But Michael’s focus on this specific chain of historical events misses (or deliberately evades) the point – which is that the free market can cope with such events, whereas central planning cannot.

michael June 23, 2010 at 1:47 am

Re-reading the article, I do see that Rothbard was not referring to subsequent events but to Carter’s initial energy speech, which is worth reading, here:

http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html

But in light of our history since, it would appear that this was not just some pathetic lunge for power but a coming to grips with an actual crisis… wouldn’t you say?

Looking over the history, from 1973 to date, I think it would be hard to blame our problems with energy supply on “central planning” What central planning led to the initial, 1973 Crisis?

And what’s wrong with planning anyway? Do corporations each have no plan? I think they do… or should. The same obviously must hold true for government. It’s not going to be effective without some kind of plan.

Carter’s plan, as in his 1977 speech, was not heeded. Once Reagan came to power it was undone, and we were able to get back to profligate patterns of consumption, driving our gas guzzlers to where we are today: beholden to commercial producers to supply us with our oil fix, and vulnerable to the future machinations of political forces. It would seem that we still need a national policy on energy.

That is, a bit of central planning as opposed to failure to plan.

mr taco June 23, 2010 at 3:36 am

michael read this for central planning

http://mises.org/daily/4186

michael June 23, 2010 at 7:36 am

Mr Taco– The article endorses the obvious: a planned life has better outcomes than an unplanned life. So I’m with the author… until he gets to this:

“Furthermore, the life of the individual is organic, while that of the group, the city, or the state, is not organic except in a purely figurative sense. In state planning the initiative is taken by government officials, whereas in individual planning the initiative and the operation have the same locus. This may turn out, upon analysis, to constitute a significant difference.”

There is no difference. Whether it’s a complex organism, a complex social system, a complex mechanism or a complex strategy, it won’t work well without a plan.

And as for the difference between one person planning a career, a corporation planning an expansion strategy or a government planning an energy policy, again there’s no difference. All are plans necessitated by human activity, and thought up by humans as solutions to obvious problems.

We’d be far less dependent today on both ‘foreign’ oil and on corporations drilling everywhere on the planet had we heeded Jimmy Carter’s speech back in 1977, and stuck more closely to the plan. Which was, basically, to conserve on all energy (particularly fuel and electricity) by building smart buildings and more efficient cars, and doing more to stimulate development of nontraditional energy sources like thorium fission, solar, wind and tidal energy. Had we done more we’d be in better shape now. And had we done nothing, we’d have driven off a cliff by now.

Don’t blame the plan.

mr taco June 23, 2010 at 5:01 pm

two words

soviet union

michael June 23, 2010 at 6:12 pm

Taco, you’ll need more than two words. The existence of bad plans in the past does not preclude the formation of better plans in the future. Your two words don’t have relevance.

mr taco June 27, 2010 at 1:24 am

“Your two words don’t have relevance.”

in the case of central planning
oh yes it does

frank June 27, 2010 at 4:35 pm

Michael – you say

“Whether it’s a complex organism, a complex social system, a complex mechanism or a complex strategy, it won’t work well without a plan.”

Complex organisms need plans? Really? You say evolution is false then?

newson June 22, 2010 at 10:51 pm

not only lie, but exude smug self-satisfaction, which is the most galling thing.

michael June 23, 2010 at 1:06 am

I’m savoring these squeals of outrage, telling me that by referring to the actual, recorded history of the events of 1979, I am “lying”. That reminds me of the famous old line, “So what are you going to believe? Me… or your own lying eyes?

Look up the history, guys. Rothbard’s the one spinning disinformation. And I particularly like the comment that this article, describing the gasoline crisis of 1979, was actually written in 1977!

If you want to know how the crisis of 1979 actually unfolded, choose your own resources. You can find them by searching for “energy crisis 1979″. I’ll be pleased to examine any claim that relies on evidence, not theory.

Ronald, now please explain how Rothbard could have been so prescient. Or could he possible have been describing the gasoline crisis of 1973… when Richard Nixon was president? It had to have been one or the other. So…?

Stephen Grossman June 23, 2010 at 8:41 am

>I’m savoring these squeals of outrage, telling me that by referring to the actual, recorded history of the events of 1979, I am “lying”.

What hidden ideology guided your selection, arrangement and interpretation of those events? If you deny any ideology, then your selection, arrangement and interpretation
is arbitrary, non-scientific, worthless, a lie pretending to science. Or are you are Pragmatist who evades connecting facts together so that you can evade the relation between govt intervention and production?

michael June 24, 2010 at 11:46 am

Stephen, I’m not here to promote any ideology. They are all true to a point, but beyond that point invariably false. What I’m doing in this thread is addressing the issue of disinformation.

The author’s motive is to have us all believe that Carter was merely a demagogue-in-waiting, and that once he ascended to power he put his pieces into place toward the end of ruling America by force. And I chose to go beyond the obvious stupidity of such a contention, and examine Mr Carter’s motives in suggesting a national energy policy.

Demonstrably (to anyone who lived through that era) the energy crisis would rival inflation (here I use the generally understood meaning of that term) as being one of our two most important problems. Those who voted for Carter were demanding that something be done about it. So very naturally, among the very first items to be placed on his agenda would be the outlining of some plan for the government to address the crisis.

This was on his plate before he ever became Chief Executive. It was not any insidious plot to make us all feel badly, or to enshroud us with snares that undercut our ability to become wealthy without limit. The quest was demanded of him by an angry public.

If you think I’m wrong, write me back with a cogent argument supporting Rothbard’s thesis. Here are the basic points you should support:

“How was he going to get power, and how was he to establish himself as a forceful, commanding president? Carter discovered his proposed route to power: his energy scheme…”

“What the State, what every would-be tyrant wants, of course, is war. War, especially a war that the State is in no danger of losing, provides the perfect milieu for all power to redound to the State, for siphoning wealth from private into governmental hands, for making the bastards obey. War, as Randolph Bourne so perceptively pointed out a half-century ago, “is the health of the State…”

“And so the Carter administration looked frankly for the “moral equivalent of war” — the peacetime substitute for war hysteria and war despotism, for the zeal for sacrifice…”

I believe these statements are not just utterly wrong, I think they have been written for the purpose of putting malignant seeds in the reader’s mind. You, I suspect, will differ in that opinion and back your Leader. But I’m hoping rather that you will surprise me and offer a comment of genuine substance.

noah June 22, 2010 at 2:25 pm

“You’ll quickly come to the conclusion someone’s lying.
http://millercenter.org/academic/americanpresident/carter/essays/biography/4
This should stimulate you to inquire more deeply, to find out which one it is.”

Thanks, you made that real easy. The funniest thing from that link is the statement that the increasing oil prises caused inflation. Huh? Two words for you: Bretton Woods. I think you’ve been coming to conclusions too quickly. Advice: read, think, learn.

Since the article was written in 1977, and you seem to like wikipedia, this should stimulate you to inquire more deeply:
http://en.wikipedia.org/wiki/1973_oil_crisis

Stephen Grossman June 22, 2010 at 8:08 pm

This chaos of arbitrarily selected ,arranged and interpreted coincidences is not an example of the science of economics but merely the primitive mind.

michael June 23, 2010 at 1:21 am

“Carter’s main achievement involved energy policy, though he would receive little credit for it during his term. Despite the lip service paid by American presidents to reducing energy dependence, U.S. oil imports had shot up 65 percent annually since 1973. In 1976 the nation was consuming one-quarter of all Organization of Petroleum Exporting Countries (OPEC) production. The U.S. remained wasteful in energy use, with consumption per capita 2.3 times the average for nations in the European Economic Community and 2.6 times Japan’s. Carter set out to reduce this dependence.

“The president got Congress to pass the Emergency Natural Gas Act, which would authorize the national government to allocate interstate natural gas. He created a Department of Energy to regulate existing energy suppliers and fund research on new sources of energy, particularly sustainable (wind and solar power) and ecologically sound sources. His Energy Security Act created the U.S. Synthetic Fuels Corporation, which would provide $20 billion in joint ventures with private industry. Carter signed his first energy package into law on November 9, 1978. The deregulation of oil and natural gas prices that resulted would lead to a vast increase in the supply of energy in the 1980s, and consequently a lowering of prices.

“During Carter’s term, however, the actions of the OPEC oil cartel (foreign oil producers) resulted in an increase in oil prices, from $13 a barrel to over $34. With America so dependent on oil, this huge price increase resulted in a run-up in inflation. Carter asked Congress to accelerate stockpiling 500 million barrels of crude oil in a national security reserve, setting target date by end of 1980 instead of 1982 (the deadline set by the Ford administration). The administration also developed new conservation measures that would sharply reduce industry’s use of fuels, as well as automobile mileage standards. Strip mining would now be regulated by the Surface Mining Control and Reclamation Act, a victory for environmentalists.”

http://millercenter.org/academic/americanpresident/carter/essays/biography/4

Amazing how Rothbard could have foreseen all this back in 1977, the year Carter was elected?

Richie June 23, 2010 at 9:28 am

Carter was elected in 1976 and took office in January 1977. Rothbard’s article appeared in July 1977.

hazeleyes June 23, 2010 at 3:24 pm

If “everyone” wants a US energy policy so seriously, why have so many administrations, both sides of the aisle, come and gone and still there’s no policy and apparently no real intention of having one… I have to concluded that the powers that be don’t want one and won’t have it, no matter what they have to do to prevent it.

michael June 23, 2010 at 4:12 pm

“I have to concluded that the powers that be don’t want one and won’t have it, no matter what they have to do to prevent it.”

Good conclusion. Congress has been gridlocked on this issue for many years, with those members being funded by energy concerns having utterly different motivations and purposes than those having the best interests of the nation as a whole at heart. So we end up passing compromise legislation that looks like one thing while it’s really another. Or, no legislation at all.

It’s not likely to change any time soon.

billwald June 22, 2010 at 11:48 am

“We have met the enemy and he is us,” Pogo.

michael June 23, 2010 at 1:15 am

Same issue I raise in my reply, above. If Rothbard’s article was NOT about the energy crisis under Carter, which happened in 1979, it must have been about the energy crisis under Nixon, in 1973. Those were the two crises we had. So why is he talking about Carter in this piece? Was a crystal ball involved?

Also, you’ll have to understand that to the rest of the world, outside these pages, the word ‘inflation’ refers to an escalating increase in prices. So yes, it’s commonly understood by most people that an abrupt increase in the price of oil precipitated increases in the prices of all consumer goods requiring energy. That is, everything transported, grown or sold.

We can test the assertion that there’s a basic connection. When pump prices go back above $4 and stay there, as one day they must, let’s see whether the prices of food and consumer items also rise. Then we can write each other back to see who was right and who was wrong.

The Kid Salami June 23, 2010 at 4:34 am

I’m with you on this Michael – very perceptive commentary. In a similar vein, I’ve been telling people that buying ice creams causes sunny weather for years. And every year, on the day on which the most ice creams are sold, it is sunny! It’s just obvious!! Yet when I point this out to my parents, they still don’t believe me, coming out with some goobledegook about correlation not being causation or something. Imagine. Nice to know someone agrees with me.

Little Tommy
Aged 7

michael June 23, 2010 at 7:46 am

Little Tommy: You couldn’t have come up with anything more inane and beside the point. Let’s take an example, which you may be able to visualize better.

You grow corn. To do so takes energy– to plow the fields and plant the crops, to manufacture the pesticides and fertilizers (these actually take petroleum to fabricate), to harvest and deliver to the mill, to mill into products and to distribute those products. Then the cost of all those processes goes up because oil goes up.

So now you need to sell for more dollars per bushel. And if the prices don’t rise this year, you learn the lesson and grow less corn next year. Then, with less supply, the market price goes UP.

It goes up because the cost of oil went up. There’s a direct link.

The Kid Salami June 23, 2010 at 9:03 am

You said: “When pump prices go back above $4 and stay there, as one day they must, let’s see whether the prices of food and consumer items also rise. Then we can write each other back to see who was right and who was wrong.” My comment was entirely relevant.

Yes – what you say is true, but it’s not me who is missing the point though. You just do not understand – and seemingly refuse to even consider the existence of – scarcity or conservation laws do you. If people have to spend more of their finite wealth and earnings on corn, the necessarily have less to spend on other goods. The prices of these other goods that are not being bought drop. Some prices go up, some down. A general increase in prices of everything DOES NOT flow from an increase in the price of oil.

When you play poker in your house, do the antes just rise as if by magic over time regardless of the chips in use, or are they connected with the number of value of those chips?

michael June 23, 2010 at 10:08 am

Salami: “Some prices go up, some down. A general increase in prices of everything DOES NOT flow from an increase in the price of oil.”

No, only a general increase in all prices where oil is an item in the expense column.

If you’re an independent truck driver and your oil costs go up, you have to increase your prices to the carrier. And if they don’t want to pay you the pass-through, you stop driving their loads. And if they have loads to be run and there’s no more drivers willing to carry them, they have to increase what they’re willing to pay their drivers. Tp pay for the gasoline.

You can say the same for any industry that has to ship merchandise or use industrial processes that rely on oil as a raw material. Not just the fuel industry but plastics, fertilizers, pesticides, in fact the majority of useful man-made materials.

Paint goes up. Carpeting goes up. And driving to the site goes up. So contractors have additional costs, which they attempt to recapture by increasing the price of their homes. These, unlike your poker story, are instances in the real-world marketplace.

The professions are not greatly impacted. Lawyers, accountants and doctors generally don’t adjust their prices in tandem with oil. Only to the degree that their household expenses go up, and they still have to make a living.

So, according to the laws of scarcity and conservation, when the price of most things people have to purchase all go up, in response to the cost of the oil component in their manufacture, what is one forced to do?

Answer: increase his own prices, whether for his labor or for the services he renders.

The Kid Salami June 23, 2010 at 11:53 am

I say again “You just do not understand – and seemingly refuse to even consider the existence of – scarcity or conservation laws do you.”

You say people just “increase his own prices, whether for his labor or for the services he renders” – but you are being a child again. What you are describing is impossible. Impossible. Everyone cannot raise the price of everything without their being an increase in the supply of money. It is impossible. Totally impossible. Think about it – please please just stop spewing this unfathomable nonsense and think for a second.

And there is nothing fake about poker – it is a mini free market in which people can do as they please with their money. Please explain to me how, with $200 of chips on the table, the ante can keep being raised without limit. Can it? If not, why not and what is this limit determined by?

michael June 23, 2010 at 4:22 pm

Okay, Salami, I get it now. You are confused about your own philosophy. When someone raises his rates he doesn’t increase the supply of money. He just asks for a slightly larger portion for himself. If someone else pays that higher price, he gets that extra portion. And if they choose not to, he doesn’t.

I was not speaking from a position that everyone asked for an increase at the same time, and that they all found customers to pay that increase. Were that to be the case, it might be that the Fed didn’t obligingly print more money for them all to use. And so they couldn’t all spend at the same time.

Your theory, in short, doesn’t apply. One can only raise his rates when his customers (a) agree to keep buying his product or service, and (b) have or can borrow the money. So the practical effect of a sudden cost increase in a basic product like oil is that the total volume of purchases is reduced. People drive less. They buy fewer things. They go on fewer vacations. As was the case two years ago, when motel rooms were cheaper because there were fewer people booking them.

“It is impossible. Totally impossible. Think about it – please please just stop spewing this unfathomable nonsense and think for a second.”

These scenarios I post are only “unfathomable” concepts to you because you’re not in the habit of thinking of the whole gestalt. You’d have made a bad entrepreneur… these are exactly the kinds of thoughts that people engaging in business must consider.

The Kid Salami June 23, 2010 at 5:27 pm

Now i re-read what you said, you didn’t actually say what i thought about price levels. This new tactic of yours – of slipping in something that makes sense in between the paragraphs of tourettes-like rambling – works a charm, I recommend continuing with it. Your utter lack of shame in pontificating in this fashion while running a mile from anything that gets too specific and thereby avoiding any real debate, as I invited you for the second time here

http://blog.mises.org/13001/krugman-cutting-back-government-spending-will-lead-to-recession/#comment-696668

all the while spewing some of the lamest economics-free arguments and dropping in stuff about yourself being such a great entrepreneur is annoying me so much I think i’ll have to just stop reading your posts. This is quite an acheivement, I do have to take my hat off to you, I mean I’ve met some pretty annoying people, but you take the cake.

And by the way, a bimetallic thermostat is automatic in that the heating/cooling apparatus are adjusted or turned on and off (the MACRO decisions) not by human judgement but as a direct consequence of the atoms in the room (the MICRO participants) whose movement transfers energy to the strips in the form of heat. that is, the macro changes flow from the micro changes as a matter of course. In the same way, when gold is money, the amount of money in circulation flows from the micro level without any need for anyone to “add money” or “retire money” like you suggested – adding or retiring money is like not having a thermostat and adjusting the controls yourself when you feel chilly/warm. You got it 180 degrees wrong.

michael June 24, 2010 at 12:04 pm

Salami– I’m trying to work with you, I really am. Let me suggest that those long strings of “Tourette’s-like rambling” just represent the way most outsiders actually think. Outsiders, meaning people who haven’t gone through Austrian indoctrination techniques in some economics classroom.

Don’t get me wrong, I respect economics. I just prefer the kind that doesn’t fly off to some distant planet. And so I would accord your philosophy the same respect I would accord toward anyone’s. I ask that it be testable in light of the abundant evidence we can find in this world.

I will be the first to admit that when I am faced with pure, utter theory and put forward real-life situations that apparently falsify that theory, I tend to be not just skeptical, but scornful when all I get back is more theory, or perhaps insults. Sorry for that. But what I expect when I write some of these apparently incendiary comments is for someone to step up to the plate and knock me flat with some facts I hadn’t considered. Or with a superior interpretation.

And I rarely if ever get that. What I get instead is a further insistence that the theory is always right, and that my facts must be wrong.

The proper way to pursue that line of argument, of course, is to produce either another set of actual facts that refutes me, or a superior interpretation of the facts I’ve produced. And so these numerous posts are issued as something of a challenge, for people who believe in the Austrian interpretation to come up with better arguments.

Your monetary theories only work, in my observation, when you fellows are all just talking to one another in total agreement. Let some nonbeliever into the discussion and he poses uncomfortable questions to which, so far, few if any of you have convincing answers.

I would like to here declare my appreciation to the moderator of this forum for his not just closing me out of the discussion. That might have been the response some webmasters would choose as the quickest way to shut me up. But apparently this person believes in the unbounded freedom of debate, and in the thesis that the best way to test a theory is to try to break it against an inconvenient fact. If so, I am with him or her in spirit.

And I would like to hear a really good response.

Stephen Grossman June 23, 2010 at 10:08 am

>the cost of oil went up

Believe or not, there is a science of economics which guides the study of the chain of indirect causes of economic events. Yes, its true. You no longer need rely on arbitrarily and conventionally selected, out-of-context facts, like the primitive mind prior to the Western discovery of scientific method. Amazing! It’s odd, however that the Peanut Farmer-In-Chief, who aided the design of naval nuclear power, didnt know scientific method. Well, he was a committed religionist whose faith in the supernatural was more important to him than his mind’s focus on nature. What are the laws of economics compared to the religious demand to sacrifice?

michael June 23, 2010 at 10:12 am

It turns out that the peanut farmer was, among other things, very competent in the area of nuclear energy. So he made that a component of his energy policy.

But should you be more scientifically inclined you could point out to us how his approach to solving the nation’s energy problem was “religionist”. Did prayer play any part in the plan?

The recent president who relied most on faith-based solutions was George W Bush. Why not go after him?

michael June 24, 2010 at 3:10 pm

Stephen– I see I didn’t address this exercise in sarcasm in my earlier post:

“Believe or not, there is a science of economics which guides the study of the chain of indirect causes of economic events. Yes, its true. You no longer need rely on arbitrarily and conventionally selected, out-of-context facts, like the primitive mind prior to the Western discovery of scientific method.”

It is sufficient to explain the increase in price of a given consumer item by pointing to an increase in the cost of one of its pricing components. Therefore I offered you what I thought was a fairly straightforward example, easy to understand. An independent trucker sees the cost of gasoline go to four dollars. Therefore he passes along that increase in his cost to his customers. I specifically said “A general increase in prices of everything DOES NOT flow from an increase in the price of oil.”

Which, to suit the purposes of your attempt to slant the argument, you truncated to
>the cost of oil went up

That’s cheating by mischaracterisation of my argument. No way to win a debate.

Matthew Swaringen June 23, 2010 at 6:34 am

Yeah, since the government has had such a prudent monetary and fiscal policy you’ll easily be able to claim there are no other factors than the price of oil rising!

michael June 23, 2010 at 7:41 am

Matt, you’re becoming a master at the false implication. There are many factors influencing energy prices. The most basic, of course, is supply and demand. And we can’t trust that because, of course, there’s bad government. Right?

But if you take the trouble to actually read my comment you’ll see that it did not even address what caused fluctuations in energy prices. It stated that energy prices are intertwined with nearly all prices, and so when energy prices rise for any reason, the prices of foodstuffs, consumer products and most other categories of goods, rises in tandem. Because energy is a component of their cost to grow, fabricate and deliver to market.

Let’s try it again, good buddy.

Stephen Grossman June 23, 2010 at 10:29 am

>energy prices are intertwined with nearly all prices

Yes, without a science of economics the economy is a frightening chaos best understood
by witch doctors and bureaucrats guiding the historically tender mercies of the state.

michael June 23, 2010 at 4:29 pm

Stephen: Your comment does not apply. Energy prices are intertwined with most prices in the marketplace because energy costs are a component of total cost. Just as is labor, or taxes. If your costs go up, you must either successfully raise prices or make less profit.

It is irrelevant to be talking about economics as a science. In the hands of so many here it is not. It is only a set of theories with an internal cohesiveness. And when they conflict with observation, your ‘scientists’ believe it’s the observation that must be wrong. Because the theory is and must be always TRUE.

Matthew Swaringen June 23, 2010 at 1:10 pm

Lets go back to why I wrote what I did, it was this statement.
“When pump prices go back above $4 and stay there, as one day they must, let’s see whether the prices of food and consumer items also rise. ”

I am not disagreeing with your statement that a rise in the cost of oil has downstream implications for other prices. What I’m implying is that you will later declare when prices rise that the main reason for it is rising oil costs, when there are other factors that will cause prices to rise (like monetizing the debt) much more than could be attributed to oil.

I say this because of your argument concerning Washington state’s employment figures going up while the minimum wage went up.

I fully admit WA employment figures couldn’t be used (without a lot of other detail) to discuss the implications of the minimum wage rise, but you have a strong tendency to ignore inconvenient stats on your end so you can displace them with a single example to your benefit.

It’s very similar to what Hillary Clinton did in discussing growth rates of economies and high tax rates (saying that the best growth is where government’s share of GDP is high). That kind of convenient picking is exactly what I am not a huge fan of most use of statistics. They absolutely do lie when they are used in that kind of a manner.

michael June 23, 2010 at 4:49 pm

Matthew, when the cost of gasoline goes above four dollars, people buy less of it. They drive less. And if they must drive to work, they have to spend less to stay within their household budget. So they buy fewer consumables.

They have fewer vacations. So motels must reduce their rates. And in any event, they have less money available for purchases beyond filling the tank. So every business that caters to them earns less income and moves less product.

At the same time, these businesses find their suppliers and distributors must raise their prices if shipping is involved (more fuel costs), if plastics are used (higher plastic prices) or if oil-derived inputs like fertilizer are required. So the shopkeeper finds fewer customers on the one hand and higher wholesale prices on the other. He can’t make a profit, and at times like these many smaller fry just go under. They can’t make a living.

The above obvious chains of causation (not mere correlations) are true precisely because for the consumer, the pool of available money does not increase. It stays static. And if they get terminated from their job their money supply gets sharply reduced. I really can’t emphasize too strongly to you that events occuring a world away at the federal Reserve’s discount window have very little effect on this workaday economy. What matters is the amount of money in people’s pockets– a very different thing than the amount of money in existence.

So whenever you see a price rise, you can construct a reasonable chain of events to explain it that do not rely on the distant rumble of the Fed’s window opening or closing. And the same is true every time a price falls. The true causative factor is most likely much closer at hand.

“I fully admit WA employment figures couldn’t be used (without a lot of other detail) to discuss the implications of the minimum wage rise, but you have a strong tendency to ignore inconvenient stats on your end so you can displace them with a single example to your benefit.”

Let’s take an honest look at my discussions. Don’t I ask people to look for and find data pointing to contrary conclusions? In fact don’t I GOAD them into looking for instances that will prove me wrong? I thrive on an examination of real-world facts in support of tentative theories. I would LOVE to have someone show me up by using actual, observable facts to buttress their sorry arguments.

But instead, all I get is greater insistence that the theory makes sense, and so must be always right. Plus table pounding, and names.

In fact last week there was one person here who actually went to the well, and found contrary data for two states. I think they were both in the upper midwest. And we had, for once, a truly constructive discussion about the factors affecting wage formation and employment. I wish there were more people posting like that here.

So get to work. I posted the tables whose data I used. Find contrary trends in it, that don’t support my contentions. You might find that during the period at issue, the weather was most unusually fine in Washington. And that everyone decided to go out and work, boosting their own employment despite there being a higher minimum wage.
I think you’re getting carried away with the awe-inspiring majesty of this simplistic theory. It’s not responsible for everything in life, and the reason why birds sing. It’s just true occasionally in some areas of macroeconomics.

Matthew Swaringen June 23, 2010 at 5:30 pm

I am not going to contest the first part of what you wrote because I didn’t disagree with it before anyway. It wasn’t necessary to explain why prices rise when a factor required in their production or distribution rises in price. I don’t dispute that.

What I will say is that we will see much more inflation in the future, and it won’t be all because of gasoline, and when the gasoline price goes up, it will likely be in part because of the “true inflation” (that of the monetary supply) that has been occurring to stop temporary and necessary price deflation (in stocks of goods/housing produced through malinvestment).

On the topic of empiricism/statistics, I get that you like that. I have always understood that. I don’t agree with you about the validity of presenting those stats,however, when you don’t know the whole story. You expect a back-and-forth argument where you get an easy to use BLS stat showing unemployment while getting data on the other parts of the economy in WA is not quite that simple.

What I can tell you about WA from what I looked up is that it’s costs of living and average salaries tend to be higher, meaning it’s minimum wage being higher probably results in it having less effect than that minimum would elsewhere. There is a case where having a minimum below a certain level is “practically no minimum” at all, which is that businesses are already almost all paying more than that level anyway. Not having the WA wage data in front of me I can’t say that this applies here, but it is a possibility.

Unfortunately, I can’t know any of this for certain, and neither can you. So my point is you should not be throwing around these stats without requisite knowledge about what contributes to them. I wasn’t the one who presented those figures, so I should not be responsible for establishing this (and it’s not that I didn’t try, but it is difficult to find significant information, especially when there are so many possibilities).

What I will do is present possibilities for why they aren’t accurate (as I did above) and if you desire to disprove those possibilities and narrow it down to this that’s up to you.

I think you need to recognize you’re not the only one here looking to be convinced by “the other side” as it were. I think your contrary views can be beneficial for providing some insight, but only if they are established on more evidence than a number so you can show true causality and not merely correlation.

michael June 24, 2010 at 6:30 pm

” I don’t agree with you about the validity of presenting those stats,however, when you don’t know the whole story. ”

What you’ve posted is a fine reduction of your argument to a simmering golden sauce. In the first part, I cannot ever produce an argument based on facts, because I don’t know ALL the facts. No matter how fine a comb I pull across reality, there may (nay, must!) be some minor attribute I’ve missed. So examining facts is off limits.

Whereas your theory! Oh my, what can I say? It’s magnificent! It asks its own questions, it gives its own answers, in tautological splendor. And most fabulous of all, it needs no reality to justify its perfect beauty! It is a thing in and of itself, internally consistent, logically coherent and towering above mere factual analysis.

michael June 24, 2010 at 3:20 pm

“I am not disagreeing with your statement that a rise in the cost of oil has downstream implications for other prices. What I’m implying is that you will later declare when prices rise that the main reason for it is rising oil costs, when there are other factors that will cause prices to rise (like monetizing the debt) much more than could be attributed to oil.”

Matt, what you are implying is that I am a fake. Be comforted, I don’t take it personally. You’re just a very avid believer in your one size fits all theory of pricing.

I’m actually pretty good at teasing out the parts that go into pricing. After all, unlike you (I suppose) I’ve been in the business. And I will not lie just to ‘prove’ some sleazy point.

The reason we will not have much if any price inflation this time around due to the Fed’s liberal policy of keeping their window open to their favored customers is that those customers aren’t lending out any of the new money. If they ever do, and the boom times return, then we’re in a different chapter. I might agree with you that there’s a connection.

But from what we can see from here, that ain’t gwine to happen. The dollar is still very, very tight, when seen from the point of view of us ordinary humans. Or those the Swedish president of BP refers to as the “small people”. We’re not getting car loans or home loans in any quantity, we’re paying down our overextended consumer debt, we’re buying fewer luxuries, we’re not doing any of the things that lead to price inflation.

Price inflation nearly always follows the familiar supply/demand equation. More money bids up price. Less money bids it down. And for the last two years we’ve been seeing a mild deflation in most prices, with the exceptions being in the realm of health care and insurance (plus some foods and alcohol). For you to persistently ignore this obvious fact and continue proffering your stale Austrian goods, as though they pertain to the current situation, is beyond imagining. You really have swallowed the Koolaid.

But I like you anyway. Keep ‘em coming. Just get better material. :)

Ondrej Moravec June 23, 2010 at 4:13 am

Guys, what are you discussing here? Carter was in office from January 1977, his speech that Rothbard is reffering to was given in April and the article (summarizing Rothbard’s opinion on what was going to happen if Carter’s planning scheme was approved) puhlished in July. Later this year (1977), the Department of Energy was created, as the main tool for realizing the Carter’s “energy plan” he had announced in April. Rothbard did not need any “crystal ball” (just basic economic knowledge) to see that the “energy plan” (in other words, increasing the regulation of energy production, including price regulation) will lead (ceteris paribus) to less energy produced for higher prices…

michael June 23, 2010 at 7:59 am

Very true, Ondrej, as I realized when I went back to re-read the article. So let’s re-cast my point.

Rothbard wrote his article in direct response to a new president’s having entered office and decided that the energy crisis was the first thing needing his attention. I think we can recall that from 1973 to 1977, the American public had been traumatized by energy issues and was looking for a leader who could do something about our dependence on foreign oil.

That’s why Carter was elected, and he did not disappoint. He came up with a policy that actually had many positive results, to the degree that it was implemented. You can confirm this by googling “carter energy policy” and seeing what comes up.

For Rothbard, in that context, to recast this response to the public’s concerns as being the evil plot of some fascist would-be dictator reeks of purposeful disinformation. It’s the kind of tactic we’d expect from a Rush Limbaugh, not from an economist.

If you have a different take on it, I’d be glad to consider your point.

Stephen Grossman June 23, 2010 at 10:39 am

>Carter…came up with a policy that actually had many positive results, to the degree that it was implemented.

Michael is a viciously evasive sleazeball! But sleaze has many positive results, to the degree that its implemented. It covers the truth, for one thing. It guides mainstream economics and politics. Negative results? Thats negative thinking. Would you like some peanut butter?

michael June 23, 2010 at 4:51 pm

How rigorously scientific, to base one’s argument on the notion that “Michael is a viciously evasive sleazeball!” Stephen, you must have done exceedingly well in grad school with that tactic.

In your place, I’d have tried to find a flaw in michael’s argument. That would have more properly trounced him in debate.

michael June 23, 2010 at 8:25 am

One other point, Ondrej. For you it is sufficient to imagine that oil prices went up ‘because’ of regulation. But certainly there were some more significant factors. For example

“In 1980, following the Iraqi invasion of Iran, oil production in Iran nearly stopped, and Iraq’s oil production was severely cut as well.

“After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production, which caused OPEC to lose its unity. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production. Ending of price controls allowed the US and Europe to get more oil from Prudhoe Bay and the North Sea.”

http://en.wikipedia.org/wiki/1979_energy_crisis

Let’s break this down. In 1973 oil prices doubled, due to OPEC strategies. Then Carter put his energy plan into place, from 1977 to 1980. Then both production and demand decreased (for a variety of reasons), and high prices induced more exploration… so supplies increased. And the high prices leveled off as we enter the ‘oil glut’ of the 1980s.

Build a case for any specific governmental policies exacerbating the situation.

Stephen Grossman June 23, 2010 at 11:19 am

>This is the non-ideological, Pragmatist mentality, overwhelmed by a swirling chaos of arbitrarily selected, out-of-context facts, seeking illusory refuge from the lack of economic power in unchallenged political power. “The initiates (political insiders) know that there is nothing fixed, that everything is continually changing….The needs of a state…are the sole determining factor.” [Hitler]

Stephen Grossman June 23, 2010 at 11:27 am

>Carter put his energy plan into place, from 1977 to 1980. Then…production…decreased

This is as coincidental as Soviet and North Korean socialism and economic collapse. As we all know, Carter’s ability to produce oil was greater than than of oil companies. Well, maybe not oil for energy but certainly lots of political oil.

michael June 23, 2010 at 5:04 pm

Try not to set artificial boundaries, Stephen. Here’s what I said: “Let’s break this down. In 1973 oil prices doubled, due to OPEC strategies. Then Carter put his energy plan into place, from 1977 to 1980. Then both production and demand decreased (for a variety of reasons), and high prices induced more exploration… so supplies increased. And the high prices leveled off as we enter the ‘oil glut’ of the 1980s.”

As you can see, I never implied that Carter’s suggested energy policies alone had the power to influence production. And in fact both I and my sources show the variety of reasons leading to the plummeting of production, principally the 1980-88 Iran-Iraq War. Which occurred after the famous energy speech.

Also note that I was countering Ondreij’s argument that oil prices went up BECAUSE of regulation. Because prices in fact went up for many reasons.

I would challenge you, if you wanted to engage in constructive work, to come up with specific regulatory moves that resulted in increases in energy prices. Because I’m sure there were a few false moves and missteps during the Carter presidency. If your arguments were based on observation, I think we could begin a useful discussion.

But it’s not a winning tactic just to produce the tired syllogism that (a) all regulation increases prices, that (b) Congress passed regulatory acts during 1977-80, and that (c) ergo, the price increases were 100% due to those acts of Congress. That’s both simplistic and unsupported by anything but your strong feelings.

Try instead to follow the oil supply and demand curves. See for yourself what the late seventies looked like.

Bob June 23, 2010 at 12:56 pm

Why is the statist making the only cogent (though misguided) arguments while everyone else hurls insults?

Just because a government plan does some good doesn’t make it a good plan. They are never worth the imbalances and inefficiencies they introduce but those can be hard to quantify. The economy would run more efficiently, but how much more efficiently is unknowable.

Is planning good? Lets draw a sharp contrast between a corporation’s business planning and the government’s plan for that business. As Austrians know, corporations and individuals respond in real-time to cost and sales/wage information. If there is a supply shock to an input factor, they make adjustments. The energy shock led consumers to buy smaller cars and put solar panels on their roofs. Manufacturing became more energy efficient. More domestic oil production eventually came on line. Once the revolution concluded, the Iranian government had to get back to running the country and had to adjust to the iron laws of supply and demand, so oil prices fell.

Government plans can’t respond to changes in the market. They are slow to be implemented, often after the crises is over, are burdened with special interest concessions, and can’t anticipate the next crisis. As Micheal says, high prices induced more exploration. So Carter’s policies were an unnecessary burden.

Prices rising or falling is not a bad thing. It is an important economic signal to which participants will respond in time. Don’t try to smother it with some misguided though egalitarian government plan.

Beefcake the Mighty June 23, 2010 at 1:10 pm

“Why is the statist making the only cogent (though misguided) arguments while everyone else hurls insults?”

I assume you’re referring to michael here (the statist). The reason he has engendered such hostility is because in fact he is NOT making cogent arguments, or any at all. Being misguided is the very least of his problems. For example, he is clearly unfamiliar with the concept of scarcity, to such an extent that he denies its existence. A typical comment you will find from him goes along the lines of, “we don’t need a pure free market, or complete government control, we need to find the sweet spot in the middle.”

He is completely impervious to logic. Classic example of someone who thinks because he’s signed a few paychecks in his time, he’s qualified to bloviate on any economic topic under the sun.

michael June 23, 2010 at 6:10 pm

It’s not that I’m impervious to logic. Logic’s fine, when supported by facts. What I am is reliant on facts.

If a regulation will help adjust to a bad situation, I’m for it. If it is tried and found to make things worse, I’m for changing it. But our recent economic history is full of instances where regulations were undone and terrible consequences ensued.

Theory alone is an insufficient tool with which to describe our economic life. Practise is far more valuable. Therefore it may be correct from your point of view to say that I fail to make logical arguments. I make arguments that fit the observed phenomena whether or not they fit into some neat logical construct. I make arguments that stem from common sense deductions from the evidence. And I do not have to belong to some school and think exactly the way they do, before I’m able to think.

Now explain to me how and where I deny the existence of scarcity. I don’t believe I do that.

hazeleyes June 23, 2010 at 3:30 pm

…like the congress and president are doing right now on just about everything…

michael June 23, 2010 at 5:20 pm

Thank you, Bob! I’ve been trying to provoke people here into using their heads. But except for you, no one’s taking the bait.

I’m sure there must be good arguments to be made for Carter’s command energy policies (actually, those passed by Congress during his term) causing some problems and unintended consequences. But I haven’t heard a peep from anyone about anything definite. And that’s not science.

“Just because a government plan does some good doesn’t make it a good plan. They are never worth the imbalances and inefficiencies they introduce but those can be hard to quantify. The economy would run more efficiently, but how much more efficiently is unknowable.”

If a plan has demonstrable and quantifiable good effects, and unquantifiable and unknowable bad effects, it’s most likely a good plan. And in fact it’s the best plan we have until someone can demonstrate where it goes wrong. So normally we adopt such plans, and try them until their shortcomings come to light.

Carter’s plan was tried thirty years ago. So I’m guessing it shouldn’t be that hard, up here in 2010, to demonstrate where it went wrong.

Your serve.

2) I must call some attention to this comment, in my view erroneous:

“Prices rising or falling is not a bad thing. It is an important economic signal to which participants will respond in time.”

When prices for an essential supply abruptly increase, it leaves less money in consumers’ pockets to buy both oil-based products and non-oil related items. So business slows down. Fewer sales occur. Factories have excess capacity. Workers get laid off. The spiral of less wages being earned = less money being spent = fewer profits being made ripples across society. It is indeed a very BAD thing, and if it’s a market-created situation, then some force outside the markets MUST intervene. Because the condition is unacceptable.

Your view would be perfectly fine if there were no values. But here on earth, the economy exists solely to serve its patrons, the public.

Again, your serve.

Scott Dysart June 23, 2010 at 5:35 pm

When prices for an essential supply abruptly increase, it leaves less money in consumers’ pockets to buy both oil-based products and non-oil related items. So business slows down. Fewer sales occur. Factories have excess capacity. Workers get laid off. The spiral of less wages being earned = less money being spent = fewer profits being made ripples across society. It is indeed a very BAD thing, and if it’s a market-created situation, then some force outside the markets MUST intervene. Because the condition is unacceptable.

No, no, no and no. You DON’T understand. Have you learned nothing yet?

When a frost kills off a particular food crop, the price goes up.

When a technological advance brings about the increased consumption of some resource, the price goes up.

When consumer habits change, bringing about greater desire for a particular good, the price goes up.

Now, put price controls in place for any of these situations. What happens next? Everyone is happier and wealthier, right?

Scott Dysart June 23, 2010 at 6:23 pm

Just in case you missed it, my point is this:

A rising price might reflect an event that negatively impacts people, or a simply increase in demand, such as those I mentioned above. The rise in price ITSELF, however, should not be confused with the event that caused it. Putting a price ceiling on damaged crops will not increase the amount of food available. Quite the opposite, in fact, as it discourages the production and consumption of substitute goods. What results is a shortage. Goods that would otherwise go the the most efficient, the most productive uses first, are instead haphazardly split between whoever can snap them up the fastest, causing disruptions in the chain of production that can ripple outward and magnify the disaster.

Now does it make sense that rising prices are a GOOD thing, as a response to a decrease in supply?

Matthew Swaringen June 23, 2010 at 6:59 pm

Scott, the only problem with “makes sense” is that he’s “not looking for theory” but “facts” (empirical data).

I do have to say ask though Michael. What do you think of Hugo Chavez? He’s been doing the whole price control thing in Venezuela and nationalizing industry because it wasn’t doing a good enough job for the people. Isn’t that situation close enough to empirical that you can at least agree on the negative effects of Chavez price ceilings and outright nationalization of industry? I’m not sure how they differ from Carters or Obamas policies except in magnitude.

michael June 24, 2010 at 9:24 pm

We agree on Venezuela. Price controls in their food distribution system have precipitated a disaster. Had I ever advocated price controls I’d be embarrassed.

Does Obama advocate price controls? Enlighten me.

Matthew Swaringen June 27, 2010 at 4:51 pm

Obama has a pay czar, that’s a price control.

michael June 24, 2010 at 3:42 pm

Scott, your criticism is well intended, and in fact it’s spot on. I do agree with all four statements you’ve made. I just disagree that I asserted number four: that I’ve endorsed price controls. If you look back to my comment, I don’t believe you will find that I have.

In most instances price controls have unintended side effects. Hence they are today deservedly out of fashion. What I endorsed in my comment above, in contrast, is a fiscal stimulus.

You will no doubt conflate the one with the other, and I can already hum along with the general tenor of your argument: that the money supply has been expanded, bla bla… But that’s neither here nor there. A well crafted stimulus program (which BTW we won’t be likely to see this time around) would include a jobs program for those of the unemployed who can perform manual labor. This would be most of the guys now out of work due to the housing crunch. They could be doing essential work that the country now needs in deferred infrastructure repair, which is something we will have to do anyway sooner or later. And at public expense. So they get to keep their homes and cars, helping to keep the markets in those basic items healthy. Because if they get foreclosed on, everyone loses. The dealers get used Chevies instead of the cash flow they desire. The housing market gets depressed house prices because there’s one more empty on the block. And the individual doesn’t retain the ability to drive to work because he lost his wheels.

I know such arguments don’t make sense to you. All you see is that doing anything smart would be a distortion! The market would somehow have been tampered with. When all the money goes out of a circulating system, the components are just supposed to lay down and die! Not look for a fresh line of credit.

So is this kind of program ‘inflationary’ in the Austrian sense of the word? No. Why not? Because once normal cash flow returns to the society, people are making enough money again to be able to pay every cent back to the Treasury in the form of taxes. Very likely within no more than two to three years, given that cash in circulation within the consumer economy enjoys a multiplier effect when it comes to creating multiple taxable moments downstream from the injection site. That is, you pay taxes on your income. And every time you get a haircut your barber pays taxes on HIS income. Then he buys something else. Etc. And every time that dollar changes hands, a bit of it goes back to its originator, Uncle Sam.

I despair, somehow, of your being able to see this basic bit of sense. Please tell me you’re not like the others! :)

Oh. I also have a problem with your #3: “When a technological advance brings about the increased consumption of some resource, the price goes up.”

Not necessarily. That posits that production does not also go up. Because when increased production keeps pace with increased consumption the supply/demand equation stays unchanged.

Also, it posits that people still have the same amount of cash in their pockets. Because normally prices change, either up or down, when business falls off. Usually down, to try to catch the lost business. So there are a number of variables confusing your simple axiom.

frank June 24, 2010 at 7:28 pm

“I just disagree that I asserted number four: that I’ve endorsed price controls.”

Except for the minimum wage laws you spent a whole thread arguing for, I can’t find the one now but you know you did. You are a joke.

michael June 24, 2010 at 9:27 pm

By those kinds of definitions, anything affecting a price amounts to a price ‘control’. o I suppose to the degree that I talk about things that affect prices, I must sound like a price controller out there in Crazy Land.

frank June 26, 2010 at 5:23 am

You say “things that affect prices” are not necessarily price controls? Well, yes – whose argument are you refuting here?

What I am saying is the obvious, that forcing people by law to deviate from the price they could naturally offer/charge at any given time (given the other prices in the market place) is a decent definition of “price control”. This is exactly what your beloved minimum wage is.

So, your endorsement of the minimum wage is in direct conflict with your statement that you haven’t endorsed price controls. What gives?

So i guess I should ask, what “kind of definitions” do you mean? I didn’t define anything and so will have to ask you. What is your definition of price control then – as distinct from “”things that affect prices”. How do we establish if something is one or the other?

michael June 26, 2010 at 9:51 am

Frank, you raise a very good question, one that exemplifies the differences between us.A minimum wage law would certainly be a price control, on the price of labor.

So let me reformulate my position. I am against any price controls that interfere with the natural workings of markets to the extreme of forcing dislocations we can’t live with. Once again I find myself arguing the wishy-washy, relativistic middle.

A good example of extremes that damaged a market would be Chavez’s recent mandating of milk prices downward. What he was hoping to do was to make milk affordable for poor people, of whom Venezuela has an abundance.

Instead there was the unintended consequence that milk producers held their milk off the market, either stockpiling it in warehouses pending the end of controls (letting it go sour in the process) or smuggling it across the border into Colombia. So Chavez had to declare these producers and hoarders enemies of the people, prosecuting them and seizing their milk. It ended up a mess: everyone was unhappy and no one either drank milk or made a fair profit.

Here’s an example of a price control that causes no harm that I can see: our current minimum wage structure. I find no serious evidence that it either raises consumer prices to uncomfortable levels or discourages hiring. All it does is raise the standard of living for a small proportion of our workforce.

Were it to actually start exhibiting unintended consequences I would urge that it be lowered. A MW of $15/hour, for instance, would have terrible consequences throughout the economy. That’s why no one proposes such a thing.

frank June 27, 2010 at 2:17 pm

Yes yes Michael, all very predictable waffle from you once more. Nevertheless, it appears the statement

“I just disagree that I asserted number four: that I’ve endorsed price controls.”

is now something with which even you disagree. It isn’t an unclear or ambiguous statement, you say quite clearly that you don’t support price controls, then construct an argument for when you do endorse them.

It is impossible to ever take anything you say seriously when you can just go back on it like this.

You might consider this: there is a reason you can’t remain coherent. it is impossible -your “arguments” do not and cannot make sense. You think practically every situation can be expressed using the nursery-rhyme level “not too hot not too cold” framework. You have no idea how markets work and yet, while changing your mind on the fly, you suppose to tell everyone else how things work. You are just a blathering idiot I’m afriad.

frank June 28, 2010 at 3:48 am

“Were it to actually start exhibiting unintended consequences I would urge that it be lowered. A MW of $15/hour, for instance, would have terrible consequences throughout the economy. That’s why no one proposes such a thing.”

How exactly do you know – eschewing theory as you do so vehemently – that an event or events is an “unintended consequence” of this policy, or is an “unintended consequence” of another policy? Or what if an event it is thought to be the “intended consequence” of a policy (thereby suggesting this policy “works”) but it is in fact an “unintended consequence” of of another policy? How can we tell the difference?

Anyone suggesting we manage complex system in the fashion you suggest – without theory and instead just like the Wizard of Oz constantly tweaking nobs and levers to keep things “not too hot and not too cold” by looking at the output – is broadcasting one very obvious fact about themselves: that they have NEVER ACTUALLY MANAGED A COMPLEX SYSTEM CORRECTLY, because if you had you would know that these actions are simply futile.

michael June 28, 2010 at 4:46 pm

Frank– Once again we go ’round and ’round because we have different definitions. Thus you argue this:

“Yes yes Michael, all very predictable waffle from you once more. Nevertheless, it appears the statement

“I just disagree that I asserted number four: that I’ve endorsed price controls.”

is now something with which even you disagree. It isn’t an unclear or ambiguous statement, you say quite clearly that you don’t support price controls, then construct an argument for when you do endorse them.”

I said what I said with the following definition of ‘price controls’ in mind: the setting of maximum or minimum prices by the government. Generally, when commodity prices are set this way the results are counterproductive. So I oppose such schemes generally.

With the pricing of labor, on the other hand? We’ve had minimum wage laws now since 1938, and they’ve worked out fine. So I have no problem with government-set limits in that specific area.

And I do find that nearly everything in life has “not-too-hot, not-too-cold” limits. We wouldn’t like living on this planet if the average temperature was less than 32 degrees F. Nor would we like it if it were 150 degrees F. Whereas it’s very comfy in the middle.

The Kid Salami June 28, 2010 at 5:17 pm

“With the pricing of labor, on the other hand? We’ve had minimum wage laws now since 1938, and they’ve worked out fine. So I have no problem with government-set limits in that specific area.”

That’s your argument? That it doesn’t work for commodities but for labour they’ve “worked out fine”. Good god. How exactly is it different? A good requires some labour and some stuff. How is it a good idea to restrict prices of the labour but not the stuff – what is the reason for this?

“And I do find that nearly everything in life has “not-too-hot, not-too-cold” limits. We wouldn’t like living on this planet if the average temperature was less than 32 degrees F. Nor would we like it if it were 150 degrees F. Whereas it’s very comfy in the middle.”

I can’t put my thoughts about this statement into words.

Scott Dysart June 26, 2010 at 5:45 pm

“If you look back to my comment, I don’t believe you will find that I have.”

You said, “It is indeed a very BAD thing, and if it’s a market-created situation, then some force outside the markets MUST intervene.” I took this to mean that you were in favor of price controls as a solution (leaving aside the minimum wage for a moment). Instead, you are in favor of inflating the money supply. Fine. I don’t think that it does much to change my argument that prices are the mechanism by which consumption and production are coordinated. Increased prices stimulate more production and discourage higher consumption. In the face of reduced supply, and in the context of wanting to see the poor (and everyone else) be as well off as possile this is EXACTLY what you want to happen. I don’t understand why you think that inflation in this situation is going to help.

“A well crafted stimulus program (which BTW we won’t be likely to see this time around) would include a jobs program for those of the unemployed who can perform manual labor.”

You mean make-work schemes, that take money from productive parts of the economy and throw them into less productive activities. And no, we won’t see “a well-crafted stimulus program”, or unicorns, or Santa Claus. They are fun to imagine, but sadly, they don’t exist.

“I know such arguments don’t make sense to you. All you see is that doing anything smart would be a distortion! ”

Left alone, markets tend to optimize. That does not mean that they are always optimal, but that they do trend towards optimal efficiency, and markets are complicated in the extreme with uncountable interconnections. Manipulating something as vitally important as the money supply will have a cascade of unforseeable effects , so “doing anything smart” is almost guaranteed to be very stupid in hindsight.

“Because once normal cash flow returns to the society, people are making enough money again to be able to pay every cent back to the Treasury in the form of taxes.”

When was the last time the government had a balanced budget? And kf you trot out Clinton, I’ll show you how the supposed “balanced budget” was really more of an accounting trick.

“Not necessarily. That posits that production does not also go up. Because when increased production keeps pace with increased consumption the supply/demand equation stays unchanged.”

Of course production goes up! And why? Because the price mechanism did it’s job, that’s why. In the short term, before new production comes online, the price will rise. Try to get one of the new 4G iPhones right now. The price is all over the place. Things will cool off soon enough as production continues and the demand for new phones starts to slow down, but for now, the real price is far above the retail price. That means that the truly desperate can get one off of E-bay for $1000, while others will jump through hoops (like my coworker, who stayed overnight at the store) or simply wait until the retail supply begins to keep up.

michael June 28, 2010 at 9:09 am

Scott, we’re just struggling with two differing sets of definitions. When you say I’m in favor of price controls, all you refer to is my understanding that the government has a hand in all areas of the market, handing out subsidies in some areas, taxing in other areas and in general tinkering everywhere in the hopes of making things better. All these, to you, are price controls. Or as some might call them, market distortions.

The issue here is, do you think things would get better if just dismantled all of it? Dropped all rules concerning monetary transactions and proceeded on the principle that the buyer should best beware? Gave up our transfers, subsidies and taxes, and just let everything find its own level? Forgot all our overseas obligations and gave up support of the dollar that every nation now holds their life’s savings in? There would be a worldwide convulsion. My feeling is that they’d all band together to try to support the dollar without us. And that this country would emerge destitute and powerless. It would be an act of suicide.

You also have me as favoring “inflating” the money supply. Which is something I support no more than I would DE-flating the money supply. You really should read me more closely.

Elsewhere I’ve taken Bala to task for using an Austrian definition of this confounded word where a standard definition is the one intended. I try to make the distinction clear by referring to PRICE inflation… or to adjustments in the money supply. The definition in use here would be, by anyone else’s standards, incorrect.

Here’s my comment to Bala:

(Bala:) “You seem incapable of realising that the link I gave was on the very concept “definition”. I was trying to tell you that there is no such thing as “your definition” and “my definition” but just “the definition” of each concept. The first step in understanding anything is defining it first.

“For instance, if one were to take the term “inflation”, it correctly refers to an increase in the money supply (including money proper, money substitutes and fiduciary media). That you choose to “define” it as “increase in the general level of prices” does not change the definition. If, however, you insist on having a discussion based on your preferred “definition”, there is no way to have a meaningful discussion. When I dismiss the conclusions you draw based on your “definition”, I do so by dismissing your “definition” as incorrect in the first place. There is such a thing as a proper “definition”, you see.”

(Me:) Just not the case. This is the kind of thing that happens when you only talk to people within the cult. Your definition excludes the standard one in use by the rest of the English-speaking world.

From Wikipedia:

“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.”

They do allow that “High rates of inflation and hyperinflation can be caused by an excessive growth of the money supply.” Note use of the word “can”.

Don’t like Wikipedia? Here’s the definition from Investopedia:

“The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.”

Try Webster’s. Funk & Wagnalls. Here it is from InvestorWords:

“The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won’t be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. opposite of deflation.”

The definition is always the same. Except in this little universe.

Matthew Swaringen June 23, 2010 at 6:51 pm

Michael, I’m beginning to think “using their heads” is code for “thinking like you do.”

Given this, I’m not sure where to start on the energy policy of Carter myself. You apparently don’t agree with the article that price ceilings necessarily cause shortages, so the fact Carters plan imposed one might have been ok. Apparently the effects of price ceilings are one of these “unquantifiable and unknowable bad effects.”

http://www.downsizinggovernment.org/energy/timeline has a good timeline relating to government policies on energy.

Several things here seem problematic to me under Carter’s years.
“1977: The Surface Mining Control and Reclamation Act regulates surface coal mines and imposes new fees on the coal industry.”
These fees were almost certainly passed on to customers, so they certainly didn’t lower prices.

“1977: As a consequence of price controls, many parts of the country experience severe natural gas shortages, and thousands of industrial plants and schools are closed.”
Or, in Carters words, “Four thousand plants are now closed. Four hundred thousand people have been laid off because of natural gas shortages.”

The ceilings were prior to Carter in some cases, but he didn’t advocate repeal. On the contrary, he used fees to tax those industries and subsidized industries that are largely unproductive (renewable energy).

If you want to argue that renewable energy has been an effective route for us, I guess you can argue that but it’s hardly visible in the numbers it produces vs. gas or coal (or.. lol, is far too visible since it requires huge land area to get the same amount of power).

Carter also added other taxes on gasoline/etc. which weren’t beneficial to prices either.

“It is indeed a very BAD thing, and if it’s a market-created situation, then some force outside the markets MUST intervene. Because the condition is unacceptable.”
Scarcity is the problem here. If an “essential supply” is less available then we all will have to get less product, service, etc. in the long run. Markets wouldn’t do this “on purpose” without government intervention (in this case various problems abroad) because there is no benefit to it. The idea you must intervene to make the market do what it already innately is trying to do (expand service, production, etc.) is weird to me.

“But here on earth, the economy exists solely to serve its patrons, the public.”
“The economy” is not any sort of entity. It’s made up of individual actors, who are both providers and patrons who are attempting to gain ends with their chosen means. Except for environmentalists and some governments, there isn’t really a desire anywhere to slow down production to make things more scarce because it doesn’t benefit the producer or the consumer to get less.

michael June 24, 2010 at 3:52 pm

You make some good points. In fact I believe that Carter took actions that made coal, gas and oil more costly, in part at least, to discourage our runaway rate of energy consumption. That’s a step I neither endorse nor detest. That’s what he did and I know why he did it. It’s the classic move of someone who wants to do the right thing even if he ends up unpopular and a one-term president.

Here’s a really good page on the thinking that went into his doing it the way he did:

http://americanhistory.si.edu/powering/past/h4main.htm

The idea was NOT to be “beneficial to prices”. The idea was to force people to conserve on their reckless usage of limited resources.

Matthew Swaringen June 27, 2010 at 4:57 pm

You don’t need to force people to conserve, they will do it naturally as prices increase. As the resource becomes more limited it will become more expensive. Alternatives will be developed naturally due to the lower cost nature of them. You will not need to provide subsidies to wind farms if they are truly more efficient from a cost-benefit perspective in the long run.

Nor will you have to provide subsidies to create new alternative fuels. People in government always imagine that they help these situations with paying for science and they don’t, instead they give grants to people who are less productive. These people give the government feedback that it must keep granting them money and limit industry by imposing caps, taxes, etc. They don’t actually end up producing any new energy sources like they were paid to do either.

michael June 28, 2010 at 4:55 pm

“You don’t need to force people to conserve, they will do it naturally as prices increase. As the resource becomes more limited it will become more expensive. Alternatives will be developed naturally due to the lower cost nature of them.”

Would you then recommend that we just wait until gasoline becomes unaffordable, and then begin looking for something to replace it?

“You will not need to provide subsidies to wind farms if they are truly more efficient from a cost-benefit perspective in the long run.”

If we were to remove all subsidies to oil and gas, make them pay royalties for the public assets they claim as their own and pay for their own cleanup costs, solar and wind would be competitive energy sources without any special subsidies. But since that’s not going to be happening any time soon, wind would require a small subsidy to level the playing field.

Tidal’s another good source, but very capital intensive, like nuclear. Only a government would probably have the resources to embark on a tidal scheme. They would very likely start their pilot project off the New England shore, with its concentration of population and extreme tidal differences. But if a consortium of capitalists could come up with fifty or a hundred billion in venture capital, they could probably do it without government participation.

Peter Surda June 29, 2010 at 4:15 am

Would you then recommend that we just wait until gasoline becomes unaffordable, and then begin looking for something to replace it?

I stopped replying to you because I doubt you are taking the discussion seriously. This is just another example. You pretend that there are less options then there really are and present a false dilemma. I don’t know whether you just want to screw with people or lack the patience or imagination to carefully construct an argument, but it’s irrelevant because you don’t seem to learn.

Here you are implying that without intervention, every company in the oil industry will persistently ignore planning based on the economic calculation and opportunity cost until it is too late, thus leading to their own bankruptcy, while at the same time, the government will act in a long-sighted manner and forsee the development of new technologies, consumption requirements and oil reserves more accurately without resorting to economic calculation. This is a very bold claim to make. Did you come to this conclusion yourself or is there a source of this?

Scott Dysart June 23, 2010 at 5:44 pm

Why is the statist making the only cogent (though misguided) arguments while everyone else hurls insults?

I chalk it down to frustration. Michael has been popping into nearly every thread here, but for all his arguments, he does not seem to learn anything.

Walt D. June 23, 2010 at 6:49 pm

What are talking about here is the “fallacy of equivocation”. The term “fascist” is usually used as an insult. However, if we take the insult out of the picture, saying that Jimmy Carter had a fascist energy policy is no different than saying that Mussolini had a fascist industrial policy. Fascism is what fascists do – use the power of government, under the threat of force, to coerce private industry to do their bidding.

michael June 24, 2010 at 3:55 pm

“..saying that Jimmy Carter had a fascist energy policy is no different than saying that Mussolini had a fascist industrial policy. Fascism is what fascists do – use the power of government, under the threat of force, to coerce private industry to do their bidding.”

Hi Walt. Amen to that. So if a pharmaceutical manufacturer wants to make a new drug and it turns out to be the next thalidomide, and the government wanted to prohibit that company from making and selling the product they wanted to sell, it would be fascist of them to try to restrict them (coerce private industry to do their bidding).

I think I understand the spirit of your definition.

Walt D. June 24, 2010 at 10:59 pm

Hi Michael. What you appear to be saying is:
1) Absent the FDA and clinical trials the pharmaceutical companies would produce an market dangerous and untested products.
2)Only a government entity, in this case the FDA, with dictatorial authority can force pharmaceutical companies to produce safe products.
3) All pharmaceutical products licensed by the FDA are safe.
4) Private businesses are motivated only by profit and are evil.
5) Fascists are only motivated by altruism and are benevolent.
6) People who work for government are more competent than their counterparts in private business and “know best”.
7) The average adult citizen has the mentality of a child, is incapable of making good choices, and needs an omniscient bureaucrat to made decisions on their behalf.
I could knock down my admittedly straw man points, but enough ranting for today.

michael June 25, 2010 at 2:05 pm

Yes, Walt, that’s just what I’m saying. That the very reason the FDA was founded was that prior to the Food and Drug Act, the marketplace was filled with quack nostrums that at their very best, did nothing bad to you. And that unwholesome meat was produced and sold without restriction, if you will recall. Back when our society was only molded by ambitious people who wanted to make money, we had serious problems. Very serious ones. So the government expanded its mission to include the welfare of the public. As mandated by the Preamble to our Constitution.

Before the regulation of food and drugs, we were prey to shysters and slick operators. And afterward, the worst you can say is that in time the FDA’s purity of purpose became corrupted by those same shysters and slick operators, who now had lobbying arms.

Walt D. June 26, 2010 at 11:20 am

The problem is that nearly all government regulatory agencies do a half-assed job.The FDA and Fosamax, the SEC and Bernie Madoff, MMR and Deepwater Horizon (BP). All of the agencies dropped the ball and gave people a false sense of security. I think a JD Powers and Associates approach would produce better results.

michael June 26, 2010 at 1:15 pm

Walt– Amen to that. Most regulatory agencies have been co-opted by the industries they regulate. They call the practise ‘regulatory capture’.

However I think your faith in private industry is also a bit misplaced. Who was it who facilitated the fraudulent sale of those tens of billions of dollars of tainted mortgage-backed securities? Wasn’t it the ratings agencies, that pronounced all those packages full of liar loans to be “AAA” rated?

You have to have cops watching the public so everyone doesn’t just decide to be robbers. And you have to have Internal Security personnel so the cops don’t go on the take. It would also probably be a good idea to have someone watching Internal Security.

mr taco June 27, 2010 at 1:41 am

“However I think your faith in private industry is also a bit misplaced. Who was it who facilitated the fraudulent sale of those tens of billions of dollars of tainted mortgage-backed securities? Wasn’t it the ratings agencies, that pronounced all those packages full of liar loans to be “AAA” rated?”

oohh that darn boogeyman free market lol

Matthew Swaringen June 27, 2010 at 5:08 pm

I will not trust Moody’s ratings in and of themselves and I would definitely not pay to listen to them either (and don’t have to). You give their AAA rating as an example of the failure of the free market and I won’t disagree with that. That’s because people fail (government or otherwise). The difference is that in the case of the market when they fail I can choose to go with other providers (unless the government grants monopoly privilege).

When it’s the government, and it fails it always claims it failed because it needs more money to do it right. That’s always the answer it gives, and it becomes ever more wasteful and fails over and over again. I never have the ability to replace it when it fails.

fakename June 24, 2010 at 8:33 pm

the essence of fascism is the coercion of some sort of thing by a government.That is I think, the working libertarian definition. I suppose then that it is one of the purposes of libertarians to prove that all fascism is bad regardless of the (attempt) at regulating the pernicious products of private industry.

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