Earlier this month, the California Legislature and Governor Arnold Schwarzenegger decided to put up the economic future of their state’s citizens as proof of what can perhaps best be called their personal “good global citizenship.” In a move reminiscent of television’s popular “World Poker Tour,” in which a player announces that he is “all in,” their new law mandates that by the year 2020, California will emit 25 percent less carbon dioxide than it now does. The bet is that somehow, merely by virtue of the bet’s having been made, new technologies will be developed that will make it possible to comply with the law without any great increase in cost or major economic loss.
In fact, the law’s authors are so confident of their good luck that they took pains to prevent their law from being largely circumvented by the simple device of building conventional power plants outside the state which would then transmit their power to customers within the state. The law makes it illegal for any new power to be sold within the state that, in the words of Michael R. Peevey, the president of the state’s Public Utilities Commission, is not comparable to that produced from “the newest combined-cycle gas turbine.” It will be interesting to see if California again has brownouts and blackouts like it did a few years ago, but this time will refuse to allow power produced outside the state to enter, and how much such power will then even be available in the absence of California as a normal market for it.
In a poker game, when an intelligent player makes a bet, he generally takes into account not only the odds of winning the hand, but also the size of the pot that he will collect if he does win. In this case, the pot is absurdly small. California accounts for about 2.5 percent of the world’s man-made carbon-dioxide emissions. Thus, if the new law achieves its objective, then, other things being equal, global man-made carbon dioxide emissions will be reduced by slightly more than six-tenths of one percent. This is an amount which would scarcely be noticeable in any case and will be utterly lost alongside the vastly greater increases in emissions that are almost certain to take place in China, India, and elsewhere.
But never mind. California’s officials apparently believe that they have a proverbial “ace up their sleeve.” That ace, according to The New York Times, is the hope that its action will inspire other states to follow suit. If that were to happen and the whole United States, which accounts for roughly 25 percent of global man-made carbon dioxide emissions, mandated the same percentage reduction as California, the reduction would amount to a about six and a quarter percent of global man-made carbon dioxide emissions. This is an amount more significant but still one that will be far more than offset by increases in emissions from the rest of the world. And, of course, it would require betting the whole American economy.
Continuing with the analogy to poker, it is not possible in this case to compute any actual odds, because the development or lack of development of new technology is simply not the same thing as a given card turning up or not turning up. It’s a matter of the intelligence and motivation of scientists, inventors, and businessmen operating in the context of the facts of reality. That the officials of the state of California want an invention or, indeed, a whole series of inventions, to be made does not add anything worthwhile into this mix. The market is already fully motivated to make and implement cost-saving inventions and has done so with spectacular success since the beginning of the Industrial Revolution. It has done so because such inventions add to profits—until competition passes the lower costs on to consumers. All that the government can do is subsidize the making and implementing of inventions that the market would not make, namely the kind that increase costs rather than decrease them. Already, California’s electricity rates are 40 percent above the national average because of its government’s intervention. And because the effect of the new legislation is likely to be to rule out all sources of power but natural gas, California’s electricity rates are likely to go much further above the national average.
Imagine a publicly traded private corporation treating its stockholders’ capital with such reckless disregard of facts and rational calculation. Imagine that it invested its stockholders’ capital based on the hope that technologies not yet in existence would somehow come into existence to make the investment worthwhile. Imagine further that if those technologies somehow did come into existence, the return would still be virtually nil. Wouldn’t the officers and directors of that corporation be bombarded with lawsuits by stockholders? Wouldn’t they be summarily dismissed for their behavior as soon as the case came before any reasonable judge?
That’s what should happen to most of the officials of the state of California. Unfortunately, it’s not likely to. That’s because the role of judge is exercised by an electorate that is largely the product of the state’s system of public education. As a result, it apparently has no more capacity to judge that it is being led to the slaughter than does a herd of sheep.
This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.
{ 20 comments }
see http://www.coyoteblog.com/coyote_blog/2006/09/i_do_not_think_.html
“…Well, here are the eight states in the data set above that the California CEC shows as having the lowest per capita electricity use: CA, RI, NY, HI, NH, AK, VT, MA. All right, now here are the eight states from the same data set that have the highest electricity prices: CA, RI, NY, HI, NH, AK, VT, MA. Woah! It’s the exact same eight states! The 8 states with the highest prices are the eight states with the lowest per capita consumption….”
Regards, Don
There’s a minor problem with one of the foundational premises of this article: the Technologies to reduce CO2, and many other “pollutants”, already exist. They exist, and can be applied, on an econimically and financially profitable basis.
The application of these technologies would wipe out a large part of, what we know today as, the Industrial-Gas Cartel(IGC). That Oligopoly, the IGC, is the largest impediment to the successful introduction of these “pollution”-reducing, efficiency-enhancing technologies. The irony is that the IGC, itself, is hugely inefficient, on the whole of their activities, and are, also, major polluters.
while no direct profits can be counted from a reversal of the global warming trend, it cannot be considered of no value.
is profit above all things? it was more profitable for the fishing industry to deploy technology to catch more and more fish, until they subsequently decimated one species after another and thus, decimated themselves. it was more profitable to use hydrolic mining techniques to process whole hillsides in search of precious metals…until they chewed up and spit out most of the visible landscape and silted the rivers in a sad scene that still is unwinding itself 100 years later (and spawned the environmental movement itself)
successful adaptation to the environment is key to survival of a species. this requires intelligence and courage. this author instead recommends cashing out now. generations to come are mere suckers.
and when he furthers says that there is no reason to do the intelligent thing bc someone else probably wont do the same is even more craven and shortsighted. his next article will no doubt suggest we reverse the trade deficit with these nations by eliminating all worker benefits and environmental measures. as there will be more profit, (for the non-producers, that is).
Technologies like ethanol? Calling things such as ethanol “technology” unjustly smears its good name.
bstender,
Wow. Your whole post was socialist drivel.
Seriously, you don’t seem to have the capacity to reason with logic. I suggest you go back to the more “emotion-orientated” groups like the Sierra Club.
bstender,
The two cases of enviornmental damage you cited, overfishing and strip mining, are a direct cause of the lack of property rights.
Have you ever hear of the “Tragedy of the Commons”??
Nobody owns large bodies of water, so every fisherman extracts as much value in the present instead of fishing AS MUCH AS POSSIBLE WITHOUT HURTING THE CAPITAL VALUE OF HIS STOCK.
Strip mining was performed on public lands with licences from the government. The same goes for the timber industry; in public forests, lumber companies cut down trees as fast as possible before their contract runs out. On a private forest, the number of trees cut down is limited by the owner’s desire to preserve his capital value.
Hans Hermann-Hoppe, in his bok “Democracy: The God That Failed”, extended this argument to government itself. He claims that in a democracy, those who currently have a temporary licence to operate it (i.e. elected officials), extract as much as possible in the here and now (before they leave office). That is contrasted with privately-owned government (a monarchy is the primary example). In a pivately-owned government, the monarch only extracts as much as they can without doing long-term damage to the economy and society; in other words, the monarch limits extraction now so that he can do it in the future.
This applies to everyday life as well. A retiree, for example, would not consume all of his retirement in the present because he wants some of it later. The more he leaves in there, it grows more, and he will have more in the long-term.
Rather the emotional response my dear Brent. the only logical thing to say to it is; think before you hit the send button, is this comment going to add anything intelligent and civil to the discussion?
Hmmmmmm, my understanding is that the newer plants are cheaper anyhow. I wouldn’t be supprised if they were the type already on the drawing borad. Perhaps Arnold knew this, and is just grandstanding. On the other hand, this is California and nothing from the government, no matter how stupid, would supprise me. Between that, housing, the political scandals, and the public schools – I really need an exit strategy from this state.
George Reisman/All,
I posted similar findings on CoyoteBlog.
I crunched the numbers, and California is near the bottom of the list of energy spending per capita. Even if you isolate California’s energy-light services and agricultural industries and only look at residential spending per capita, they are even lower.
California ranks 41st in energy spending per capita and 48th in residential energy spending per capita.
I couldn’t believe my eyes!
My theory is that the state’s price caps have set rates below market-clearing prices and there are shortages as a result.
As a percentage of per capita income, California is also 42nd. Colorado is the best, spending only 1.76% of per capita income on energy needs, while Louisiana is the worse, spending 4.7%. Transortation needs aren’t figured in for all states, but they are for CA. Ranking the states, from worst to first, by % of income spent on energy as a % of per capita income, we get the following:
Louisiana, Mississippi, South Carolina, Alabama, Hawaii, Wyoming, Texas, Arkansas, North Carolina, Kentucky, Oklahoma, Tennessee, West Virginia, North Dakota, Florida, Maine, Montana, Nevada, Vermont, Delaware, Georgia, Idaho, Ohio, Indiana, Iowa, Arizona, Pennsylvania, Kansas, New Mexico, Nebraska, Alaska, Missouri, Oregon, Wisconsin, New Hampshire, South Dakota, New York, Michigan, Virginia, Rhode Island, Massachusetts, California, Washington, Illinois, Maryland, Minnesota, Connecticut, New Jersey, Utah, and Colorado.
Thoughts? Theories? I find it ironic that an energy production-centric state like Louisiana has their residences spending the biggest chunk of thier income on energy needs.
“Tragedy of the Commons”
On a private forest, the number of trees cut down is limited by the owner’s desire to preserve his capital value.
can be true in the case of the vast private holdings of Pacific Lumber, sustainable logged for over a 100 years in Northern Ca., but the opposite was true of the same forests after the takeover by Charles Hurwitz /”Maxxam Corp” who began to liquidate the trees, including the last standing groves of ancient redwoods to bail hmself out of debt.
maybe this was bc he didnt actually ‘own’ the land in the classic sense of an owner who lives there and cares about his home. Hurwitz didn’t actually ‘own’ the forest, his lenders owned the forest and they cared even less for how he came up with his payments. the point is that private ownership is no guarantee of responsible management.
as you say, the ocean can’t be parceled out very easily, and neither can the air, so the only answer has to be a regulated commons. and what constitutes a commons has to be as broad as possible when irreplaceable resources are on the block to assure harvesting is sustainable and does not negatively impact adjacent ecosystems and habitats that others may depend upon.
bstender,
I am not an expert on Maxxam Corp/Pacific Lumber, but this is what I do know. Maxxam had to get government PERMISSION to cut down trees on its own land! Under such cirumstances, one would cut down as many trees as possible before the gov’t changed their minds. It just proves my point more.
You bring up an excellent point when talking about applying property rights to “the commons”. The Atmosphere, of course, cannot be privately-owned, but the ground-level air around your property can. Murray Rothbard wrote that the only way to solve air pollution issues is through tort.
If the government were completely out of the air pollution business, private industry would step in to fill the gap. I have written before that I thought “pullution insurance” would be a good idea. With pollution insurance, a property owner buys insurance against toxins a, b, and c reaching levels above levels, x, y, and z. If toxins exceeded a certain level that a policy owner was insured against, the insurance comapnies can either reimburse the property owner, pay the plluter not to pollute, buy “scrubbing” technologies for smokestacks to protect their policy-holders, or resorty to tort against the polluter. Polluters would probably also acquire pollution insurance that would allow them to pollute. If the polluter is releasing toxins above certain levels, the insurer will raise rates. IF the pulluter does not comply or loses his policy, he no longer has tort protection from his insurance company. Pollution under this setup would be entirely internalized (ie. the negative externalities would be internalized) and would significantly decrease. Higher insurance rates in polluted areas would be reflected in a lower cost of property. What’s even better is that each individual can choose his own tolerance level for pollution. If there’s a property owner who doesn’t really care about pollution (or its effects), he can choose to buy a weak policy or none at all. If an enviormentalist believes even the smallest levels of pollution are unacceptable, he is perfectly within his rights to buy a policy that protects him against even microscopic levels of pollution.
People assume that regulation is only public. On the contrary, public regualtion has merely crowded out private forms of regulation.
Waterway commons, however, are another matter. There is absolutely nothing stopping rivers, lakes, streams, seas, etc. from being privately-owned tomorrow. If the Mississippi River were privately-owned, for example, it would be managed and cleaned up in such a way to mazimize use to shipping, industry, fshng, drinking water, and recreation.
Oceans are a trickier issue, but can be privately-owned. Many believe that property rights can be assigned to swaths of ocean, delineated by gps-based borders. There is a movement for the goverment to allow ocean aquaculture, or the farming of plant life and livestock in the water. It is already a multi-billion dollar industry in freshwater ponds (hatcheries, etc.), but is not very widespread. As far as aquaculture goes, we still take a hunter-gatherer approach to the waters. Can you imagine if we were still hunter-gatherers on land? IF we had as many people as we do today and we were still hunter-gatherers, there would be nithing left!
The anti-aquaculture argument from enviornmentalists is the same as arguing against plowing an open field so that crops can be grown.
In summation:
1. atmospheric property rights cannot be applied higher than a few hundred feet above ground level. However, tort can be applied if your “breathing air”, which is the air close to the ground, it damaged by somebody else.
Waterways can and should be privatized. the present approach to harnessing sea life for use is no mre avanced than the hunter-gatherer approach on land.
Ignoring environmental issues for a moment, this webpage shows the amount of power California (most of it anyway) uses and how much it imports.
http://currentenergy.lbl.gov/ca/
This shows power procurement on day ahead market.
http://www.caiso.com/marketops/OASIS/pubmkt2.html
The point being (if I’m reading the graphs correctly) is that out of state power plants provide between 18-25% of the electricity load. I am sure that power plants outside are cheaper to run, but I wonder what would happen should California (the gov) shut off signicant imports. I am betting the prices would skyrocket on the power market = ENRON type situation. This needs more investigating, but this idea is really retarded. Haven’t these people learned anything from the last blackouts?
PS If I were an intelligent investor maybe it would be worthwhile to short the utilities who buy power from generators and sell to customers (consumer rates are capped/regulated). And maybe buy compliant power generator operators (merchant kind). This of course needs more rsch than 5 minutes on Google.
Maxxam had to get government PERMISSION to cut down trees on its own land! Under such cirumstances, one would cut down as many trees as possible before the gov’t changed their minds. It just proves my point more.
not exactly. Hurwitz proceeded to cut as many trees as possible under his god-given private property rights 3 years before the govt stepped in. It was only after the scope of the clear-cutting was discovered that a determined resistance of citizens blocked his operations until the state interceded. He eventually cut a sweet deal with Diane Feinstein to resume logging…breaking the terms at every opportunity. I see no correlation btwn the State and his effort to cut the trees.
your plan relies upon some magical state of ownership wherein the owner makes rational and responsible decisions by virtue of ownership. how do you account for criminal, insane and or stupid owners? surely there are a representative proportion of those types within the owner class. no?
as for privatized regulation, no doubt effective but no doubt just as problematic and corrupt as the current system if not more so considering profit is the driving force. did not the current system evolve out of the former? is not profit also at the root of corruption in the current system?
“The law makes it illegal for any new power to be sold within the state that, in the words of Michael R. Peevey, the president of the state’s Public Utilities Commission, is not comparable to that produced from “the newest combined-cycle gas turbine.”"
California would thus appear to be trying to encourage the proliferation of nuclear power, outside of the state of California only.
A neat trick. Too bad it can’t work.
bstender,
In response to your last post, I don’t know where to begin.
I guess I’ll begin with Maxxam. First off, there was an ongoing Endangered Species Act survey being conducted on PL’s land when it was cut down; the survey was at Owl’s Creek. If he had waited for the survey to be complete, he would have had the option of (1) not being able to cut down any trees in that area, or (2) cuttign them down and being in violation of the Endangered Species Act. Don’t get me wrong. Hurwitz is not a stand-up guy: He had a direct hand in the S&L scandal, he took over $50 million dollars from his company’s pension and never paid it back. Not an upstanding individual, but he was forced into his situation by the regulatory no-man’s land when the survey was underway. In addition, the longer he waited to cut them down, he ran greater and greater risk of politicians in Sacramento outright prohibiting him from conducting any logging on his land. So, yes, the regs did help cause the clear-cutting.
You stated:
“your plan relies upon some magical state of ownership wherein the owner makes rational and responsible decisions by virtue of ownership. how do you account for criminal, insane and or stupid owners? surely there are a representative proportion of those types within the owner class. no?”
Well, your plan relies on some magical type of GOVERNMENT INTERVENTION wherein the owner makes rational and responsible decisions. Your plan also assumes that there are no stupid politicians (!) and none of them commit criminal activity. Your plan can avoid the last clause (criminal activity) because they can change the laws to make what they’re doing LEGAL!
“as for privatized regulation, no doubt effective but no doubt just as problematic and corrupt as the current system if not more so considering profit is the driving force. did not the current system evolve out of the former? is not profit also at the root of corruption in the current system?”
bstender, the current system is completely arbitrary. Since most enviornmental regulations are conducted without voter oversight (i.e. bureaucrats make them up, kind of like they do at the IRS), very few people get what they want. Under my system, everybody gets what they pay for. Yes, the current system did evolve out of the former, but that was because lawmakers were locked out of the process. So, the gov’t granted themselves arbitrary powers to oversee things. Profit is not at the root of corruption(!) Politicians are selling goods and services that do not belong to them. Your argument is like stating that crime is driven by the profit motive, the thief’s “profit motive”.
your plan relies upon some magical state of ownership wherein the owner makes rational and responsible decisions by virtue of ownership.
This is called a perfunctory contradiction – since you must own something, you are arguing that it would require magic to make you rational when it comes to what you own. For example, if you are using your own computer, then only by the actions of magical powers could you use it in a rational way – like replying on this blog. Please state if this is your contention.
how do you account for criminal, insane and or stupid owners?
I would like to think that if I was being stupid when it comes to the use of what I possess, I would still be free to commit those mistakes. Perfection is impossible – who is to say if a decision you or I take is stupid or insane? You are making a value judgment that by its own definition is subjective.
as for privatized regulation, no doubt effective but no doubt just as problematic and corrupt as the current system if not more so considering profit is the driving force. [D]id not the current system evolve out of the former?
Please explain why would “profit” ipso facto make an action corrupt. Did you not profit from the house you bought (keeping the rain out of your hair)? Did you not profit from the car you purchased, or from your clothes?
is not profit also at the root of corruption in the current system?
No, it is the abuse of power that makes it corrupt.
Nick,
I’ll hit on the Maxxam example and then let it rest as it is only one example, hardly a fair sampling either way. but my understanding is that the Endangered Species review was triggered in response to the new aggressive wood harvesting regime brought in by Hurwitz not the converse.
but i think we agree on the need for regulation of various inevitable common spaces, the question is whether to support a state monopoly of the serrvice or a private marketplace. i am actualy agnostic on the subject, whatever works. it seems to me likely that as much injustice will be served in a private system as there is now. i see pretty much a private marketplace currrently thriving in the state system we have, being that persons with power and influence get the justice they pay for. and is there not an advantage to having at least the semblence or the intent of a democratic process to legitimize the application of force?
you write: under my system, everybody gets what they pay for. Yes, the current system did evolve out of the former, but that was because lawmakers were locked out of the process. So, the gov’t granted themselves arbitrary powers to oversee things
something is not parsing in this sentence for me, could you restate?
Profit is not at the root of corruption(!) Politicians are selling goods and services that do not belong to them. Your argument is like stating that crime is driven by the profit motive, the thief’s “profit motive”.
I meant that the quest for lucre can skew one’s decisions toward expediency and and can even twist someone’s morality to commit unacceptable acts to obtain it. i doubt this is controversial. it is not the only motivator for crime obviously, but when the earnings must be produced, and coming up with the money can become critical at times, sometimes other things must be sacrificed. that is a time when it may be good to keep the guns in the hands of uninterested third parties.
>> your plan relies upon some magical state of ownership
>> wherein the owner makes rational and responsible
>> decisions by virtue of ownership.
This is called a perfunctory contradiction – since you must own something, you are arguing that it would require magic to make you rational when it comes to what you own. For example, if you are using your own computer, then only by the actions of magical powers could you use it in a rational way – like replying on this blog. Please state if this is your contention.
no, i am saying that ownership does not guarantee rational, (or responsible) actions by the owner. the arguement suggested that ownership would inpire the owner to act in a way that would maximize the health of the piece of property (in order to maximize its benefits to the owner), but i suggest that this notion while making perfect sense to a rational person, is not the source of rational or responsible behaviour.
would like to think that if I was being stupid when it comes to the use of what I possess, I would still be free to commit those mistakes. Perfection is impossible – who is to say if a decision you or I take is stupid or insane? You are making a value judgment that by its own definition is subjective.
I am making no specific judgements, especially none that impact only one’s own property. and i do not need to explore specious examples to make my point, things like air and water pollution, habitat destruction, your neighbor deciding to raise hogs, all can gain a ready consensus for their unacceptability.
>>is not profit also at the root of corruption in
>> the current system?
No, it is the abuse of power that makes it corrupt.
i agree with this, but cash is equivalent to power . and yes, profit doesnt kill people, people kill people… but taking away the profit motive would force those people into other endeavors…no foxes guarding the henhouse !
bstender,
What you fail to realize is that overall profit is maximized by preservng the long-term capital value of your assets. Politicians do not permanently OWN the assets, so they maximise short-term gain before their their time ends.
A private owner, however, would do no such thing unless another force limited his future ability to re-sell his asset or extract future profit from it; a great example would be enviornmental degradation because a company is only leasing public land, can only extract value from his own land for a limited period of time due to regulation, or fears future regulation will prevent him from selling his land or extracting profit from it.
What you fail to realize is that overall profit is maximized by preservng the long-term capital value of your assets. Politicians do not permanently OWN the assets, so they maximise short-term gain before their their time ends.
i believe i follow you correctly, but you dont seem to realize that rational behaviour is not guaranteed by this fact. i ask again, how do you handle the irrational or the criminal owners, or the owners that are acting under external financial pressures. It could be that Hurwitz, for instance, made his hostile takeover with the simple intent of harvesting all of the wood and turning a profit on that, much like someone else may buy a field of wheat. the value of the land at its new reduced rate is sold off as part of the project, that is, no long-term maximization of the property was contemplated. he may have in fact been working fast to grab it before anyone found out and stopped him, but private property rights in place aren’t sufficient in themselves to guarantee long term rational stewardship of the “asset”. Insurance against this is not sufficient, (private resistance was the only effective deterent though it turns out.)
Comments on this entry are closed.