Monday, May 31, 2010

John Galt is secretly on the dole















One of the enduring fantasies of the "libertarian" ideology is that there is a bright line between private-sector economic activity and the government - that "private" businesspeople work, produce, create stuff for their daily bread, while government workers get theirs by looting it from the private sector. This idea was on display when Rand Paul called Obama's criticism of BP "un-American".

There's just one small problem with this idea: it's utter bullshit. There is almost no company in our economy that succeeds without some sort of government assistance, and very rarely is that assistance limited to the kind of stuff that "libertarians" tolerate (protection of property rights). The government auctions off land to oil companies and mining companies. It auctions off electromagnetic frequencies to broadcasters. It dishes out massive R&D subsidies to tech firms, hires construction firms for infrastructure projects, supports U.S. manufacturing through defense contracts, boosts land prices through zoning laws, protects finance companies with favorable regulation and implicit guarantees of support, protects uncounted businesses from competition via licensing, and gives local monopolies to power companies. And this is by no means an exhaustive list.

Take the case of BP. Ryan Avent:
[I]f there is a greater potential risk at out-of-the-way fields, with greater potential social costs, then [the economically efficient policy is that] that cost should be reflected in the price of oil, ideally by a consumption tax, the proceeds of which could be used in part to finance a clean-up fund.

But the interesting point there is that such a tax would change the economics of drilling risky fields. Say ultra-deepwater wells become profitable with oil at $70 per barrel. An appropriate tax on environmental risk, however, might increase the sale price of the oil to the equivalent of $90 per barrel. But that price increase would reduce the amount of oil demanded, and that reduction in demand would mean that some subset of risky wells would become uneconomical. What we're seeing, in other words, is that some current drilling is only profitable because of the implicit subsidy to industry associated with the fact that oil companies don't have to face the full social, environmental, and economic costs of their accidents.

The fact is, the brilliant gung-ho individualist entrepreneurs that are the hero of Ayn Rand novels are, in practice, critically dependent on that looting, mooching government for their daily bread*. This does not mean that they are not brilliant, gung-ho, or individualist, or that there is nothing about them to admire. But it does mean that the government is an important stakeholder in those "private" businesses. When private businesses accept government largess and then turn around and do things that hurt the people to whom the government itself is beholden - the voters - then it is perfectly just, and even efficient, for the government to punish those private businesses.

This is something that smart libertarians have yet to admit, and Republican voters in general have yet to comprehend.

18 comments:

  1. This comment has been removed by the author.

    ReplyDelete
  2. "There is almost no company in our economy that succeeds without some sort of government assistance, and very rarely is that assistance limited to the kind of stuff that "libertarians" tolerate (protection of property rights)."

    I have to disagree with you on this one. Besides the fact that the first two examples of government assistance are actually the kind of property rights that libertarians tolerate (land and frequency), there are a plethora of pinatas, I mean companies, out there that operate with very little government assistance. Quite a few of them actually operate inversely, in a way that in fact pits then against the government (for example, intense regulatory hurdles for drug development). Of course you could retreat to the argument that American, Inc., could not function at all without the indirect benefits of government, like security, export-treaties, etc. While this fallback argument is partially valid, it is also just as about extreme as those wild-eyed young Randians.

    More to the point, I want to take issue with Ryan Avent's analysis. While I agree with him wholeheartedly on the underlying principal that price needs to reflect risk, his arbitrary "estimated" $20/barrel risk increase is like shooting fish in an, um, barrel. I would imagine that the actual number needed to compensate for potential cleanup is in fact much, much lower. I would invite you to do the math, not because I'm incapable of multiplying the number of barrels extracted from deepwater wells by the number needed to reach the estimated cost of cleanup, but because I'm already late for school and still wearing my underwear.

    My point is that Avent's conclusion that the risk premium would make deep-sea drilling uneconomical is likely an example of hack-job economics without any substance to it, and his (volatile?) hot air puts your own argument at risk of exploding, sinking, or both.

    ReplyDelete
  3. Nice Three Amigos reference.

    I disagree with this: "Quite a few of them actually operate inversely, in a way that in fact pits them against the government (for example, intense regulatory hurdles for drug development)"

    That's a popular example, but not a very good one if you look closely at it. The government heavily subsidizes basic (read: non-profitable) research that pharmaceutical companies build on to develop new drugs (not to mention that the training of scientists in universities is largely done at the public's expense). The government enforces patent protections (not always perfectly, I grant you) to ensure that new drugs are profitable enough to be worth the expense of developing in the face of all that regulation. And let's not forget that rigorous pharmaceutical regulation and testing is not something useless or vestigial that society can do without- look up thalidomide, Thorotrast, fenfluramine (Fen-Phen), TGN1412, and countless others.

    ReplyDelete
  4. I know I would get in trouble with the pharmaceutical company example.

    ReplyDelete
  5. Re: property rights for land and frequency...

    Where did the govt. get the land in the first place? Where did it get the frequencies? That's right...it seized them by force.

    ReplyDelete
  6. So we should, er... seize them back?

    ReplyDelete
  7. How does one seize the electromagnetic spectrum?

    ReplyDelete
  8. No, my point was that companies who receive property rights to land and frequency spectrum do so by getting preferential treatment from the government, not by creating the land and spectrum. Unless you assume that the government's method of auctioning land and spectrum is truly efficient, so that the companies might as well have created the land and spectrum in the first place (and if you think the government can be perfectly efficient, what are you doing being a libertarian in the first place?).

    As for how the government seizes frequency spectrum, it does that by A) having a bunch of guns, and B) threatening to use them on anyone who broadcasts at a certain frequency without government permission.

    ReplyDelete
  9. Really I think they just fine you.

    ReplyDelete
  10. Not arguing, but it's also for the benefit of the spectrum users. The FCC designates certain frequency ranges for certain things, otherwise it'd be chaos out there.

    ReplyDelete
  11. "The FCC designates certain frequency ranges for certain things, otherwise it'd be chaos out there."

    Probably moreso because it gets a shit load of money by selling spectrum off. ;-)

    ReplyDelete
  12. Mmmm, chaos... (said in Homer Simpson voice)

    ReplyDelete
  13. These shoes made my trip to onitsuka tiger mexico 66 yellow black Argentina that much more enjoyable. I needed a pair of onitsuka tiger mexico 66 by asics shoes that I could walk great mens onitsuka tiger mexico 66 distances in and stand in for asics onitsuka tiger mexico 66 several hours at a time. These were my answer. They have great support, and give the feeling asics tiger mexico 66 that one is walking on air. They did get dirty, when we went rappelling. onitsuka tiger mini clubman Although you are not supposed to, I washed them on gently cycle in my front loader onituka tiger mini cooper washing machine. No harm, no foul. I highly recommend them.

    ReplyDelete
  14. Introduced in 1966, Onitsuka Tiger Mexico 66 were the first shoes with the famous Tiger Stripes. ASICS GEL-KINSEI 2 were worn at the Mexico Olympic Games in 1968. With lace up asics gel kinsei 2 sale front and tracks in asics gel kinsei 2 mens the side and suede asics kinsei 2 for sale effect trim on front and back. Purchase Asics Onitsuka Tiger mini cooper and receive onitsuka tiger mini clubman Learn about running shoe types such as motion control, onitsuka tiger mid runner performance training and stability onitsuka tiger mexico 66 mens shoes and discover which type authentic onitsuka tiger shoes sale best fits your pronation type.The original Kinsei was asics gel stratus mens shoes classified by Asics as a asics gel stratus 2.1 for mens Stability+ shoe. The Kinsei II is asics gel stratus 2.1 sale Neutral+ shoe. If you look at the Asics Shoe Fit Chart

    ReplyDelete
  15. The best home based alife shoes sale business to start is one that alife sneakers sale new york gives you the ability to alife sneakers for sale leverage your time. Basically, you want a cheap alife sneakers business that continues to operate alife sneakers and earn income for you even while you’re not working. cheap alife shoes sale This is key if you want to spend more time with alife everybody hi your family. Businesses that lack alife everybody low this feature end up owning you, alife shoes online sale and you’ll most likely have less free time than you did as a 9 to 5 employee.

    ReplyDelete
  16. They are your New Balance for sale , so here at New Balance Altoona we know new balance 580 for sale that each athlete has different needs, new balance 574 and different feet. We strive to new balance 996 provide the right shoe and a perfect fit for new balance 993 every customer. All athletes understand the new balance 1500 connection between superior new balance 1300 performance and well-fitted shoes - new balance 1400 that's why we carry New Balance 576 sneakers and footwear in a wide new balance 577 variety of sizes and widths so that we can provide the new balance 999 best fit for the best price.

    ReplyDelete
  17. Well said, My Store.

    ReplyDelete
  18. hi this is Indiatravelstours, i want to say this blog is very informatic for me . and i want

    to book mark this blog , i have all ready a website http://www.indiatravelstours.com and plz

    post more blog like this

    Indian Luxury Tours Packages, Wild Life Tour packages, Wild Life Safari, Taj Mahal Tour, Kerala tour packages, kings lodge resort booking, activities in kings lodge

    ReplyDelete