Friday, April 06, 2012

A Review of Economics in One Lesson by Henry Hazlitt.

I would like to start off by saying that Henry Hazlitt does a great job in breaking down economic myths like parity-pricing and within the context of economics I agree with a majority of what he says. I have a few issues however and will address them in this essay. 

In Chapter 4 pg 31, he begins by stating that "everything we get, outside the free gifts of nature, must in some way be paid for".  There is no such thing as free gifts, period. Everything has a cost, some of which cannot be valued accurately in monetary terms.  

Economies are a subsystem of the environment, without environment there is no economy.  Economies only put costs on labour, energy and material. Energy and material derive their economic costs from private property enclosures. Somebody owns the land from whence the raw materials come, hence a negotiated price come with the allowance to use the resource. Materials that do not have an owner, like water or air, tend to be used and misused ie. Pollution because their is no "cost" associated with them.  

This is a regular tragedy of the commons, which on the face of it lends a certain strength to the argument that all property should be enclosed, even water and air. By assigning an owner, thereby assigning a cost, it will make those who use the resource and pollute it think twice as it hits their bottom line.  Perhaps this would even work if you have faith that the price system could communicate the real value of air and water, but seeing the history of the cost of oil, massively undervalued, I don't. 

In Chapter 3, page 26 Hazlitt distinguishes the difference between need and demand. Need is essentially mirrors demand to the extent that it has purchasing power backing it up. Excess need (in excess of purchasing power) is irrelevant to the economy. Hazlitt has a real problem with the government intervening to prevent excess need from going unfulfilled which I would agree to in the case of subsidizing oil companies when in fact they are raking in record profits, but some sort of intervention is required for those of our citizens who have insufficient purchasing power to feed themselves. It is a basic requirement for the foundation of good communities to take care of it's most vulnerable members.

He chides us for reviling profits and to a certain extent I agree that profits are ok.  However it is the  system that makes maximum profits mandatory by law (CEO fiduciary duty to the shareholder first and foremost) and the relatively short time horizons combined with a vested interest in options to buy shares in the company that makes an honest CEO a rarity.

If given the choice between logging a tract of forest sustainably in perpetuity for a ROI of 10% per year or logging the forest to its destruction in 10 years for an ROI of 15% per year, the CEO, conscience aside, would be hard pressed to pick the former option as the BoD would be moved to remind the CEO of his mandate, profit maximization for his shareholders. And with a ten year time horizon his options will likely end up "in the money" and retire very wealthy. 

He accuses labour unions of suppressing wages and even goes so far as to say that unions and minimum wage laws have nothing to do with the advancement of salary over time.  Mr. Hazlitt needs to read more history, some of which he lived through. In Howard Zinn's "A People's History" he lays out the awful and violent battles between workers and owners. If the owners of capital had their way, workers would steadily have their pay cheques whittled away as the profits rose.  Workers had no choice but to fight back.  

Also minimum wage laws establishes a floor and a measuring stick that raises the bar for everyone.  Minimum wage laws force businesses to do what Henry Ford did willingly in the beginning of the 1900's, double his workers wages.  He, and soon other CEO's, recognized that workers that were not paid well could not absorb all the excess inventory brought about by mechanized production. Mr. Hazlitt seems to recognize that wealth is not tied to money nor just production, but the rate of production per man hour of labour.  What Henry Ford did and what business's refuse to do now is share out what I like to call the "productivity dividend".  Technological development has proceeded apace to the point at which for some industries it no longer makes sense to assign variable costs based on man hours of labor and some have switched to assigning variable costs based on machine hours instead.

This is why businesses refuse to share out the productivity dividend anymore, or do so very grudgingly, because people are becoming increasingly irrelevant in production thus unions are losing their bargaining power as they lose people.  Back in the 1800's it was not unusual for unions to go on strike and field hundreds of thousands of strikers. Today it would be a surprising event to see tens of thousands.  With the increasing popularity of temporary workers, full time or part time employment with all of the onerous costs to business (pesky things like medical coverage, vacations, dental, sick leave, etc) is becoming a thing of the past. 

Still on the subject of labour, Hazlitt doesn't acknowledge the huge power differential between labour and capital in the favor of capital that is only getting worse as technological means of replacing labour, either directly through automation, or indirectly through outsourcing, increases.  Unions are the last bastion of the worker and it is fading fast. 

Hazlitt talks disparagingly of alternative economies and production-for-use.  He seems to think that the price system is so miraculous and efficient and no group of men or governments could possibly plan it better.  But he fails to mention the fact that a high percentage of start-ups and investors fail. Eventually a small percentage will find a winning combination, but the carnage of private capital to get there is substantial. One thing that capitalism has done to compensate for this, is it is really, really good at liquidating mal-investments, when allowed to do so. 

Additionally he thinks that the price system and therefore money is the only way to communicate the publics demand to industry and the industries supply to the public. For example, you could just as easily have the public communicate their demand directly through POS systems, the problem of what to allocate to which industries will be enormously simplified when you stop, as a culture, trying to sell your neighbors useless crap or junk that is designed for the dump.

Reserve allocations for the basics, food, water, clothing, shelter, transportation, and medical care, produced on demand, any excess left over to be allocated on a first come first served basis, which is not quantitatively different from being deprived of a purchase due to lack of purchasing power. The focus should be putting as many services and goods under the auspices of the civil commons as possible. If you don't like the "first come first served" system, everything else can be dealt with via barter or monetary exchange.

Lastly Hazlitt doesn't recognize, even after his 30 year update, that it is not government calling the shots, transnational corporations that pay lip service to the idea of the free market and capitalism write legislation which gives big business all the protection from competition it needs and thus protects their profits. 

Thursday, April 05, 2012

The Not So Terrible Madness of David Suzuki

I had come across an article in the Island Independent article on March 30th basically decrying the environmentalist movement as some NWO plan to sneak in one world domination via the Green Climate Fund. At the bottom of the article I see a radio station and a blog, so I go check out the blog.

I had intended to do a piece on the article in the Island Independent, but instead I got sucked in to his front page attack piece on David Suzuki. I have no great love for Mr. Suzuki, he has alienated quite a few people over the years with his demeanor. But I do agree with the substance of his arguments and I had just gotten done reading "Denialism" by Michael Spector so it was exhirlarating for me to encounter a denialist so near to my home turf. I couldn't resist, I commented on his blog which you can read here.

Now Eric was kind enough to furnish a reply so I returned the honor. However it got alittle lengthy so I decided to make a post out of it rather than overwhelm his blog.

Without further ado, my reply (his comments in quotes and italics)

"Vasper Call me anything you want. My primary focus of this particular article was related to freedom of (a) speech and (b) reasoned debate, two matters which I'm sure you support and respect."

Certainly, reasoned debate is always welcomed.  An additional attribute that is a necessity is the art of being wrong. A great book I read on the subject is "Being Wrong" by Kathryn Schulz.  

Science, in a way, is about being wrong. That is an integral part of the process of discovery.  Thomas Edison once said "I didn't fail a thousand times to build a lightbulb, I just discovered a thousand ways not to build one." I jest alittle, but that in a nutshell is the scientific method, constructing a falsifiable hypothesis and proceeding to go out and falsify (disprove) it.  The hypothesis of Anthropocentric Global Warming (or Climate Change if you will) was not dreamed up over a few beers and a BBQ. The precursors to all the pieces that make up the theory, for example, that CO2 is a greenhouse gas, was drawn from painstakingly thorough research by other independent scientists, vetted and shredded by other independent scientists.  Any scientific journal is riddled with references to the work of dozens of other papers which each one of them in turn reference dozens of other papers. All these papers represent thousands if not 10's of thousands of man hours of research and contemplation. Science isn't like working at a movie theatre, they don't "phone" it in, they are passionate and deeply knowledgeable about their area of expertise.  Do they get it wrong sometimes? Sure they do, it is a consequence of being human, but that is why scientists have the peer review process.  You don't get to be the top of the heap without intellectual rigor. 

"Currently ice cover is lower than the average 1987-2007. However, one doesn't have to look too far back in time to find similar levels of ice cover. "

In a previous comment of mine I mentioned the big five (I had said six, my bad) extinction events, each one of them, incidentally, had CO2 levels much higher than today and the rate of change in CO2 concentration was swift.  So maybe unrelated (and at least to one, the K-T event it is), but certainly worth the look

"You mention "polar caps," plural, melting. Antarctica is gaining ice mass while, for the time being, the Arctic is slightly reduced. Sea level rise is not coming anywhere near the UNIPCC's doom and gloom computerized projections. "

Yes, sometimes ice is gained and sometimes ice is lost. What I do for my job is look at trends as well as variances. 

"Nor do I, especially the theory/belief that global warming's primary driver is CO2."

Ok I'll bite, if not CO2, then what could be the primary driver?

 "I don't know if you have children yourself, but, I have 3 children, and two grandchildren, and I would never "emotionally blackmail" them, let alone allow someone else to."

I have two. Both pretty young. I came to an early realization that I did not want to leave a mess for my children to inherit. I grew up and took responsibility. It is time that the human race grew up and took responsibility.  If that means Santa has to die, then so be it. 

 "The nature and scale of the problems we face as climate changes are yet to be determined with any accuracy. Temperature as an example is below even the lowest UNIPCC's predictions. "

Let's say your right and the problem is too ambiguous to resolve with any clarity. We can take the "wait and see" approach, however, I think when the evidence that will be sufficient to convince the rank and file and the diehard denialists it will be too late to do anything about it.  I like to sum it up with this picture

"Suzuki directed those comments at students, hoping to incite them. You are also taking it as a given that there is no dispute as to the severity or cause of climate change."

Someone needs to get riled up about something.  As for taking it as a given about the severity or cause I would echo Al Gore when he said that the climate question was "a settled science".  Of course being settled doesn't mean that there are not a few detractors, but the key is that whatever studies they've done or evidence they've uncovered, is not sufficient to convince their peers. 

Of course there are many non-scientist detractors but you can see why I don't give their opinions much weight. 

But let's say, for the sake of argument, it is only half as severe as the scientists say it is, isn't that enough to take action?  Again refer to the above picture in the link. 

 "Every day new studies indicate things aren't quite as bad as we have been led to "believe.""

More often the case these new studies are misinterpreted like the Weaver study.  Myself, I would look at where the preponderance of evidence is pointing, a la Michael Shermer, and that points to man-made climate change with CO2 as the mechanism. 

"Take a moment and look at the history of communist revolutions around the world. They start out isolating one group, and the next thing you know 20 million of their countrymen, women and children have been erased."

You make one error in this parallel. Science is not politics. Science is not an ideology. I'm not saying that science cannot be politicized or used to support an ideology, but comparing a ideological revolution that is based on how decisions get made and resources get allocated to scientists saying "hey bro, we got troubles on the horizon" is a far stretch.  But let the environmental degradation continue and you'll no doubt see a similar type revolution where millions get erased due to increasing scarcity. 

 "Interesting the context of global warming, perhaps if all extreme environmentalists threw themselves off a cliff the net reduction in CO2 would save the planet. They could start by drawing straws to see who would be honoured with the first sacrifice of the greater good...(sarc)"

We make the adult decision to make small but real sacrifices now (reducing our carbon footprint in a non-dying sort of way) , so we don't have to throw anyone overboard in the future.  So the rational decision is to make the right decision while we still have the option to make a decision.

" And do you believe in the kind, gentle new world order government that is now being proposed by Suzuki, et al? Good luck with that one. All rights are limited by groups of people - e.g. governments and religions. I have no problem in Suzuki saying anything. But, for him to suggest only he and his believers should be able to speak on ANY subject, is immoral. I understand Suzuki didn't give one of your proposals the time of day. Under a Suzuki government, how would your beliefs fare?"

I find the thought of Suzuki as a supreme dictator quite amusing.  It wasn't my proposal, but rather it belonged to a group I had associated with.  

Suzuki has been alive a long time (perhaps it explains his grumpiness), long enough to have shed most of his political naïveté but in the end he is a scientist first.  Totalitarian governments are not his forte.

I see you are still characterizing science as some sort of religion. Belief doesn't enter into the picture, belief doesn't matter; empiricism, observation, evidence, that is what matters.  Suzuki doesn't frame it as eloquently or as gently, maybe because he is old and time is short, but ultimately he wants people to think first, then speak.  Much of the damage to the climate change debate has come from the non-scientists. Scientists, through long habit, hedge everything they say. They deal with theories, they rarely use the absolute term "fact" even if in fact, it is a fact.  The non-scientist deniers make free use of polarizing language, rhetoric if you will, that moves the masses who hear it.  Politicians use this technique all the time and people respond to the projection of absolute confidence and certainty.  Perhaps more scientists should take a page out of Suzuki's playbook, but I would just settle for being on the right side of the debate. 

" I agree the status quo will not hold...however, I do believe given the current state of technology and Moore's law of exponentially increasing knowledge, within the next 20 years "free energy" will be a reality and we will begin the transition out of the oil age."

You'd really like Ray Kurzweil and Dennis Bushnell, I suggest the formers books and the latters video's and radio appearances.  Unfortunately I think it is a dead heat, pitting the Law of Accelerating Change vs the Law of Diminishing Returns.  Quite literally we may run out of the energy needed to sustain the complexity of society before we find the holy grail. Another reason to start this shift now. Climate change and Peak everything are very much entwined. 

 "I agree, and anyone who would support the limitation of freedom of speech does so at the peril of having it come back and bite them on their ass."

As you and I both know we already do support the limitation of free speech.  We limit hate speech, the right to accuse someone of witchcraft, the right to shout fire in a crowded theatre and of course, slander. In Canada we have a reasonable limits clause written into our Charter.  We should be against ignorant speech much like we are against driving while impaired.  Both are done hastily and without much sound thought.