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Trump’s New Corporatist Plunder Will Cost U.S.

05 Friday Sep 2025

Posted by Nuetzel in Central Planning, Protectionism, Socialism

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AMD, central planning, CHIPS Act, Corporatism, Don Boudreaux, Donald Trump, Extortion, fascism, Golden Share, Howard Lutnick, Intel, MP Materials, National Security, Nippon Steel, NVIDIA, Protectionism, Public debt, Scott Bessent, Socialism, Tad DeHaven, TikTok, U.S. Steel, Unfunded Obligations, Veronique de Rugy

Since his inauguration, Donald Trump has been busy finding ways for the government to extort payments and ownership shares from private companies. This has taken a variety of forms. Tad DeHaven summarizes the major pieces of booty extracted thus far in the following bullet points (skipping the quote marks here):

  • June 13: Trump issues an executive order allowing the Nippon Steel-US Steel deal contingent on giving the government a “golden share” that enables the president to exert extensive control over US Steel’s operations.
  • July 10: The Department of Defense (DoD) unveils a multi-part package with convertible preferred stock, warrants, and loan guarantees, making it the top shareholder of rare earth metals producer MP Materials.
  • July 23: The White House claims an agreement with Japan to reduce the president’s so-called reciprocal tariff rate on Japanese imports comes with a $550 billion Japanese “investment fund” that Trump will control.
  • July 31: Trump claims an agreement with South Korea to reduce the so-called reciprocal tariff on South Korean imports comes with a $350 billion South Korean-financed investment in projects “owned and controlled by the United States” that he will select.
  • August 11: The White House confirms an “unprecedented” deal with Nvidia and AMD that allows them to sell particular chips to China in exchange for 15 percent of the sales.
  • August 12: In a Fox Business interview, Bessent points to the alleged investments from Japan, South Korea, and the EU “to some extent” and says, “Other countries, in essence, are providing us with a sovereign wealth fund.”
  • August 22: Fifteen days after calling for Intel CEO Lip-Bu Tan to resign, Trump announces that the US will take a 10 percent equity stake in Intel using the CHIPS Act and DoD funds, becoming Intel’s largest single shareholder.

Each of these “deals” has a slightly different back story, but national security is a common theme. And Trump says they’ll all make America great again. They are touted as a way for American taxpayers to benefit from the investment he claims his policies are attracting to the U.S. However, all of these are ill-advised for several reasons, some of which are common to all. That includes the extortionary nature of each and every one of them.

Short Background On “Deals”

The June 13 deal (Nippon/US Steel), the July 10 deal (MP Materials), and the August 22 deal (Intel) all involve U.S. government equity stakes in private companies. The August 11 deal (NVIDIA/AMD) diverts a stream of private revenue to the government. The July 23 and July 31 deals (Japan and South Korea) both involve “investment funds” that Trump will control to one extent or another.

The August 12 entry adds “expected” EU investments with some qualification, but that bullet quotes Treasury Secretary Bessent referring to these investments as part of a sovereign wealth fund (SWF). Secretary of Commerce Lutnick now denies that an SWF will exist. My objections might be tempered slightly (but only slightly) by an SWF because it would probably need to place constraints on an Administation’s control. That might give you a hint as to why Lutnick is now downplaying the creation of an SWF.

I object to the Nippon/US Steel “deal” in part (and only in part) because it was extortion on its face. There is no valid anti-trust argument against the deal (US Steel is the nation’s third largest steelmaker and is broke), and the national security concerns that were voiced (Japan! for one thing) were completely bogus. Even worse, the “Golden Share” would give the federal government authority, if it chose to exercise it, over a variety of the company’s decisions.

The Intel “deal” is another highly questionable transaction. Intel was to receive $11 billion under the CHIPS Act, a fine example of corporate welfare, as Veronique de Rugy once described the law. However, Intel was to receive its grants only if it stood up four fabrication facilities. But it did not. Now, instead of demanding reimbursement of amounts already paid, the government offered to pay the remainder in exchange for a 9.9% stake in the company. And there is no apparent requirement that Intel meet the original committment! This could turn out a bust!

The MP Materials transaction with the Department of Defense has also been rationalized on national security grounds. This excuse comes a little closer to passing the smell test, but the equity stake is objectionable for other reasons (to follow).

The Nvidia/AMD deal has been justified as compensation for allowing the companies to sell chips to China, which is competing with the U.S. to lead the world in AI development. This is another form of selective treatment, here applied to an export license. The chips in question do not have the same advanced specifications as those sold by the companies in the U.S., but let’s not let that get in the way of a revenue opportunity.

While nothing about TikTok appears on the list above, I fear that a resolution of its operational status in the U.S. presents another opportunity for extortion by the Trump Administration. I’m sure there will be many other cases.

Root Cause: Protectionism

The so-called investment funds described in the timeline above are nearly all the result of trade terms negotiated by a dominant and belligerent trading partner: the U.S. My objections to tariffs are one thing, but here we are extorting investment pledges for reductions in the taxes we’ll impose on our own citizens! Additionally, the belief that these investments will somehow prevent a general withdrawal of foreign investment in the U.S. is misguided. In fact, a smaller trade deficit dictates less foreign investment. The difference here is that the government will wrest ownership control over a greater share of less foreign investment.

Trump the Socialist?

Needless to say, I don’t favor government ownership of the means of production. That’s socialism, but do matters of national security offer a rationale for public ownership? For example, rare earth minerals are important to national defense. Therefore, it’s said that we must ensure a domestic supply of those minerals. I’m not convinced that’s true, but in any case, fat defense contracts should create fat profit opportunities in mining rare earths (enter MP Materials). None of that means public ownership is necessary or a good idea.

All of these federal investments are construed, to one extent or another, as matters of national security, but that argument for market intervention is much too malleable. Must we ensure a domestic supply of semiconductors for national security reasons? And public ownership? Is the same true of steel? Is the same true of our “manufacturing security”? It can go on and on. The next thing you know, someone will argue that grocery stores should be owned by the government in the name of “food security”! Oh, wait…

Trump the Central Planner

Government ownership takes the notion of industrial planning a huge step beyond the usual conception of that term. Ordinarily, when government takes the role of encouraging or discouraging activity in particular industries or technologies, it attempts to select winners and losers. The very idea presumes that the market is not allocating resources in an optimal way, as if the government is in any position to gainsay the decisions of private market participants who have skin in the game. This is a foolhardy position with predictably negative consequences. (For some examples, see the first, second, and fourth articles linked here by Don Boudreaux.) The fundamental flaw in central planning always comes down to the inability of planners to collect, process, and act on the information that the market handles with marvelous efficiency.

When government invests taxpayer funds in exchange for ownership positions in private concerns, the potential levers of control are multiplied. One danger is that political guidance will replace normal market incentives. And as de Rugy points out, the government’s potential role as a regulator creates a clear conflict of interest. In a strong sense, a government ownership stake is worse for private owners than a mere dilution of their interests. It looms as a possible taking, as private owners and managers surrender to creeping government extortion.

Financial Malfeasance

In addition to the objections above, I maintain that these investments represent poor stewardship of public funds. The U.S. public debt currently stands at $37 trillion with an entitlement disaster still to come. In fact, according to one estimate, the federal government’s total unfunded obligations amount to additional $121 trillion! Putting aside the extortion we’re witnessing, any spare dollar should be put toward retiring debt, rather than allowing its upward progression.

As I’ve noted before, paying off a dollar of debt entails a risk-free “return” in the form of interest cost avoidance, let’s say 3.5% for the sake of argument. If instead the dollar is “invested” in risk assets by the government, the interest cost is still incurred. To earn a net return as high as the that foregone from interest avoidance, the government must consistently earn at least 7% on its invested dollar. But of course that return is not risk-free!

A continuing failure to pay down the public debt will ultimately poison the debt market’s assessment of the government’s will to stay within its long-run budget constraint. That would ultimately manifest in an inflation, shrinking the real value of the public debt even as it undermines the living standards of many Americans.

One final thought: Though few MAGA enthusiasts would admit it even if they understood, we’re witnessing a bridging of two ends of the idealogical “horseshoe”. Right-wing populism and protectionism meet the left-wing ideal of central planning and public ownership. There is a name for this particular form of corporatist state, and it is fascism.

My Foolish Hopes For Free Trade Bargaining

24 Saturday May 2025

Posted by Nuetzel in Central Planning, Free Trade

≈ 2 Comments

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Balance of Payments, Big Beautiful Bill, central planning, Coercion, Cronyism, Donald Trump, Eric Boehm, Fiscal Restraint, Foreign Investment, Free trade, Liberation Day, National Security, Non-Tariff Barriers, Price Pressures, Punitive Tariffs, Reciprocal Tariffs, Retaliatory Tariffs, Selective Tariffs, Tariff Exceptions, Tariff Incidence, Trade Deals, Trade Deficit

Just a few weeks back I engaged in wishful speculation that Trump’s drastic imposition of “reciprocal” and punitive tariffs could actually prove to be a free-trade play, but only if the U.S. used its universally dominant position in trade wisely at the bargaining table. I worried, however, that any notion Trump might have along those lines was eclipsed by his antipathy for otherwise harmless trade deficits. Another bad indicator was his conviction that manipulating tariffs could restore “fairness” in trade relations while raising revenue to pay for the selective tax cuts he promised for tips, overtime wages, and social security benefits.

Aside from that, I won’t repeat all of Trump’s fallacies about trade (and see here and here) except where they’ve impinged on recent developments.

One Raw Deal

My hopes for reduced trade barriers were dashed when the first “deal” (or really a “Memorandum of Understanding”) was announced with the United Kingdom. The U.S. runs a trade surplus with the UK, so one might think Trump would find it unnecessary to levy tariffs on U.S. imports from the UK. No dice! Clearly this was not motivated by the trade deficit bogeyman of Trump’s fever dreams. The White House stated that buyers of goods from the UK will pay the minimum 10% tariff (up from 3.3% before Trump took office).

Trump simply likes tariffs. Apparently he’s never given much thought to their incidence, which falls largely on domestic consumers and businesses. The MAGA faithful are in blissful denial that such a burden exists, despite ample evidence of its reality.

As Eric Boehm notes, the U.S. received a few concessions on British tariffs under the deal, but the reductions only amount to about a 2% equivalent. There are sharp reductions in special tariffs on U.S. agricultural products, especially meat. There are also exceptions to tariffs on certain British goods, like autos (up to 100,000 units). The selective nature of the concessions on both sides underscores the cronyist underpinnings of this style of economic governance, which amounts to ad hoc central planning.

Also troubling is the misleading spin the Administration attempted to put on news coverage of the deal. They claimed to have reduced tariffs of goods imported from the UK, which is true only in comparison to post-“Liberation Day” tariff levels established in early April. In fact, the baseline tariff now applied to most UK goods sold in the U.S. has more than tripled since last year! As Boehm states, American consumers and businesses are paying a lot more for this “deal” than their British counterparts.

Raw Deals To Be?

The “deal” with China is worse, partly because it’s only a 90-day pause in implementation (pending negotiation), and partly because the “reciprocal” tariff rate of 30% applied to Chinese goods is much higher than before Trump imposed the punitive rates. Still worse, the 10% tariff on U.S. exports to China applied during the pause is also much higher. What a deal! And it could get worse. These tariff hikes have little to do with “national security” and they are regressive, having disproportionately large burdens on lower-income consumers and small businesses.

The only other agreement announced thus far is with India. It is not a “trade deal” at all, but a so-called “Terms of Reference On Bilateral Trade Agreement”. It is a “roadmap” for future negotiations. Perhaps it will come together quickly, but it’s hard to expect much after the UK agreement.

Uniting Western Civilization

Just this week we had another hardball move by Trump: a 50% tariff on goods from the European Union starting in June, up from an average of about 3.8% on a trade-weighted basis. The new tariff rate is also higher than the 10% baseline tariff in place since the 90-day pause was announced in April. Trump claims the EU has been levying tariffs of 39% on U.S. goods, which might include what the Administration would call effective tariffs from non-tariff barriers to trade. Or it might refer to retaliatory tariffs announced by the EU in response to Trump’s Liberation Day announcement, but all of those have been paused. In any case, the World Trade Organization says EU tariffs on US goods average 4.8%. Quite a difference!

The move against the EU is much like Trump’s earlier ploy with China, but he says he’s “not looking for a deal”. He also says talks with the EU are “going nowhere”, though the Polish Trade Minister reassures that talks are “ongoing”. The outcome is likely to be a disappointment for anyone (like me) hoping for freer trade. The EU will probably make commitments to buy something from the U.S., maybe beef or liquified natural gas. But U.S. tariffs on EU goods will be higher than in the past.

So, thus far we have only one “deal” (such as it is), one roadmap for negotiations to follow, and a bunch of pauses pending negotiation (China included). The Trump team says about 100 countries hope to negotiate trade deals, but that is a practical impossibility. Even Trump says “… it’s not possible to meet the number of people that want to see us.” But it could be easy: just drop all U.S. trade barriers and allow protectionist countries to tax their own citizens, denying them access to free choice.

Bullying Enemies, Allies and Producers

Higher U.S. tariffs will put some upward pressure on the prices of imports and import-competing goods. We haven’t seen this play out just yet, but it’s early. In a defensive move, Trump is attempting to bully and shame domestic companies such as WalMart for attempting to protect their bottom lines in the face of tariffs. He also warned automakers about their pricing before carving out an exception for them. And now Apple has been singled-out by Trump for a special 25% tariff after it had announced plans to move assembly of iPhones to India, rather than in the U.S.

You better stay on Trump’s good side. This is a loathsome kind of interference. It encourages firms to seek favors in the form of tariff exemptions or to accept what amounts to state expropriation of profits. Cronyism and coercion reign.

Swamped By Spendthrifts?

The market seems to believe the negative impact of tariffs on economic growth will be more than offset by other stimulative forces. This includes the extension of Trump’s 2017 tax cuts. The so-called “big beautiful bill” passed by the House of Representatives also includes new tax breaks on tip and overtime pay, and an increase in the deduction for state and local taxes. While the bill reduces the growth of federal spending, there is disappointment that spending wasn’t reduced. The Senate might pass a version with more cuts, but the market sees nothing but deficits going forward. This is not the sort of “fiscal restraint” the market hoped for, particularly with escalating interest costs on the burgeoning federal debt.

Conflicting Goals

Trump has bargained successfully for some major investments in the U.S. by wealthy nations like Saudi Arabia and Dubai, as well as a few major manufacturing and technology firms. That’s wonderful. He doesn’t understand, however, that strong foreign investment in the U.S. will encourage larger trade deficits. That’s because foreign capital inflows raise incomes, which increase demand for imports. In addition, the capital inflows cause the value of the dollar to appreciate, making imports cheaper but exports more expensive for foreigners. It would be a shame if Trump reacted to these eventualities by doubling down on tariffs.

Conclusion

Alas, my hopes that Trump’s bellicose trade rhetoric was mere posturing were in vain. He could have used our dominant trading position to twist arms for lower trade barriers all around. While I worried that he massively misunderstood the meaning of trade deficits, and that he viewed higher tariffs as a magic cure, I should have worried much more!

Only a Statist Could Love a Sovereign Wealth Fund

12 Wednesday Feb 2025

Posted by Nuetzel in Central Planning, Public debt

≈ 7 Comments

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Bitcoin, Blockchain, Capital Reserve, Carnegie Endowment for International Peace, Crypto Reserve, Donald Trump, Federal Asset Sales, Fiscal Sustainability, Government Corruption, Interest Expense, Joe Biden, Knowledge Problem, Pension Reserves, Peter Earle, Public debt, Sovereign Wealth Fund, Strategic Petroleum Reserve, Tariffs, Taxes, TikTok

I want a federal government with a less pervasive presence in the private sphere. That’s why I oppose a U.S. sovereign wealth fund (SWF), but President Trump issued an executive order (EO) on February 3 setting in motion the creation of an SWF. It would hold various assets with the ostensible intent to earn a return benefiting American taxpayers.

Here are a few comments on the form an SWF might take:

1) How would the SWF be funded?

—Sales of federal assets like federal land, buildings, and the sale of extraction rights? These are probably the least offensive possibilities for funding an SWF, but the proceeds, if and when they materialize, should be used to pay off our massive federal debt, not to fund a governmental piggy bank.

—Taxes/Tariffs? Funding an SWF via taxes or tariffs would be contrary to the EO’s stated objective to “lessen the burden of taxes on American families and small businesses”. Moreover, it would be contrary to a pro-growth agenda, undermining any gains an SWF might produce.

—Borrowing? Another contradiction of a basic rationale for the SWF, which is “to promote fiscal sustainability”. It would mean more debt on top of a mountain of debt that is already growing at an unsustainable rate.

—“Deals” that might place assets under government ownership? Already, potential buyers of TikTok are singing the praises of a partnership with the SWF. Trump seems to think the government can acquire interests in certain enterprises in exchange for allowing them to operate in the U.S. He also believes that federal dollars can be used for development in order to acquire ownership capital. The federal government should not engage in the development of private resources. Business enterprises should remain private or be privatized, to the extent that their ownership has nothing to do with the provision of public goods.

2) What kinds of investments would be held in the SWF? Stocks and bonds? TikTok shares? Private equity? Crypto? The Gaza Riviera REIT?

These are all terrible ideas. Government ownership of the means of production, or socialism, virtually guarantees underperformance and subservience to political objectives. Federal acquisition of private businesses is not a legitimate function of the state.

There is no point in having the government hold a Bitcoin or crypto reserve. First, giving the U.S. government an interest in the private blockchain undermines the very purpose that most users feel gives the blockchain value. Second, the return on crypto depends only on price changes, and most forms of crypto are volatile. It is a stretch to believe that crypto assets have value in promoting “fiscal sustainability” or national security.

3) How would the SWF’s assets and earnings ultimately be used?

The EO plainly states that earnings in the SWF are to be used to promote fiscal sustainability and benefit taxpayers. In the presence of a large and growing national debt, the best path toward those objectives would be to use any and all spare funds to pay off debt and limit the explosive interest burden it imposes. This puts the funds back into hands of private investors, who will respond to market incentives by deploying the capital as they see fit. Does anyone truly think government planners know better how to put those funds to use?

SWF and Future Debt Service

Just to clarify matters, let’s quantify two alternatives: 1) pay off debt immediately; 2) create an SWF to invest funds and pay off debt later. Suppose the government stumbles upon a spare $100. It can immediately pay off $100 of debt and avoid a certain $3.50 in interest expense in year one. If instead an SWF invests the funds at an expected (but uncertain) return of 7%, then perhaps a greater reduction in the debt can be made a year later. How much? Not $107, but only $103.50 (assuming the 7% return is realized) because the $3.50 interest expense on the debt was not avoided in year one. The SWF must earn twice the interest cost on debt to break even on the proposition. That might be possible for an average return over many years, but the returns will vary and the government is likely to botch the job in any case.

An Itch For Intervention

The SWF is subject to dangers inherent in many government activities. One is that the funds held in reserve might be used as a tool of market intervention and/or political mischief, much as Joe Biden attempted to tamp down oil prices by releasing millions of barrels from the Strategic Petroleum Reserve. An administration having available a large pool of financial assets might be tempted to use it to intervene in various markets to manipulate asset prices. And even if you happen to like the interventions of one administration, you might hate the interventions of another.

The Scratch That Corrupts

In testament to the inefficacy and corruption inherent in government intervention in private markets, Peter Earle offers a number of examples of government planning gone awry. It’s not difficult to understand the dysfunction:

“A sovereign wealth fund would not, whatever the intentions of its government administrators, be guided purely by market signals but rather by political interests. That virtually ensures poor investment choices, investments in politically favored industries, and/or wasteful subsidies tending to yield subpar returns. 

“Government officials will not have the same rigorous concern for opportunity costs that drives private investors and for-profit managers, as bureaucratic decision-making is often guided by political priorities and budget cycles rather than the disciplined allocation of capital to its most productive use. The Knowledge Problem is real — and ignoring it is expensive.“

Big money in government is an invitation to corruption, and an SWF is no exception. According to the Carnegie Endowment for International Peace:

“…there are systemic governance issues and regulatory gaps that can enable SWFs to act as conduits of corruption, money laundering, and other illicit activities.“

Therefore, the management and operations of an SWF require great transparency as well as strong governance and oversight. This obviously adds a layer of cost as well.

Sound Planning

There is an economic rationale for holding funds in reserve for certain, earmarked purposes. For example, private businesses usually maintain reserves for the upkeep or replacement of physical capital. Shouldn’t the government do the same for public infrastructure such as highways or harbors? Public investments in physical capital should be planned such that the flow of tax revenue is adequate to replenish infrastructure from wear and tear. To the extent that the necessary expenditures are “lumpy”, however, a maintenance reserve fund is sound practice, as long as its management is transparent and accountable, and its holdings represent prudent risks.

Another example is the maintenance of a reserve fund for pension payments. This is a reasonable and even necessary practice under traditional defined benefit plans, but those plans have often fallen short of their obligations in practice. The private sector stayed ahead of this risk by shifting overwhelmingly to defined contribution plans. As part of this shift, the existing pension obligations of many private entities were converted to vested “cash value” balances. The public sector should do the same, putting employees in charge of their own retirement savings.

Countries with SWFs tend to be small and also tend to run budget surpluses. Very often, they are funded with revenue earned from abundant natural resources. But even those governments short-change their citizens by failing to reduce tax rates, which would promote growth.

Nonsensical Appeal to Nationalism

Why does the creation of an SWF sound so good to people who should know better? I think it has something to do with the nationalist urge to embrace symbols of patriotic strength. An SWF might evoke the emotive impact of phrases like “sound money” or “a strong dollar”. But in the presence of a large public debt and large, continuing budget deficits, the kind of SWF envisioned by Trump would be counterproductive. Future obligations to pay down the public debt are better addressed in the present, to the extent possible. The government has no business hoarding private financial assets as a means of outrunning debt. Sure, the return on equity usually exceeds the interest rate on public debt, but private investors are better at allocating capital than government, so government should not attempt to take on that role.

Lords of the Planetary Commons Insist We Banish Sovereignty, Growth

29 Thursday Feb 2024

Posted by Nuetzel in Central Planning, Environmental Fascism, Global Warming, Liberty

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Anthropocene, Beamed Solar Power, Carbon Capture, Carbon Forcings, Cliff Mass, Common Pool Resources, Elinor Ostrom, Externalities, Fusion Power, Geoengineering, Geothermal Power, global warming, Heat Islands, Interspecies Justice, IPCC, Lula Da Silva, Munger Test, Nuclear power, Orbital Solar Collection, Paris Climate Accords, Planetary Commons, Polycentrism, Private Goods, Property Rights, Public goods, Redistribution, Solar Irradiance, Spillovers, Tipping points

We all share Planet Earth as our home, so there’s a strong sense in which it qualifies as a “commons”. That’s one sensible premise of a new paper entitled “The planetary commons: A new paradigm for safeguarding Earth-regulating systems in the Anthropocene”. The title is a long way of saying that the authors desire broad-based environmental regulation, and that’s what ultimately comes across.

First, a preliminary issue: many resources qualify as commons in the very broadest sense, yet free societies have learned over time that many resources are used much more productively when property rights are assigned to individuals. For example, modern agriculture owes much to defining exclusive property rights to land so that conflicting interests don’t have to compete (e.g,, the farmer and the cowman). Federal land is treated as a commons, however. There is a rich history on the establishment of property rights, but within limits, the legal framework in place can define whether a resource is treated as a commons, a club good, or private property. The point here is that there are substantial economic advantages to preserving strong property rights, rather than treating all resources as communal.

The authors of the planetary commons (PC) paper present a rough sketch for governance over use of the planet’s resources, given their belief that a planetary crisis is unfolding before our eyes. The paper has two main thrusts as I see it. One is to broadly redefine virtually all physical resources as common pool interests because their use, in the authors’ view, may entail some degree of external cost involving degradation of the biosphere. The second is to propose centralized, “planetary” rule-making over the amounts and ways in which those resources are used.

It’s an Opinion Piece

The PC paper is billed as the work product of a “collaborative team of 22 leading international researchers”. This group includes four attorneys (one of whom was a lead author) and one philosopher. Climate impact researchers are represented, who undoubtedly helped shape assumptions about climate change and its causes that drive the PC’s theses. (More on those assumptions in a section below.) There are a few social scientists of various stripes among the credited authors, one meteorologist, and a few “sustainability”, “resilience”, and health researchers. It’s quite a collection of signees, er… “research collaborators”.

Grabby Interventionists

The reasoning underlying a “planetary commons” (PC) is that the planet’s biosphere qualifies as a commons. The biosphere must include virtually any public good like air and sunshine, any common good like waterways, or any private good or club good. After all, any object can play host to tiny microbes regardless of ownership status. So the PC authors characterization of the planet’s biosphere as a commons is quite broad in terms of conventional notions of resource attributes.

We usually think of spillover or external costs as arising from some use of a private resource that imposes costs on others, such as air or water pollution. However, mere survival requires that mankind exploit both public and non-public resources, acts that can always be said to impact the biosphere in some way. Efforts to secure shelter, food, and water all impinge on the earth’s resources. To some extent, mankind must use and shape the biosphere to succeed, and it’s our natural prerogative to do so, just like any other creature in the food chain.

Even if we are to accept the PC paper’s premise that the entire biosphere should be treated is a commons, most spillovers are de minimus. From a public policy perspective, it makes little sense to attempt to govern over such minor externalities. Monitoring behavior would be costly, if not impossible, at such an atomistic level. Instead, free and civil societies rely on a high degree of self-governance and informal enforcement of ethical standards to keep small harms to a minimum.

Unfortunately, the identification and quantification of meaningful spillover costs is not always clear-cut. This has led to an increasingly complex regulatory environment, an increasingly litigious business environment, and efforts by policymakers to manage the detailed inputs and outputs of the industrial economy.

All of that is costly in its own right, especially because the activities giving rise to those spillovers often enable large welfare enhancements. Regulators and planners face great difficulties in estimating the costs and benefits of various “correctives”. The very undertaking creates risk that often exceeds the cost of the original spillover. Nevertheless, the PC paper expands on the murkiest aspects of spillover governance by including “… all critical biophysical Earth-regulating systems and their functions, irrespective of where they are located…” as part of a commons requiring “… additional governance arrangements….”

Adoption of the PC framework would authorize global interventions (and ultimately local interventions, including surveillance) on a massive scale based on guesswork by bureaucrats regarding the evolution of the biosphere.

Ostrom Upside Down

Not only would the PC framework represent an expansion of the grounds for intervention by public authorities, it seeks to establish international authority for intervention into public and private affairs within sovereign states. The authors attempt to rationalize such far-reaching intrusions in a rather curious way:

“Drawing on the legacy of Elinor Ostrom’s foundational research, which validated the need for and effectiveness of polycentric approaches to commons governance (e.g., ref. 35, p. 528, ref. 36, p. 1910), we propose that a nested Earth system governance approach be followed, which will entail the creation of additional governance arrangements for those planetary commons that are not yet adequately governed.”

Anyone having a passing familiarity with Elinor Ostrom’s work knows that she focused on the identification of collaborative solutions to common goods problems. She studied voluntary and often strictly private efforts among groups or communities to conserve common pool resources, as opposed to state-imposed solutions. Ostrom accepted assigned rights and pricing solutions to managing common resources, but she counseled against sole reliance on market-based tools.

Surely the PC authors know they aren’t exactly channeling Ostrom:

“An earth system governance approach will require an overarching global institution that is responsible for the entire Earth system, built around high-level principles and broad oversight and reporting provisions. This institution would serve as a universal point of aggregation for the governance of individual planetary commons, where oversight and monitoring of all commons come together, including annual reporting on the state of the planetary commons.”

Polycentricity was used by Ostrom to describe the involvement of different, overlapping “centers of authority”, such as individual consumers and producers, cooperatives formed among consumers and producers, other community organizations, local jurisdictions, and even state or federal regulators. Some of these centers of authority supersede others in various ways. For example, solutions developed by cooperatives or lower centers of authority must align with the legal framework within various government jurisdictions. However, as David Henderson has noted, Ostrom observed that management of pooled resources at lower levels of authority was generally superior to centralized control. Henderson quotes Ostrom and a co-author on this point:

“When users are genuinely engaged in decisions regarding rules affecting their use, the likelihood of them following the rules and monitoring others is much greater than when an authority simply imposes rules.”

The authors of the PC have something else in mind, and they bastardize the spirit of Ostrom’s legacy in the process. For example, the next sentence is critical for understanding the authors’ intent:

“If excessive emissions and harmful activities in some countries affect planetary commons in other areas—for example, the melting of polar ice—strong political and legal restrictions for such localized activities would be needed.”

Of course, there are obvious difficulties in measuring impacts of various actions on polar ice, assigning responsibility, and determining the appropriate “restrictions”. But in essence, the PC paper advocates for a top-down model of governance. Polycentrism is thus reduced to “you do as we say”, which is not in the spirit of Ostrom’s research.

Planetary Governance

Transcending national sovereignty on questions of the biosphere is key to the authors’ ambitions. At a bare minimum, the authors desire legally-binding commitments to international agreements on environmental governance, unlike the unenforceable promises made for the Paris Climate Accords:

“At present, the United Nations General Assembly, or a more specialized body mandated by the Assembly, could be the starting point for such an overarching body, even though the General Assembly, with its state-based approach that grants equal voting rights to both large countries and micronations, represents outdated traditions of an old European political order.”

But the votes of various “micronations” count for zilch when it comes to real “claims” on the resources of other sovereign nations! Otherwise, there is nothing “voluntary” about the regime proposed in the PC paper.

“A challenge for such regimes is to duly adapt and adjust notions of state sovereignty and self-determination, and to define obligations and reciprocal support and compensation schemes to ensure protection of the Earth system, while including comprehensive stewardship obligations and mandates aimed at protecting Earth-regulating systems in a just and inclusive way.”

So there! The way forward is to adopt the broadest possible definition of market failure and global regulation of any and all private activity touching on nature in any way. And note here a similarity to the Paris Accords: achieving commitments would fall to national governments whose elites often demonstrate a preference for top-down solutions.

Ah Yes, Redistribution

It should be apparent by now that the PC paper follows a now well-established tradition in multi-national climate “negotiations” to serve as subterfuge for redistribution (which, incidentally, includes the achievement of interspecies justice):

“For instance, a more equal sharing of the burdens of climate stabilization would require significant multilateral financial and technology transfers in order not to harm the poorest globally (116).”

The authors insist that participation in this governance would be “voluntary”, but the following sentence seems inconsistent with that assurance:

“… considering that any move to strengthen planetary commons governance would likely be voluntarily entered into, the burdens of conservation must be shared fairly (115).”

Wait, what? “Voluntary” at what level? Who defines “fairness”? The authors approvingly offer this paraphrase of the words of Brazilian President Lula da Silva,

“… who affirmed the Amazon rainforest as a collective responsibility which Brazil is committed to protect on behalf of all citizens around the world, and that deserves and justifies compensation from other nations (117).”

Let Them Eat Cake

Furthermore, PC would require de-growth and so-called “sufficiency” for thee (i.e., be happy with less), if not for those who’ll design and administer the regime.

“… new principles that align with novel Anthropocene dynamics and that could reverse the path-dependent course of current governance. These new principles are captured under a new legal paradigm designed for the Anthropocene called earth system law and include, among others, the principles of differentiated degrowth and sufficiency, the principle of interconnectivity, and a new planetary ethic (e.g., principle of ecological sustainability) (134).”

If we’re to take the PC super-regulators at their word, the regulatory regime would impinge on fertility decisions as well. Just who might we trust to govern humanity thusly? If we’re wise enough to apply the Munger Test, we wouldn’t grant that kind of power to our worst enemy!

Global Warmism

The underlying premise of the PC proposal is that a global crisis is now unfolding before our eyes: anthropomorphic global warming (AGW). The authors maintain that emissions of carbon dioxide are the cause of rising temperatures, rapidly rising sea levels, more violent weather, and other imminent disasters.

“It is now well established that human actions have pushed the Earth outside of the window of favorable environmental conditions experienced during the Holocene…”

“Earth system science now shows that there are biophysical limits to what existing organized human political, economic, and other social systems can appropriate from the planet.”

For a variety of reasons, both of these claims are more dubious than one might suppose based on popular narratives. As for the second of these, mankind’s limitless capacity for innovation is a more powerful force for sustainability than the authors would seem to allow. On the first claim, it’s important to note that the PC paper’s forebodings are primarily based on modeled, prospective outcomes, not historical data. The models are drastically oversimplified representations of the earth’s climate dynamics driven by exogenous carbon forcing assumptions. Their outputs have proven to be highly unreliable, overestimating warming trends almost without exception. These models exaggerate climate sensitivity to carbon forcings, and they largely ignore powerful natural forcings such as variations in solar irradiance, geological heating, and even geological carbon forcings. The models are also notorious for their inadequate treatment of feedback effects from cloud cover. Their predictions of key variables like water vapor are wildly in error.

The measurement of the so-called “global temperature” is itself subject to tremendous uncertainty. Weather stations come and go. They are distributed very unevenly across land masses, and measurement at sea is even sketchier. Averaging all these temperatures would be problematic even if there were no other issues… but there are. Individual stations are often sited poorly, including distortions from heat island effects. Aging of equipment creates a systematic upward bias, but correcting for that bias (via so-called homogenization) causes a “cooling the past” bias. It’s also instructive to note that the increase in global temperature from pre-industrial times actually began about 80 years prior to the onset of more intense carbon emissions in the 20th century.

Climate alarmists often speak in terms of temperature anomalies, rather than temperature levels. In other words, to what extent do temperatures differ from long-term averages? The magnitude of these anomalies, using the past several decades as a base, tend to be anywhere from zero degrees to well above one degree Celsius, depending on the year. Relative to temperature levels, the anomalies are a small fraction. Given the uncertainty in temperature levels, the anomalies themselves are dwarfed by the noise in the original series!

Pick Your Own Tipping Point

It seems that “tipping point” scares are heavily in vogue at the moment, and the PC proposal asks us to quaff deeply of these narratives. Everything is said to be at a tipping point into irrecoverable disaster that can be forestalled only by reforms to mankind’s unsustainable ways. To speak of the possibility of other causal forces would be a sacrilege. There are supposed tipping points for the global climate itself as well as tipping points for the polar ice sheets, the world’s forests, sea levels and coastal environments, severe weather, and wildlife populations. But none of this is based on objective science.

For example, the 1.5 degree limit on global warming is a wholly arbitrary figure invented by the IPCC for the Paris Climate Accords, yet the authors of the PC proposal would have us believe that it was some sort of scientific determination. And it does not represent a tipping point. Cliff Mass explains that climate models do not behave as if irreversible tipping points exist.

Consider also that there has been absolutely no increase in the frequency or intensity of severe weather.

Likewise, the rise of sea levels has not accelerated from prior trends, so it has nothing to do with carbon forcing.

One thing carbon forcings have accomplished is a significant greening of the planet, which if anything bodes well for the biosphere

What about the disappearance of the polar ice sheets? On this point, Cliff Mass quotes Chapter 3 of the IPCC’s Special Report on the implications of 1.5C or more warming:

“there is little evidence for a tipping point in the transition from perennial to seasonal ice cover. No evidence has been found for irreversibility or tipping points, suggesting that year-round sea ice will return given a suitable climate.”

The PC paper also attempts to connect global warming to increases in forest fires, but that’s incorrect: there has been no increasing trend in forest fires or annual burned acreage. If anything, trends in measures of forest fire activity have been negative over the past 80 years.

Concluding Thoughts

The alarmist propaganda contained in the PC proposal is intended to convince opinion leaders and the public that they’d better get on board with draconian and coercive steps to curtail economic activity. They appeal to the sense of virtue that must always accompany consent to authoritarian action, and that means vouching for sacrifice in the interests of environmental and climate equity. All the while, the authors hide behind a misleading version of Elinor Ostrom’s insights into the voluntary and cooperative husbandry of common pool resources.

One day we’ll be able to produce enough carbon-free energy to accommodate high standards of living worldwide and growth beyond that point. In fact, we already possess the technological know-how to substantially reduce our reliance on fossil fuels, but we lack the political will to avail ourselves of nuclear energy. With any luck, that will soften with installations of modular nuclear units.

Ultimately, we’ll see advances in fusion technology, beamed non-intermittent solar power from orbital collection platforms, advances in geothermal power, and effective carbon capture. Developing these technologies and implementing them at global scales will require massive investments that can be made possible only through economic growth, even if that means additional carbon emissions in the interim. We must unleash the private sector to conduct research and development without the meddling and clumsy efforts at top-down planning that typify governmental efforts (including an end to mandates, subsidies, and taxes). We must also reject ill-advised attempts at geoengineered cooling that are seemingly flying under the regulatory radar. Meanwhile, let’s save ourselves a lot of trouble by dismissing the interventionists in the planetary commons crowd.

The Impotence of AI for the Socialist Calculation Debate

05 Monday Jun 2023

Posted by Nuetzel in Artificial Intelligence, Central Planning, Markets

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Allocative efficiency, CATO Institute, central planning, Don Boudreaux, F.A. Hayek, incentives, Industrial Policy, Invisible Hand, Jason Kuznicki, Jesús Fernández-Villaverde, Knowledge Problem, Libertarianism.org, Machine Learning, Michael Munger, Opportunity cost, Protectionism, Robert Lucas, Socialist Calculation Debate

Recent advances in artificial intelligence (AI) are giving hope to advocates of central economic planning. Perhaps, they think, the so-called “knowledge problem” (KP) can be overcome, making society’s reliance on decentralized market forces “unnecessary”. The KP is the barrier faced by planners in collecting and using information to direct resources to their most valued uses. KP is at the heart of the so-called “socialist calculation debate”, but it applies also to the failures of right-wing industrial policies and protectionism.

Apart from raw political motives, run-of-the-mill government incompetence, and poor incentives, the KP is an insurmountable obstacle to successful state planning, as emphasized by Friedrich Hayek and many others. In contrast, market forces are capable of spontaneously harnessing all sources of information on preferences, incentives, resources, as well as existing and emergent technologies in allocating resources efficiently. In addition, the positive sum nature of mutually beneficial exchange makes the market by far the greatest force for voluntary social cooperation known to mankind.

Nevertheless, the hope kindled by AI is that planners would be on an equal footing with markets and allow them to intervene in ways that would be “optimal” for society. This technocratic dream has been astir for years along with advances in computer technology and machine learning. I guess it’s nice that at least a few students of central planning understood the dilemma all along, but as explained below, their hopes for AI are terribly misplaced. AI will never allow planners to allocate resources in ways that exceed or even approximate the efficiency of the market mechanism’s “invisible hand”.

Michael Munger recently described the basic misunderstanding about the information or “data” that markets use to solve the KP. Markets do not rely on a given set of prices, quantities, and production relationships. They do not take any of those as givens with respect to the evolution of transactions, consumption, production, investment, or search activity. Instead, markets generate this data based on unobservable and co-evolving factors such as the shape of preferences across goods, services, and time; perceptions of risk and its cost; the full breadth of technologies; shifting resource availabilities; expectations; locations; perceived transaction costs; and entrepreneurial energy. Most of these factors are “tacit knowledge” that no central database will ever contain.

At each moment, dispersed forces are applied by individual actions in the marketplace. The market essentially solves for the optimal set of transactions subject to all of those factors. These continuously derived solutions are embodied in data on prices, quantities, and production relationships. Opportunity costs and incentives are both an outcome of market processes as well as driving forces, so that they shape the transactional footprint. And then those trades are complete. Attempts to impose the same set of data upon new transactions in some repeated fashion, freezing the observable components of incentives and other requirements, would prevent the market from responding to changing conditions.

Thus, the KP facing planners isn’t really about “calculating” anything. Rather, it’s the impossibility of matching or replicating the market’s capacity to generate these data and solutions. There will never be an AI with sufficient power to match the efficiency of the market mechanism because it’s not a matter of mere “calculation”. The necessary inputs are never fully unobservable and, in any case, are unknown until transactions actually take place such that prices and quantities can be recorded.

In my 2020 post “Central Planning With AI Will Still Suck”, I reviewed a paper by Jesús Fernández-Villaverde (JFV), who was skeptical of AI’s powers to achieve better outcomes via planning than under market forces. His critique of the “planner position” anticipated the distinction highlighted by Munger between “market data” and the market’s continuous generation of transactions and their observable footprints.

JFV emphasized three reasons for the ultimate failure of AI-enabled planning: impossible data requirements; the endogeneity of expectations and behavior; and the knowledge problem. Again, the discovery and collection of “data” is a major obstacle to effective planning. If that were the only difficulty, then planners would have a mere “calculation” problem. This shouldn’t be conflated with the broader KP. That is, observable “data” is a narrow category relative the arrays of unobservables and the simultaneous generation of inputs and outcomes that takes place in markets. And these solutions are found by market processes subject to an array of largely unobservable constraints.

An interesting obstacle to AI planning cited by JFV is the endogeneity of expectations. It too can be considered part of the KP. From my 2020 post:

“Policy Change Often Makes the Past Irrelevant: Planning algorithms are subject to the so-called Lucas Critique, a well known principle in macroeconomics named after Nobel Prize winner Robert Lucas. The idea is that policy decisions based on observed behavior will change expectations, prompting responses that differ from the earlier observations under the former policy regime. … If [machine learning] is used to “plan” certain outcomes desired by some authority, based on past relationships and transactions, the Lucas Critique implies that things are unlikely to go as planned.”

Again, note that central planning and attempts at “calculation” are not solely in the province of socialist governance. They are also required by protectionist or industrial policies supported at times by either end of the political spectrum. Don Boudreaux offers this wisdom on the point:

“People on the political right typically assume that support for socialist interventions comes uniquely from people on the political left, but this assumption is mistaken. While conservative interventionists don’t call themselves “socialists,” many of their proposed interventions – for example, industrial policy – are indeed socialist interventions. These interventions are socialist because, in their attempts to improve the overall performance of the economy, proponents of these interventions advocate that market-directed allocations of resources be replaced with allocations carried out by government diktat.”

The hope that non-market planning can be made highly efficient via AI is a fantasy. In addition to substituting the arbitrary preferences of planners and politicians for those of private agents, the multiplicity of forces bearing on individual decisions will always be inaccessible to AIs. Many of these factors are deeply embedded within individual minds, and often in varying ways. That is why the knowledge problem emphasized by Hayek is much deeper than any sort of “calculation problem” fit for exploitation via computer power.

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Note: The image at the top of this post is attributed by Bing to the CATO Institute-sponsored website Libertarianism.org and an article that appeared there in 2013, though that piece, by Jason Kuznicki, no longer seems to feature that image.

Net Zero: It Ain’t Gonna Happen

15 Thursday Sep 2022

Posted by Nuetzel in Central Planning, Environmental Fascism, Renewable Energy

≈ 4 Comments

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Backup Capacity, Brad Allenby, Carbon Capture, Cost Parity, Decarbonization, El Hierro, Ezra Klein, Francis Minton, Geothermal, Green Energy, Green Mandates, Hydrocarbons, Intermittancy, Joseph Sternberg, Land Use Requirements, Legal Insurrection, Lithium Batteries, Manhattan Contrarian, Mark P. Mills, Murtaza Hussain, Net Zero, Rare Earth Minerals, Renewable, Solar Power, The Intercept, Tuomas Malinen, Walter Jacobson, Wind Power

A number of countries have targeted net zero carbon dioxide emissions, to be achieved within various “deadlines” over the next few decades. The target dates currently range from 2030 -2050. Political leaders around the world are speaking in the tongues favored by climate change fundamentalism, as Brad Allenby aptly named the cult some years ago. The costly net zero goal is a chimera, however. The effort to completely substitute renewables — wind and solar — for fossil fuels will fail without question. In fact, net zero carbon emissions is unlikely to be achieved anywhere in this century without massive investments in nuclear power. Wind and solar energy suffer from a fatal flaw: intermittency. They will never be able to provide for all energy needs without a drastic breakthrough in battery technology, which is not on the horizon. Geothermal power might make a contribution, but it won’t make much of a dent in our energy needs any time soon. Likewise, carbon capture technology is still in its infancy, and it cannot be expected to offset much of the carbon released by our unavoidable reliance on fossil fuels.

Exposing Green Risks

The worst of it is that net zero mandates will inflict huge costs on society. Indeed, various efforts to force conversion to “green” energy technologies have already raised costs and exposed humanity to immediate threats to health and well being. These realities are far more palpable than the risks posed by speculative model predictions of climate change decades ahead. As Joseph Sternberg notes at the link above, climate policies:

“… have created an energy system of dangerous rigidity and inefficiency incapable of adapting to a blow such as Russia’s partial exit from the European gas market. It’s almost inevitable that the imminent result will be a recession in Europe. We can only hope that it won’t also trigger a global financial crisis.”

Escalating energy costs are inflicting catastrophic harm on businesses large and small throughout the West, but especially in Europe and the UK. A Finnish economist recently commented on these conditions, as quoted by Walter Jacobson at the Legal Insurrection blog:

“I saw this tweet thread by Finnish economist and professor Tuomas Malinen:

I am telling you people that the situation in #Europe is much worse than many understand. We are essentially on the brink of another banking crisis, a collapse of our industrial base and households, and thus on the brink of the collapse of our economies.”

Jacobson also offers the following quote from Murtaza Hussain of The Intercept:

“If you turned the electricity off for a few months in any developed Western society 500 years of supposed philosophical progress about human rights and individualism would quickly evaporate like they never happened.”

Where’s the Proof of Concept?

This is not all about Russian aggression, however. We’ve seen the cost consequences of “green” mandates and forced conversion to wind and solar in places like California, Texas, and Germany even before Russia invaded Ukraine and began starving Europe of natural gas.

Frances Minton at the Manhattan Contrarian blog points to one of the most remarkable aspects of the singular focus on net zero: the complete absence of any successful demonstration project anywhere on the globe! The closest things to such a test are cited by Minton. One is on El Hierro in Spain’s Canary Islands, which has wind turbine capacity of more than double average demand, It also has pumped storage with hydro generators for more than double average demand. In 2020, however, El Hierro took all of its power from the combined wind/storage system only about 15% of the time. 2021 didn’t look much better. Diesel power is used to fill in the frequent “shortfalls”.

Land Use

The land use requirements of a large scale transition to wind and solar are incredible, given projected technological capabilities. Ezra Klein explains:

“The center of our decarbonization strategy is an almost unimaginably large buildup of wind and solar power. To put some numbers to that: A plausible path to decarbonization, modeled by researchers at Princeton, sees wind and solar using up to 590,000 square kilometers – which is roughly equal to the land mass of Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Ohio, Rhode Island and Tennessee put together. ‘The m footprint is very, very large, and people don’t really understand that,’ Danny Cullenward, co author of ‘Making Climate Policy Work’, told me.”

That’s a major obstacle to accelerating the transition to wind and solar power, but there are many others.

A Slap of Realism

Mark P. Mills elaborates on the daunting complexity and costs of the transition, and like land use requirements, they are all potential show stoppers. It’s a great article excepting a brief section that reveals a poor understanding of monetary theory. Putting that aside, it’s first important to reemphasize what should be obvious: shutting down production of fossil fuels makes them scarce and more costly,. This immediately reduces our standard of living and hampers our future ability to respond to tumultuous circumstances as are always likely to befall us. Mills makes that abundantly clear:

“… current policies and two decades of mandates and spending on a transition have led to escalating energy prices that help fuel the destructive effects of inflation. The price of oil, which powers nearly 97% of all transportation, is on track to reach or exceed half-century highs, and gasoline prices have climbed. The price of natural gas, accounting for 40% of all industrial energy use and one-fourth of global electricity, has soared past a decadal high. Coal prices are also at a decadal high. Coal fuels 40% of global electricity; it is also used to make 70% of all steel and accounts for half its cost of production.

It bears noting that energy prices started soaring, and oil breached $100 a barrel, well before Russia invaded Ukraine in late February. The fallout from that invasion has hardened, not resolved, the battle lines between those advocating for and those skeptical of government policies directed at accelerating an energy transition. …

Civilization still depends on hydrocarbons for 84% of all energy, a mere two percentage points lower than two decades ago. Solar and wind technologies today supply barely 5% of global energy. Electric vehicles still offset less than 0.5% of world oil demand.”

As Mills says, it surprises most people that today’s high tech sectors, such as electronic devices like phones and computers, and even drugs, require much more energy relative to product size and weight than traditional manufactured goods. Even the cloud uses vast quantities of energy. Yet U.S. carbon intensity per dollar of GDP has declined over the past 20 years. That’s partly due to the acquisition of key components from abroad, mitigation efforts here at home, and the introduction of renewables. However, the substitution of natural gas for other fossil fuels played a major role. Still, our thirst for energy intensive technologies will cause worldwide demand for energy to continue to grow, and renewables won’t come close to meeting that demand.

Capacity Costs

Policy makers have been deceived by cost estimates associated with additions of renewable capacity. That’s due to the fiction that renewables can simply replace hydrocarbons, but the intermittency of solar and wind power mean that demand cannot be continuously matched by renewables capacity. Additions to renewables capacity requires reliable and sometimes redundant backup capacity. At the risk of understatement, this necessity raises the marginal cost of renewable additions significantly if the hope is to meet growth in demand.

Furthermore, as Mills points out, renewables have not reached cost parity with fossil fuels, contrary to media hype and an endless flow of propaganda from government and the “green” investors seeking rents from government. Subsidies to renewables have created an illusion that costs that are lower than they are in reality.

So Many Snags

From Mills, here are a few of the onerous cost factors that will present severe obstacles to even a partial transition to renewables:

  • Even with the best battery technology now available, using lithium, storing power is still extremely expensive. Producing and storing it at scale for periods long enough to serve as a true source of power redundancy is prohibitive.
  • The infrastructure buildout required for a hypothetical transition to zero-carbon is massive. The quantity of raw materials needed would be far in excess of those used in our investments in energy infrastructure over at least the past 60 years.
  • Even the refueling infrastructure required for a large increase in the share of electronic vehicles on the road would require a massive investment, including more land and at much greater expense than traditional service stations. That’s especially true considering the grid enhancements needed to deliver the power.
  • The transition would place a huge strain on the world’s ability to mine minerals such as lithium, graphite, nickel, and rare earths. Mills puts the needed increases in supply at 4,200%, 2,500%, 1,900%, and 700%, respectively, by 2040. In fact, the known global reserves of these minerals are inadequate to meet these demands.
  • Mining today is heavily reliant on hydrocarbon power, of course. Moreover, all this mining activity would have devastating effects on the environment, as would disposal of “green” components as they reach their useful lives. The latter is a disaster we’re already seeing played out in the third world, where we are exporting much of our toxic, high-tech waste.
  • The time it would take to make the transition to zero carbon would far exceed the timetable specified in the mandates already in place. It’s realistic to admit that development of new mines, drastic alterations of land use patterns, construction of new generating capacity, and the massive infrastructure buildout will stretch out for many decades.
  • Given U.S. dependence on imports of a large number of minerals now considered “strategic”, decarbonization will require a major reconfiguration of supply chains. In fact, political instability in parts of the world upon which we currently rely for supplies of these minerals makes the entire enterprise quite brittle relative to reliance on fossil fuels.

Conclusion

The demands for raw materials, physical capital and labor required by the imagined transition to net zero carbon dioxide emissions will put tremendous upward pressure on prices. The coerced competition for resources will mean sacrifices in other aspects of our standard of living, and it will have depressing effects on other markets, causing their relative prices to decline.

For all the effort and cost of the mandated transition, what will we get? Without major investments in reliable but redundant backup capacity, we’ll get an extremely fragile electric grid, frequent power failures, a diminished standard of living, and roughly zero impact on climate. In other words, it will be a major but unnecessary and predictably disastrous exercise in central planning. We’ve already seen the futility of this effort in the few, small trials that have been undertaken, but governments, rent-seeking investors, and green activists can’t resist plunging us headlong into the economic abyss. Don’t let them do it!

Interventionists Love You and Demand You Change, or Else

19 Friday Aug 2022

Posted by Nuetzel in Central Planning, Industrial Policy, Uncategorized

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CHIPS Act, David McGrogan, Dierdre McCloskey, Don Boudreaux, Industrial Planning, Inflation Reduction Act, Jason Brennan, Joseph Stiglitz, Lionel Trilling, Lockdowns, Pandemic, Paul Krugman, Scientism, Solyndra

Statistics and measurement might not be critical to the exercise of the authoritarian impulse, but they have served to enable the technocratic tyranny idealized by contemporary statists. Certain influential thinkers have claimed our ability to compile statistics helps give rise to the bureaucratized state. I ran across a great post that led with that topic: “The Brutalization of Compassion” by David McGrogan. The mere ability to compile relevant statistics on a population and its well being (income, jobs, wages, inequality, mortality, suicide, etc… ) can motivate action by authorities to “improve” matters. The purpose might be to get ahead of rival states, or the action might be rationalized as compassion. But watch out! McGrogan quotes a bit of cautionary wisdom from Lionel Trilling:

“‘When once we have made our fellow men the objects of our enlightened interest,’ he put it, something within us causes us to then ‘go on and make them the objects of our pity, then of our wisdom, ultimately of our coercion.’”

Ultimately, to pursue their vision, interventionists must impose controls on behaviors. In practice, that means any variance or attempted variance must be penalized. Here’s McGrogan’s description of the steps in this process:

“The conceptualisation of the population as a field of action, and the measurement of statistical phenomenon within it – the taking of an ‘enlightened interest’ in it – gives rise to both ‘pity,’ or compassion, and the application of ‘wisdom’ to resolve its problems. What is left, of course, is coercion, and we do not need to look far to identify it in the many means by which the modern state subjects the population to a kind of Tocquevillian ‘soft despotism,’ constantly manipulating, cajoling and maneuvering it this way and that for its own good, whether through compulsory state education or ‘sin taxes’ or anything in between.”

Follow the Scientism

I can’t neglect to mention another important condition: the hubris among apparatchiks who imagine the state can improve upon private institutions to achieve social betterment. They will always fail in attempts to replace the action of the private markets and the price mechanism to process information relating to scarcities and preferences. Absent that facility, human planners cannot guide flows of resources to their most valued uses. In fact, they nearly always botch it!

Government provision of public goods is one concession worth making, but the state capacity needed to fulfill this legitimate function is subject to severe mission creep: we frequently see efforts to characterize goods and service as “public” despite benefits that are almost wholly private (e.g. education). Likewise, we often hear exaggerated claims of “harms” requiring state intervention (e.g. carbon emissions). These situations often hinge purely on politics. Even when legitimate external benefits or costs can be identified, there is a pretension that they can be accurately measured and corrected via subsidies or taxes. This is far-fetched. At best, it’s possible to vouch for the directional appropriateness of some interventions, but the magnitude of corrective measures is variable and essentially unknowable. Too often we see government failure via over-subsidization of politically favored activities and over-penalization of politically disfavored activities.

One of the most egregious errors of intervention is the over-application of the precautionary principle: if risks are associated with an activity, then it must be curtailed. This often relies on measurements of highly uncertain causes and effects, and it involves aggregation subject to its own biases.

Just as questionable is the ability of “experts” to model natural or behavioral processes such that outcomes can be “predicted” over horizons extending many decades forward. That interventionists tend to ignore the uncertainties of these predictions is the most blatant and damaging conceit of all, not least because the public and the media usually have limited knowledge with which to assess the phenomenon in question.

Public Health Tyranny

The Covid pandemic presented a compelling excuse for precautionists in government and even private institutions to impose radical controls under a set of claims they called “the science”. These claims were often false and really antithetical to the principles of scientific inquiry, which calls for continually questioning hypotheses, even when they represent “consensus”. Yet a series of questionable scientific claims were used to justify abridgment of basic freedoms for the general population, most of whom faced little risk from the virus. This included lockdowns of schools and churches, business closures, cancellation of public events (except of course for protests and riots by Leftists), deferred medical care, vaccine mandates, and mask mandates. The damage these measures inflicted was fierce, and in the end we know that it was almost entirely unnecessary. Still, the public health establishment seems all too willing to ignore the facts in its readiness to repeat the whole range of mistakes at the slightest uptick in what’s now an endemic infection.

Standard Issue Cronyism

In the wake of the pandemic, we’ve witnessed a surge in calls for government to enhance the security of our nation’s supply chains. Too large a share of the critical goods required by domestic industries are produced overseas, which has made supply disruptions, and the threat of future disruptions, especially acute. Right on cue, advocates of industrial policy and planning have arranged for the federal government to provide $85 billion to domestic producers of semiconductors under the so-called CHIPS Act. But semiconductor producers are in no need of government incentives to “re-shore” production:

“… there has been even more chipmaking investment dedicated to the U.S. market, even as federal subsidies have languished. Construction is now underway at four major U.S. facilities and will continue with or without subsidies—something even Intel reluctantly acknowledged when it delayed the groundbreaking ceremony on its much‐ballyhooed Ohio facility to protest congressional inaction. This is because, as numerous experts have explained over the last year, there are real economic and geopolitical reasons to invest in additional U.S. semiconductor production—no federal subsidies needed.”

Moreover, the global shortage of computer chips appears to be ending. The subsidies will unnecessarily enrich industrialists and their shareholders, provide a source of graft to bureaucrats and various middle men, and likely over-allocate resources to domestic production of chips. Industrial planning of this kind has a long history of failure, and this time won’t be different.

Climate Fascists

We also see repeated over-application of the precautionary principle and rising dominance of industrial policy in climate and energy policy. Enormous sacrifices are imposed on consumers for the sake of minuscule changes in global carbon emissions and the “expected” long-term path of future “global” temperatures. The interventions taken in pursuit of these objectives are draconian, limiting choices and raising the cost of virtually everything produced and consumed. They distort the direction of physical investment, disfavoring reliable sources of base load capacity needed for growth, and also disfavoring the safest and most reliable zero-carbon alternative: nuclear power. The renewable energy sources foolishly pushed by the state and the ESG establishment are environmentally costly in their own right, and they don’t work when natural conditions are unfavorable. As one wag says about the climate provisions of the ironically named Inflation Reduction Act, “Gonna be a lot more Solyndras coming”.

And talk about sloppy! Our “trusted representatives” in Congress could hardly be bothered to pretend they’d done their homework. They neglected to provide any quantitative carbon and temperature impacts of the legislation. This must be a case of true honesty, because they really have no idea!

Delusions of Central Planning

One great weakness (among many) of arguments for state industrial planning is the assumption that government agents are somehow more competent, efficient, and “pure of heart” than agents in the private sector. Nothing could be more laughable. On this point, some of the most incisive commentary I’ve seen is provided by the masterful Don Boudreaux, first quoting Georgetown philosopher Jason Brennan before adding his own entertaining thoughts:

The typical way the left argues for the state is to describe what economists in the 1850s thought markets would be like under monopoly or monopsony, and then compare that to a state run by angels. Both halves of the argument are bad, and yet philosophy treats this as if it were rigorous and sophisticated.

“Far too many policy proposals are nothing more than prayers to the state-god. ‘We entreat you, Oh Powerful and Sacred One, to relieve our people of this or that misery, blemish, and market imperfection! We beseech you to bestow upon us – your faithful servants – cosmic justice, safety from new pathogens, unkind thoughts, and microaggressions, and protection from each and every burden of reality that we can imagine being cured by an omniscient, benevolent, and omnipotent deity! If we obey – and sacrifice to you without complaint our treasure and our freedoms – you will provide!’

I do not exaggerate. Pick at random any proposed government intervention offered by the likes of Progressives or national conservatives, and you’ll discover that the workability of this proposed intervention, when evaluated honestly, rests on nothing more solid than the above absurd faith that the state is – or, when in the right hands, will be – a secular god.”

On the idealization of government’s ability to “plan the economy” rationally, here is more from Boudreaux, first quoting the great Deirdre McCloskey:

Deep in left-wing thought about the economy, and in a good deal of right-wing thought, too, is the premise, as Isaiah Berlin once put it with a sneer, that government can accomplish whatever it rationally proposes to do. As has been often observed about leftists even as sweet as John Rawls, the left has no theory of the behavior of the government. It assumes that the government is a perfect expression of the will of The People.

“And nothing is more unscientific – indeed, more mystical – than is this still-commonplace practice of most Progressives, and also of very many conservatives, to analyze the economy and society, and to offer policy recommendations, using such a juvenile ‘understanding’ of the state. Yet such an ‘understanding’ of the state permeates the work even of some Nobel laureates in economics – laureates such as Paul Krugman and Joseph Stiglitz. This ‘understanding’ of the state is inseparable also from the work of pundits too many to count…

That these professors and pundits think of themselves as scientific – and are widely regarded as being especially intelligent, thoughtful, and scientific – testifies to the strength of the cult of democratically rubber-stamped coercion.”

Conclusion

Humans have proven to be incredible documentarians. The advent of measurement techniques and increasingly sophisticated methods of accounting for various phenomena has enabled better ways of understanding our world and our well being. Unfortunately, a by-product was the birth of scientism, the belief that men in authority are capable not only of measuring, but of fine-tuning, the present and future details of society and social interaction. Those pretensions are terribly mistaken. However, the actions of Congress and the Biden Administration prove that it’s adherents will never be persuaded, despite repeated demonstrations of the futility of central planning. Their words of compassion are no comfort — they must coerce the ones they “love”.

New Theory: Great Woke Filter Conceals Life In the Cosmos

03 Friday Jun 2022

Posted by Nuetzel in Central Planning, Extraterrestrial Life, Space Travel

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Tags

Asymptotic Burnout, Baumol's Disease, Club of Rome, Equilibrating Process, Fermi Paradox, Grabby Aliens, Hard-Step Model, Homeostatic Awakening, Innovation, Interstellar Travel, Limits to Growth, Market Incentives, Michael L. Wong, Robin Hanson, Selection Bias, Singularity, Stuart Bartlett, Superlinearity, Thomas Malthus, Unbounded Growth, Unidentified Aerial Phenomena, William Baumol

A recent academic paper seeks to explain the Fermi Paradox by asserting that all civilizations must either collapse or reach a point of homeostasis. The paper cites tensions between population growth, resource scarcity, limits to technical innovation, and ultimately political resistance to growth. The Fermi Paradox (FP) is the observation that by now, we should have detected or heard from an alien civilization if the universe has so much potential for intelligent life. But if those civilizations fail to advance beyond a certain level, they don’t develop the technical prowess to explore outside their own stellar neighborhoods or even become detectable from great distances.

The new paper, by Michael L. Wong and Stuart Bartlett (WB), says these outcomes might be the result of “asymptotic burnout” — followed by either civilizational collapse or a “homeostatic awakening”. Never has “get woke, go broke” been so palpable! Certain sections of the WB paper read like an encyclopedia of leftist apocalyptic speculation, dressed up in mathematics and assumed to generalize to any civilization of intelligent beings in the universe. The incredible vastness of outer space suggests that it might never be possible for us to detect these kinds of homebound, low-tech civilizations, whether constrained by scarcities and moribund technologies or hamstrung by their own politics. Similarly, they might not be able to detect us.

Great Filters

There are other, similar explanations of FP. All of those fall under the heading of “Great Filters”, and I’m not sure WB have come up with anything new in that regard except for the “woke” spin. Great filters can be extinction events, such as intra-planetary hostilities culminating in the reckless use of weapons of mass destruction. Or unfortunate collisions with massive asteroids, which are a matter of time. Malthusian outcomes have been discussed in the context of great filters as well. In the past, I’ve discussed the limitations imposed by collectivist social structures on a civilization’s potential to achieve interstellar travel. I’m not the only one. The kind of “awakening” posited by WB would certainly demand the centralization of economic decision-making, though they envision conditions under which the “awakening” is a rational and enlightened decision.

Grabby Civilizations

A bit of a digression here: one of the most interesting explanations for FP that I’ve heard is from economist Robin Hanson and several co-authors. Hanson, by the way, wrote the original paper on great filters. His more recent insight is the likelihood of an earth-bound selection bias: there must be reasons why we haven’t seen alien activity in earth’s backward light cone, assuming they exist. The light cone defines an area of space-time we have observed, or could have observed had we been looking. To have been within our light cone, an event coordinate’s distance from us in space must have been less than or equal to the time it takes for its light to arrive here. For example, we can see what happened on the surface of the Sun fifteen minutes ago because at the Sun’s distance, it takes just ten minutes for its light to reach us. However, an event on the Sun that occurred five minutes ago is still outside our backward light cone. Likewise, if a star is 100,000 light years away, we cannot see events that occurred there within the past 99,999 years.

Hanson and his co-authors focus on the timescales and “hard steps”, or critical evolutionary transitions, necessary for intelligent life to develop in a solar system. They construct a probability model suggesting that the birth of human civilization was likely on the early end of the time distribution of civilizational beginnings in the universe. That means there probably aren’t many distant civilizations we could possibly have seen in our light cone. We’d be more likely to detect them if they are sufficiently advanced to be so-called “grabby” civilizations, but that kind of technological development takes a long time. “Grabby” civilizations (or their machines) are capable of expanding their reach across the stars at high speed, some significant fraction of the speed of light. They can be expected to visibly alter the volume of space they control by settling, mining, building large structures, etc…. An interesting (and perhaps counterintuitive) result is that the faster such a civilization expands, the less likely we’d have seen them in our backward light cone. And we haven’t, which argues for a higher speed of alien conquest, all else equal.

In another post, Hanson estimates that the time until we meet another grabby civilization centers on about 1 billion years if we expand. So grabby civilizations are quite rare if they exist. That doesn’t rule out the possibility that we might detect or encounter a much less technically advanced civilization. Nevertheless, Hanson strongly believes in the reality of Great Filters and believes that human civilization is likely to encounter certain filters that we cannot even anticipate.

The explanation for FP offered by Hanson, et al is nuanced, and it is my favorite, given my fascination with the possibility of extraterrestrial life. Even if the development of human civilization is not especially “early”, the number of interstellar civilizations, grabby or not, is probably still quite small at this juncture. And no doubt space travel is tough! These civilizations and their interstellar pioneers might not endure long enough to cover the distances necessary to reach us. Even more pertinent is that we’ve really only been “looking” in earnest for maybe ten decades at the most, and without complete coverage or much precision. Alien origins or spatial conquests within the last 100 years at distances exceeding 100 light years would not yet be visible to us. And again, it’s remotely possible that there is a grabby civilization whose expansion will intersect with us sometime in the near future, but it is still too distant to be within our backward light cone. If closing on us fast enough, it could have been within a single light year six months ago and we would not yet know it!

Do Civilizations Scale Like Cities?

Now let’s return to the kind of great filter put forward by WB. They first appeal to the observation that cities scale superlinearly. That is, in cross-sectional data, the relationship between city population and various measures of income or output (and other metrics) are linear in logs with a coefficient greater than 1. That means a city with twice the population of another would generate more than twice as much income.

There are reasons why we’d expect city size to be associated with greater productivity, such as an abundance of collaborative opportunities and economies of agglomeration. However, WB assert that it is impossible for a city to sustain a superlinear growth relationship over time, requiring “unbounded growth”, without periodic bursts of innovation. Otherwise, a city encounters a growth “singularity”. WB maintain that the inability of innovation to sustain unbounded growth manifests in a cascade of failure in such a city, or at least homeostasis.

WB go on from there to claim that a civilization, as it advances, will become so interconnected via technology that it can be treated analytically like a single super-city. This assumption, that whole worlds scale like cities, offers WB an analytical convenience. They assume that population growth outstrips the supply of finite resources with an inadequate pace of innovation. WB further propose that civilizations confronting these barriers might undergo “awakenings” under which zero growth is accepted as a goal.

Of course, the growth of a city will stagnate when its size overwhelms its ability to meet demands. A city might be under severe resource constraints. There are external phenomena that can cause a city to languish. All this depends upon the unique vulnerabilities of individual cities. Certainly a widespread dearth of innovation could do the trick. A planetary civilization might be subject to similar constraints or limiting events. Some planets might be resource poor or have especially hostile natural environments. Aliens unfortunate enough to be there will not and cannot become “grabby”. But WB’s hypothesis amounts to the assertion that no civilization can hope to achieve “grabbiness”.

Faults In the Clouds of Delusion

The WB argument is misguided on several levels. First, there is only limited evidence that the scaling of cities is time invariant — that the relationships hold up as cities grow over time —no singularity required! After all, the super-linear relationship referenced by WB is based almost entirely on cross-sectional data. Moreover, the scaling assertion is atheoretic. Rationales are offered based on human social connections and presumed, fixed technical relationships between city population and such things as energy use and infrastructure requirements. However, the discussion is completely devoid of the equilibrating processes found in market economies and the guidance of the price mechanism. Instead, growth simply rages on until the pace of innovation and limited resources can no longer support it.

WB appear to assume that a planet’s finite pool of resources places a hard limit on the advancement of civilization. This is more than a bit reminiscent of the Club of Rome and it’s “Limits to Growth”, or the popular understanding of Thomas Malthus’ writings. That understanding is based on a purely biological model of human needs. which was spectacularly wrong in its prediction of worldwide famine. But that was only a starting point for Malthus, who believed in the power of markets. And even in primitive markets, the very scarcity with which biological needs conflict is what incentivizes greater efficiencies and substitutes. When something gets especially scarce, the market signals to users that they must conserve, on one hand, and it also incentivizes those able to commandeer resources. The latter act to fill the need with greater supplies, close substitutes, or inventive alternatives. Again, these kinds of equilibrating tendencies don’t seem to be of any consequence to WB.

The focus on super-linearity and the relationship between population and economic and other metrics obscures another reality: global fertility rates have been declining for decades and are now below replacement levels in many parts of the world. In addition, we know that birth rates tend to decline as income rises, which directly undermines WB’s concern about super-linearity. The unsustainable population growth envisioned by WB is unlikely to occur, much less overwhelm the ability of resources and innovation to provide for growth in human well-being. WB also ignore the fact that in-migration to cities is a primary contributor to their population growth, whereas in-migration has not been observed at the global level… at least that we’re aware!

What is never in short supply is human ingenuity, if we allow it to work. It enables us to identify and extract new reserves of resources previously hidden to us, and every new efficiency increases the effective reserves of resources already available. Mankind is now on the cusp of an era in which mining of scarce materials from the moon, asteroids, and other planets will be possible.

WB are correct that there are obstacles to urban growth, but they seem only dimly aware of the underlying reasons. Cities must provide myriad services to their residents. Many of those services will experience meager productivity gains relative to goods production, and consequently increased costs of services over time. This is an old problem known among economists as Baumol’s disease, after William Baumol. While it is not limited to cities, it can be especially acute in urban areas. The cost escalation may be severe for services such as education, health care, law enforcement, and the judicial system, which are certainly critical to the economic viability of cities. However, there will be future innovations and even automation of some of these services that boost productivity. Still, they are bound to mostly rise in cost relative to sectors with high average growth in productivity, such as manufacturing. Baumol’s disease is unlikely to tank the world economy. It is simply a fact of economic evolution: relative prices change, and low productivity sectors will suffer cost escalation.

The kind of “awakening” WB anticipate would only occur if individuals are willing sacrifice their liberties en masse, or if elites coerce them to do so. Perhaps there are beings who never imagine the kinds of liberties humans expect, or at least wish for. If so, I’d wager their average intelligence is too low to accomplish space travel anyway. We’ve learned from theory and history that socialism imposes severe constraints on growth. That’s why I once proposed that civilizations capable of interstellar travel will have avoided those chains.

Conclusion

Wong and Bartlett attempt to explain the Fermi Paradox based on the “asymptotic burnout” of civilizations. That is, they believe it’s extremely unlikely that any civilization can ever advance to interstellar travel, or as Hanson would put it, to be “grabby”. WB rely on an analogy between the so-called super-linearity of city scales and the scales of planetary civilizations. They generalize super-linearity to the time domain. In other words, WB make the heroic assumptions that the economic aggregates of planetary civilizations scale over time as cities scale cross-sectionally.

WB then claim that civilizations will confront limits to advancement based on their inability to sustain their pace of innovation. This amounts to Malthusian pessimism writ large. Today, human civilization, while not without its problems, is nowhere near the limits of its growth, and we are nearly ready to reach out beyond the confines of our planet for access to new stocks of resources. There are vast stores of unexploited energy even here on earth, and there are a number of relatively new energy technologies that are either available now or still in development. And there will be much more. Like the Club of Rome, WB lack an adequate appreciation for the power of markets and incentives to solve economic problems, which includes spurring innovation.

Finally, WB make the wholly unsupported conjecture that some civilizations will undergo “awakenings”, choosing to adopt homeostasis rather than growth. WB might or might not realize it, but this implies an abandonment of market institutions in favor of centrally-planned stagnation, and not a little coercion. Perhaps we should view WB’s hypothesis as a cautionary tale: get woke, go broke! Certainly, a homeostatic civilization that relies upon the ignorance of central planners will never develop the capacity for interstellar travel. It simply cannot generate the wealth or expertise necessary to do so. In fact, they are more likely to suffer bouts of mass starvation than any sort of middling prosperity. We probably haven’t seen other civilizations yet, and maybe we’re “early” on the development time-scale for civilizations, but when and if aliens arrive, it won’t be thanks to socialist “awakenings”. WP are at least correct in that regard.

Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

Posted by Nuetzel in Central Planning, Energy, Risk, Technology

≈ 2 Comments

Tags

Bartley J. Madden, Biden Administration, Dan Ervin, Don Boudreaux, Electric Vehicles, Energy Mandates, Energy subsidies, EV Adoption, External Benefits, External Costs, Fossil fuels, Grid Stability, Intermittancy, Kevin Williamson, Markets, Power Outages, Price Controls, regressivity, Renewable energy, Russia Sanctions, SEC Carbon Mandate, Sustainability

The frantic rush to force transition to a zero-carbon future is unnecessary and destructive to both economic well-being and the global environment. I do not subscribe to the view that a zero-carbon goal is an eventual necessity, but even if we stipulate that it is, a rational transition would eschew the immediate abandonment of fossil fuels and adopt a gradual approach relying heavily on market signals rather than a mad dash via coercion.

I’ve written about exaggerated predictions of temperature trends and catastrophes on a number of occasions (and see here for a similar view from a surprising source). What might be less obvious is the waste inherent in forcing the abandonment of mature and economic technologies in favor of, as yet, under-developed and uneconomic technologies. These failures should be obvious when the grid fails, as it does increasingly. It is often better to leave the development and dispersion of new technologies to voluntary decision-making. In time, advances will make alternative, low- or zero-carbon energy sources cost effective and competitive to users. That will include efficient energy storage at scale, new nuclear technologies, geothermal techniques, and further improvements in the carbon efficiency of fossil fuels themselves. These should be chosen by private industry, not government planners.

Boneheads At the Helm

Production of fossil fuels has been severely hampered by the Biden Administration’s policies. The sanctions on Russian oil that only began to take hold in March have caused an additional surge in the price of oil. Primarily, however, we’ve witnessed an artificial market disruption instigated by Biden’s advisors on environmental policy. After all, neither Russian oil imports nor the more recent entreaties to rogue states as Iraq and Venezuela for oil would have been necessary if not for the Administration’s war on fossil fuels. Take a gander at this White House Executive Order issued in January 2021. It reads like a guidebook on how to kill an industry. In a column this weekend, Kevin Williamson quipped about “the Biden administration’s uncanny ability to get everything everywhere wrong all at once.” That was about policy responses to inflation, but it applies to energy in particular.

Scorning the Miracle

Fossil fuels are the source of cheap and reliable energy that have lifted humanity to an unprecedented level of prosperity. Fossil fuels have given a comfortable existence to billions of people, allowing them to rise out of poverty. This prosperity gives us the luxury of time to develop substitutes, not to mention much greater safety against the kind of weather extremes that have always been a fact of life. The world still gets 80% of its energy from fossil fuels. These fuels are truly a miracle, and we should not discard such valuable technologies prematurely. That forces huge long-term investments in inferior technologies that are likely to be superseded in the future by more economic refinements or even energy sources and methods now wholly unimagined. There are investors who will still wish to pursue those new technologies, perhaps with non pecuniary motives, and there are a few consumers who really want alternatives to fossil fuels.

Biden’s apparent hope that his aggressive climate agenda will be a great legacy of his presidency is at the root of his intransigence toward fossil fuels. His actions in this regard have had a profoundly negative psychological effect on the oil and gas industry. Steps such as cancellations of pipeline projects are immediately impactful in that regard, to say nothing of the supplies that would have ultimately flowed through those pipelines. These cancellations reinforce the message Biden’s been sending to the industry and its investors since his campaign: we mean to shut you down! Who wants to invest in new wells under those circumstances? Other actions have followed: no new federal oil and gas leases, methane restrictions, higher drilling fees on federal land, and a variety of climate change initiatives that bode ill for the industry, such as the SEC’s mandate on carbon disclosures and the Federal Reserve’s proposed role in policing climate impacts.

And now, Democrats are contemplating a move that would make gasoline even more scarce: price controls. As Don Boudreaux says in a recent letter to The Hill:

“Progressives incessantly threaten to tax and regulate carbon fuels into oblivion. These threats cannot but reduce investors’ willingness to fund each of the many steps – from exploration through refining to transporting gasoline to market – that are necessary to keep energy prices low. One reality reflected by today’s high prices at the pump is this hostility to carbon fuels generally and to petroleum especially. And gasoline price controls would only make matters worse by further reducing the attractiveness of investing in the petroleum industry: Why invest in bringing products to market if the prices at which you’re allowed to sell are dictated by grandstanding politicians?”

The kicker is that all these policies are futile in terms of their actual impact on global carbon concentrations, let alone their highly tenuous link to global temperatures. The policies are also severely regressive, inflicting disproportionate harm on the poor, who can least afford such an extravagant transition. Biden wants the country to sacrifice its standard of living in pursuit of these questionable goals, while major carbon-emitting nations like China and India essentially ignore the issue.

Half-Baked Substitution

Market intervention always has downsides to balance against the potential gains of “internalizing externalities”. In this case, the presumed negative externalities are imagined harms of catastrophic climate change from the use of fossil fuels; the presumed external benefits are the avoidance of carbon emissions and climate change via renewables and other “zero-carbon” technologies. With those harms and gains in question, it’s especially important to ask who loses. Taxpayers are certainly on that list. Users of energy produced with fossil fuels end up paying higher prices and are forced to conserve or submit to coerced conversion away from fossil fuels. Then there are the wider impediments to economic growth and, as noted above, the distributional consequences.

Users of immature or inferior energy alternatives might also end up as losers, and there are likely to be external costs associated with those technologies as well. It’s not widely appreciated that today’s so-called clean energy alternatives are plagued by their need to obtain certain minerals that are costly to extract in economic and environmental terms, not to mention highly carbon intensive. And when solar and wind facilities fail or reach the end of their useful lives, disposal creates another set of environmental hazards. In short, the loses imposed through forced internalization of highly uncertain externalities are all too real.

Unfortunately, the energy sources favored by the Administration fail to meet base-load power needs on windless and/or cloudy days. The intermittency of these key renewables means that other power sources, primarily fossil-fuel and nuclear capacity, must remain available to meet demand on an ongoing basis. That means the wind and solar cannot strictly replace fossil fuels and nuclear capacity unless we’re willing to tolerate severe outages. Growth in energy demand met by renewables must be matched by growth in backup capacity.

A call for “energy pragmatism” by Dan Ervin hinges on the use of coal to provide the “bridge to the energy future”, both because there remains a large amount of coal generating capacity and it can stabilize the grid given the intermittency of wind and solar. Ervin also bases his argument for coal on recent increases in the price of natural gas, though a reversal of the Biden EPA’s attacks on gas and coal, which Ervin acknowledges, would argue strongly in favor of natural gas as a pragmatic way forward.

Vehicle Mandates

The Administration has pushed mandates for electric vehicle (EV) production and sales, including subsidized charging stations. Of course, the power used by EVs is primarily generated by fossil fuels. Furthermore, rapid growth in EVs will put a tremendous additional strain on the electric grid, which renewables will not be able to relieve without additional backup capacity from fossil fuels and nuclear. This severely undermines the supposed environmental benefits of EVs.

Once again, mandates and subsidies are necessary because EV technology is not yet economic for most consumers. Those buyers don’t want to spend what’s necessary to purchase an EV, nor do they wish to suffer the inconveniences that re-charging often brings. This is a case in which policy is outrunning the ability of the underlying infrastructure required to support it. And while adoption of EVs is growing, it is still quite low (and see here).

Wising Up

Substitution into new inputs or technologies happens more rationally when prices accurately reflect true benefits and scarcities. The case for public subsidies and mandates in the push for a zero-carbon economy rests on model predictions of catastrophic global warming and a theoretical link between U.S. emissions and temperatures. Both links are weak and highly uncertain. What is certain is the efficiency of fossil fuels to power gains in human welfare.

This Bartley J. Madden quote sums up a philosophy of progress that is commendable for firms, and probably no less for public policymakers:

“Keep in mind that innovation is the key to sustainable progress that jointly delivers on financial performance and taking care of future generations through environmental improvements.”

Madden genuflects to the “sustainability” crowd, who otherwise don’t understand the importance of trusting markets to guide innovation. If we empower those who wish to crush private earnings from existing technologies, we concede the future to central planners, who are likely to choose poorly with respect to technology and timing. Let’s forego the coercive approach in favor of time, development, and voluntary adoption!

The SEC’s Absurd Climate Overreach

04 Monday Apr 2022

Posted by Nuetzel in Central Planning, Global Warming

≈ 2 Comments

Tags

capital costs, Carbon Emissions, Carbon Forcing Models, carbon Sensitivity, central planning, Corporatism, Disclosure Requirements, ESG Risk, ESG Scores, Green Energy, Greenhouse Gas, Hester Peirce, John Cochrane, Litigation Risk, Paris Agreement, Regulatory Risk, Renewable energy, Scope 1, Scope 2, Scope 3, SEC Climate Mandate, Securities and Exchange Commission

The Securities and Exchange Commission recently issued a proposed rule for reporting on climate change risk, and it is fairly outrageous. It asks that corporations report on their own direct greenhouse gas emissions (GHG – Scope 1), the emissions caused by their purchases of energy inputs (Scope 2), and the emissions caused by their “downstream” customers and “upstream” suppliers (Scope 3). This is another front in the Biden Administration’s efforts to bankrupt producers of fossil fuels and to force the private sector to radically alter its mix of energy inputs. The SEC’s proposed “disclosures” are sheer lunacy on several levels.

The SEC Mandate

If implemented, the rule would allow the SEC to stray well outside the bounds of its regulatory authority. The SEC’s role is not to regulate emissions or the environment. Rather, as its web site makes clear, the agency is charged with:

“… protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

Given this mission, the SEC requires management to disclose material financial risks. Are a firm’s GHG emissions really material risks? The first problem here is quite practical: John Cochrane notes the outrageous costs that would be associated with compliance:

“‘Disclosure’ usually means revealing something you know. A perfectly honest answer to ‘disclose what you know about your carbon emissions’ is, ‘we have no idea what our carbon emissions are.’ Back that up with every document the company has ever produced, and you have perfectly ‘disclosed.’ There is no asymmetric information, fraud, etc.

The SEC has already required the production of new information, and as Hester Peirce makes perfectly clear, the climate rules again make a huge dinner out of that appetizer: essentially telling companies to hire a huge number of climate consultants to generate new information, and also how to run businesses.”

In a separate post, Cochrane quotes SEC Commissioner Hester Peirce’s response to the proposed rule. She emphasizes that companies are already required to disclose all material risks. Perhaps they have properly declined to disclose climate risks because those risks are not material.

“Current SEC disclosure mandates are intended to provide investors with an accurate picture of the company’s present and prospective performance through managers’ own eyes. How are they thinking about the company? What opportunities and risks do the board and managers see? What are the material determinants of the company’s financial value?”

Identifying the Risk Causers

Regardless of the actual risks to a firm caused by climate change, the SEC’s proposed GHG disclosures put a more subtle issue into play. Peirce describes what amounts to a fundamental shift in the SEC’s philosophy regarding the motivation and purpose of disclosure:

The proposal, by contrast, tells corporate managers how regulators, doing the bidding of an array of non-investor stakeholders, expect them to run their companies. It identifies a set of risks and opportunities—some perhaps real, others clearly theoretical—that managers should be considering and even suggests specific ways to mitigate those risks. It forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance.”

In other words, a major risk faced by these firms has nothing to do with climate change itself, but with perceptions of “climate-related” risks by other parties. That transforms the question of climate risk into something that is, in fact, regulatory and political. Is this the true nature of the SEC’s concern, all dressed up in the scientism typically relied upon by climate change activists?

The reaction of government bureaucrats to the risks they perceive is a palpable threat to investor well-being. For example, GHG emissions might lead to future regulatory sanctions from various government agencies, including fines, taxes, various sanctions, and mitigation mandates. In addition, with the growth of investment management based on what are essentially shambolic and ad hoc ESG scores, GHG or carbon emissions might lead to constraints on a firm’s access to capital. Just ask the oil and gas industry! That penalty is imposed by activist investors and fund managers who wish to force an unwise and premature end to the use of fossil fuels. There is also a threat that GHG disclosures themselves, based (as they will be) on flimsy estimates, could create litigation risk for many companies.

Much Ado About Nothing

While there are major regulatory and political risks to investors, let’s ask, for the sake of argument: how would one degree celcius of warming by the end of this century affect corporate results? Generally not at all. (The bounds described in the Paris Agreement are 1.5 to 2 degrees, but these are based on unrealistic scenarios — see links below.) It would happen gradually in any case, with ample opportunity to adapt to the operating environment. To think otherwise requires great leaps of imagination. For example, climate alarmists probably fancy that violent weather or wildfires will wipe out facilities, yet there is no reliable evidence that the mild warming experienced to-date has been associated with more violent weather or an increased incidence of wildfires (and see here). There are a great many “sacred cows” worshiped by climate-change neurotics, and the SEC undoubtedly harbors many of those shibboleths.

What probabilities can be attached to each incremental degree of warming that might occur over several decades. The evidence we’ve seen comes from so-called carbon-forcing models parameterized for unrealistically high carbon sensitivities and subjected to unrealistic carbon-concentration scenarios. Estimates of these probabilities are not reliable.

Furthermore, climate change risks, even if they could be measured reliably in the aggregate, cannot reasonably be allocated to individual firms. The magnitude of the firm’s own contribution to that risk is equivalent to the marginal reduction in risk if the firm implemented a realistic zero-carbon operating rule. For virtually any firm, we’re talking about something infinitesimal. It involves tremendous guesswork given that various parties around the globe take a flexible approach to emissions, and will continue to do so. The very suggestion of such an exercise is an act of hubris.

Back To The SEC’s Mandated Role

Let’s return to the practical problems associated with these kinds of disclosure requirements. Cochrane also points out that the onerous nature of the SEC proposal, and the regulatory and political threats it embodies, will hasten the transition away from public ownership in many industries.

“The fixed costs alone are huge. The trend to going private and abandoning public markets, at least in the U.S. will continue. The trend to large oligopolized politically compliant static businesses in the U.S. will continue.

I would bet these rules wind up in court, and that these are important issues. They should be.”

Unfortunately, private companies will still have to to deal with certain investors who would shackle their use of energy inputs and demand forms of diligence (… not to say “due”) of their own.

The SEC’s proposed climate risk disclosures are stunningly authoritarian, and they are designed to coalesce with other demands by the regulatory state to kill carbon-based energy and promote renewables. These alternative energy sources are, as yet, unable to offer an economical and stable supply of power. The fraudulent nature of the alleged risks make this all the more appalling. The SEC has effectively undertaken an effort to engage in corporatist industrial policy benefitting a certain class of “green” energy investors, exposing the proposal as yet another step on the road to fascism. Let’s hope Cochrane is right: already, 16 state attorneys general are preparing a legal challenge. May the courts ultimately see through the SEC’s sham!

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Blogs I Follow

  • Passive Income Kickstart
  • OnlyFinance.net
  • TLC Cholesterol
  • Nintil
  • kendunning.net
  • DCWhispers.com
  • Hoong-Wai in the UK
  • Marginal REVOLUTION
  • Stlouis
  • Watts Up With That?
  • Aussie Nationalist Blog
  • American Elephants
  • The View from Alexandria
  • The Gymnasium
  • A Force for Good
  • Notes On Liberty
  • troymo
  • SUNDAY BLOG Stephanie Sievers
  • Miss Lou Acquiring Lore
  • Your Well Wisher Program
  • Objectivism In Depth
  • RobotEnomics
  • Orderstatistic
  • Paradigm Library
  • Scattered Showers and Quicksand

Blog at WordPress.com.

Passive Income Kickstart

OnlyFinance.net

TLC Cholesterol

Nintil

To estimate, compare, distinguish, discuss, and trace to its principal sources everything

kendunning.net

The Future is Ours to Create

DCWhispers.com

Hoong-Wai in the UK

A Commonwealth immigrant's perspective on the UK's public arena.

Marginal REVOLUTION

Small Steps Toward A Much Better World

Stlouis

Watts Up With That?

The world's most viewed site on global warming and climate change

Aussie Nationalist Blog

Commentary from a Paleoconservative and Nationalist perspective

American Elephants

Defending Life, Liberty and the Pursuit of Happiness

The View from Alexandria

In advanced civilizations the period loosely called Alexandrian is usually associated with flexible morals, perfunctory religion, populist standards and cosmopolitan tastes, feminism, exotic cults, and the rapid turnover of high and low fads---in short, a falling away (which is all that decadence means) from the strictness of traditional rules, embodied in character and inforced from within. -- Jacques Barzun

The Gymnasium

A place for reason, politics, economics, and faith steeped in the classical liberal tradition

A Force for Good

How economics, morality, and markets combine

Notes On Liberty

Spontaneous thoughts on a humble creed

troymo

SUNDAY BLOG Stephanie Sievers

Escaping the everyday life with photographs from my travels

Miss Lou Acquiring Lore

Gallery of Life...

Your Well Wisher Program

Attempt to solve commonly known problems…

Objectivism In Depth

Exploring Ayn Rand's revolutionary philosophy.

RobotEnomics

(A)n (I)ntelligent Future

Orderstatistic

Economics, chess and anything else on my mind.

Paradigm Library

OODA Looping

Scattered Showers and Quicksand

Musings on science, investing, finance, economics, politics, and probably fly fishing.

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