Tag Archives: Sustainability

Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

Posted by in Central Planning, Energy, Risk, Technology

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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!

ESG Scoring: Political Tool Disguised as Investment Guide

30 Wednesday Mar 2022

Posted by in Capital Markets, Corporatism, Environmental Fascism, Social Justice

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ESG scores are used to rate companies on “Environmental, Social, and Governance” criteria. The truth, however, is that ESGs are wholly subjective measures of company performance. There are many different ESG scores available, with no uniform standards for methodology, specific inputs, or weighting schemes. If you think quarterly earnings reports are manipulated, ESGs are an even more pliable tool for misleading investors. It is a market fad, and fund managers are using it as an excuse to charge higher fees to investors. But like any trending phenomenon, for a time, the focus on ESGs might feed-back positively to returns on favored companies. That won’t be sustainable, however, without legislative and regulatory cover, plus a little manipulative help from the ESG engineers and “Great Reset” propagandists.

It’s 100% Political, 0% Economic

ESGs are founded on prioritizing objectives that have little to do with shareholder value or any well-understood yardsticks of financial or operating performance. The demands on company resources for scoring highly on ESG are often nakedly political. This includes adoption of environmental goals such as fraudulent “zero carbon” impacts, the nebulous “sustainability” objective promoted by “green” activists, diversity, inclusion and equity initiatives, and support for activist groups such as Black Lives Matter and Antifa.

Concepts like “stakeholder value” are critical to the rationale for ESGs. “Stakeholders” can include employees, suppliers, and customers, as well as potential employees. suppliers, and customers. In other words, they can be just about anyone in the broader community, or more likely activists for “social change” whose interests have but the thinnest connection to the business’s productive activities. In essence, so-called stakeholder capitalism amounts to a ceding of control over corporate resources, and ultimately confiscation of wealth from equity owners.

Corporations have long engaged in various kinds of defensive actions, amounting to a modern-day trade in indulgences. No one will be upset about your gas-powered fleet if you buy enough carbon offsets, which just might neutralize the impact of the fleet on your ESG! On a more sinister level, ESG’s provide opportunities for cover against information that might be damaging to firms, such as the use of slave labor overseas. Flatter the right people, give to their causes, “partner” with them on pet initiatives, and your sins will be ignored and your ESG will climb! And ESGs are used in attempts to pacify leftist investors who see the corporation as a vessel for their own social objectives, quite apart from any mission it might have had as a productive enterprise.

Your ESG will shine if you do business that’s politically-favored, like renewable energy, despite its inefficiencies and significant environmental blemishes. But ESGs are not merely used to reward those anointed as virtuous by the Left. They are more forcefully used to punish firms in industries that are out of favor, or firms refusing to participate in buying off authoritarian crusaders. For example, you might be so berserk as to think fossil fuels and climate change represent imminent threats of catastrophe. Naturally, you’ll want to punish oil and gas producers. In fact, if you are in charge of ESG modeling, you might want to penalize almost any extraction industry, with certain exceptions: the massive extraction and disposal costs of renewables will pass without notice.

All these machinations occur despite the huge uncertainty surrounding flimsy, model-based predictions of warming and global catastrophe. Never mind that fossil fuels are still relied upon to provide for most of our energy needs and will be for some time to come, including base-load power generation when intermittency prevents renewables from meeting demand. The stability of the power grid depends upon the availability of carbon-based energy, which in fact is marvelously efficient. Yet the ESG crowd (not to mention the Biden Administration) seeks to drive up its cost, including the cost of capital, and these added costs fall most heavily on the poor.

ESG-guided efforts by activists to deny capital to certain segments of the energy sector may constitute antitrust violations. Some big players in the financial industry, who together manage trillions of dollars in investment funds, belong to an advocacy organization called Climate Action 100+. They coordinate on a mission to completely transform the energy industry via “green” investments and divestments of presumptively “dirty” concerns. These players and their clients have huge investments in green energy, and it is in their interest to provide cheap capital to those firms while denying capital to fossil fuel industries. As Arizona Attorney General Mark Brnovich writes at the link above, this is restraint of trade “hiding in plain sight”.

Manipulation

ESGs could be the mother of all principal-agent problems. Corporate CEOs, hired by ownership as stewards and managers of productive assets, are promoting these metrics and activities, which may not align with the interests of ownership. ESG’s are not standardized, and most users will have little insight into exactly how these “stakeholder” sausages are stuffed. In fact, much of the information used for ESGs is extremely ad hoc, not universally disclosed, and is often qualitative. The applicability of these scores to the universe of stocks, and their reliability in guiding investment decisions, is extremely questionable no matter what the investor’s objectives. And of course the models can be manipulated to produce scores that suit the preferences of money managers who have a stake in certain firms or industry segments, and who inflate their fees in exchange for ESG investment advice. And firms can certainly engage in deceptions that boost ESGs, as already discussed.

Like many cultural or consumer trends, investment trends can feed off themselves for a time. If there are enough “woke” investors, ESGs might well feed an unvirtuous cycle of stock purchases in which returns become positively correlated with wokeness. Such a divorce from business fundamentals will eventually take its toll on returns, especially when economic or other conditions present challenges, but that’s not the answer you’ll get from many stock pickers and investment pundits.

At the same time, there are ways in which the preoccupation with ESGs dovetails with the rents often sought in the political arena. Subsidies, for example, will be awarded to firms producing renewables. Politically favored firms are also likely to receive better regulatory treatment.

There are other ways in which firms engaging in wasteful activities can survive profitably, at least for a time. Monopoly power is one, and companies often develop a symbiosis with regulators that hampers smaller competitors. This is traditional rent-seeking corporatism in action, along with the “too-big-to-fail” regime. Sometimes sheer growth in demand for new technologies or networking potential helps to conceal waste. Hot opportunities can leave growing companies awash in cash, some of which will be burned in wasteful endeavors. ESG scoring offers them additional cover.

Cracks In the Edifice

John Cochrane notes a fundamental, long-term contradiction for those who invest based on ESGs: an influx of capital will tend to drive down returns in those firms and industries, while the returns on firms having low ESGs will be driven upward. Yet advocates claim you can invest for virtue and superior returns. That can’t outlast real market forces, especially as ESG efforts dilute any mission a firm might have as a productive enterprise.

Vladimir Putin’s brutal invasion of Ukraine has revealed other cracks in the ESG edifice. We now have parties arguing that defense stocks should be awarded ESG points! Also, that oil production by specific nations should be scored highly. There is also an awakening to the viability of nuclear power as an energy source. Then we have the problem of delivering on Biden’s promise to Europe of more liquified natural gas exports. That will be difficult given the way Biden has bludgeoned the industry, as well as the ESG conspiracy to deny it access to capital. Just watch the ESG hacks backpedal. Now, even the evangelists at Blackrock are wavering. To see the thread of supposed ESG consistency unravel would be enough to make you laugh if the entire conspiracy weren’t so grotesque.

Closing

The pretensions underlying “green” initiatives undertaken by large corporations are good mainly for virtue signaling, to collect public subsidies, and to earn better ESG scores. They are usually wasteful in a pure economic sense. The same is true of social justice and diversity initiatives, which can be perversely racist in their effects and undermine the rule of law.

Ultimately, we must recognize that the best contribution any producer can make to society is to create value for shareholders and customers by doing what it does well. The business world, however, has gone far astray in the direction of rank corporatism, and keep this in mind: any company supporting a sprawling HR department, pervasive diversity efforts, “sustainability” initiatives, and preoccupations with “stakeholder” outreach is distracted from its raison d’etre, its purpose as a business enterprise to produce something of value. It is probably captive to outside interests who have essentially commandeered management’s attention and shareholders’ resources.

When it comes to investing, I prefer absolute neutrality with respect to out-of-mission social goals. Sure, do no harm, but the focus should remain squarely on goals inherent in the creation of value for customers and shareholders.

Social Credit Scores, ESGs, and Portfolio Rot

29 Thursday Apr 2021

Posted by in Capital Markets, Corporatism, Environment, Social Justice

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As a small investor I resent very much the use of so-called “ESG scores” to guide investment decisions on my behalf. ESG stands for “Environmental, Social, and Governance” criteria for rating companies. These scores or grades are developed and assigned by various firms (Refinitiv, CSRHub, and many others) to public companies. The scores are then marketed to financial institutions. While ESGs from various sources are not yet standardized, a public company can attempt to improve its ESG scoring through adoption of environmental goals such as “zero” carbon, diversity and inclusion initiatives, and (less objectionably) by enhancing its systems and processes to ensure protection of shareholder and other interests.

Who Uses ESGs?

An investment fund, for example, might target firms with high ESG scores as a way of appealing to progressive investors. Or an institutional investor like a pension fund might wish to invest in high ESG stocks in order to avoid riling “woke” activist investors, thus keeping the hounds at bay. This is nothing new: many corporations engage in various kinds of defensive actions, which amount to modern day “selling of indulgences”.

An aggregate ESG score can be calculated for a fund or portfolio of stocks by weighting individual holdings by market value. And of course, an ESG score can be calculated for YOUR portfolio. As a “service” to clients, Merrill Lynch plans to do just that.

My first reaction was to give my ML financial advisor an earful. Of course, ML’s presumed objective is to guide you to make “better” investment decisions. However, I do not wish to reward firms with capital based on their “social” positioning, nor do I wish to encourage exercises in “wokeness”. I simply want to supply capital based on a firm’s business fundamentals.

My advisor was more than sympathetic, and I believe he’s sincere. The problem is that corporate wokeness is so ubiquitous that it becomes difficult to invest in equities at all without accepting some of it and just holding your nose. That goes for virtually all ETFs and index funds.

ESGs Are Not Consumer Scores

I’m obviously unhappy about this as a Merrill account holder, and also as a financial economist and a libertarian. But first, a few words about what is not happening, at least not yet. A number of conservative commentators (see here, and here) have described this as an assignment of “social credit scores” to consumers based on their individual or household behavior, much as the Chinese government now grades people on the quality of their citizenship. These conservative voices have reacted to ESG scores as if they incorporate information on your energy usage, for example, to grade you along the environmental dimension. That is not the case, though ESGs can be used to grade the stocks you own. And yes, that is rather Orwellian!

One day, if present trends continue, banks might have access to our energy usage through affiliations with utilities, smart car companies, and various data aggregators. And who knows? They might also use information on your political contributions and subscriptions to grade you on your social “wokeness”, but only if they have access to payment records. Traditional credit information will be used as it is now, to grade you on financial discipline, but your “consumer ESG” might be folded into credit approval decisions, for example, or any number of other decisions that affect your way of life. But except for credit scoring, none of this is happening today. All the consumer information outside of traditional credit scoring data is too scattered and incomplete. So far, ESGs are confined to evaluating companies, funds, and perhaps your portfolio.

ESGs and Returns

ESGs get plenty of favorable coverage from the financial press and even from academics. This post from The Motley Fool from 2019 demonstrates the kind of praise often heaped upon ESGs. Sure, firms who cater to various cultural trends will be rewarded if they convince interested buyers they do it well, whatever it is. That includes delivering goods and services that appeal in some way to environmental consciousness or social justice concerns. So I don’t doubt for a moment that money can be made in the effort. Still, there are several difficulties in quantitatively assessing the value of ESG scores for investment purposes.

First, ESG inputs, calculations, and weights are often proprietary, so you don’t get to see exactly how the sausage is stuffed. On that point, it’s worth noting that much of the information used for ESG’s is rather ad hoc, not universally disclosed, or qualitative. Thus, the applicability (and reliability) of these scores to the universe of stocks is questionable.

Second, inputs to ESGs represent a mix of elements with positive and negative firm-level effects. I already mentioned that ESGs reward good governance on behalf of shareholders. The environmental component is almost surely correlated with lines of business that qualify for government subsidies. More generally, it might reflect conservation of certain materials having a favorable impact on costs. And attempts to measure diversity might extract legitimately positive signals from the employment of highly productive individuals, many of whom have come from distant shores. So ESG scores almost certainly have a few solidly useful components for investors.

The proprietary nature of ESG calculations also raises the question of whether they can be engineered to produce a more positive association with returns. There’s no doubt that they can, but I’m not sure it can be confirmed one way or the other for a particular ESG variant.

Like cultural or consumer trends, investment trends can feed off themselves for a time. If there are enough “woke” investors, ESGs might well feed an unvirtuous cycle of stock purchases in which returns become positively correlated with wokeness. My thinking is that such a divorce from business fundamentals will eventually take its toll on returns, especially when economic or other conditions present challenges, but that’s not the answer you’ll get from many stock pickers and investment pundits.

Remember also that while a particular ESG might be positively correlated with returns, that does not make it the best or even a good tool for evaluating stocks. In fact, it might not even rank well relative to traditional metrics.

Finally, there is the question of causality. There are both innocent and pernicious reasons why certain profitable firms are able to spend exorbitantly on initiatives that coincidentally enhance their ESGs. More on that below.

Social and Economic Rot

Most of the “green” initiatives undertaken by large corporations are good mainly for virtue signaling or to collect public subsidies. They are often wasteful in a pure economic sense, meaning they create more waste and other costs than their environmental benefits. The same is true of social justice and diversity initiatives, which can be perversely racist in their effects and undermine the rule of law. And acts on behalf of “stakeholders” often sacrifice shareholders’ interests unnecessarily.

There are many ways in which firms engaging in wasteful activities can survive profitably, at least for a time. Monopoly power is one way, of course. Large companies often develop a symbiosis with regulators which hampers smaller competitors. This is traditional corporatism in action, along with the “too big to fail” regime. And again, sheer growth in demand for new technologies or networking potential can hide a lot of warts. Hot opportunities sometimes leave growing companies awash in cash, some of which will be burned in wasteful endeavors.

Ultimately, we must recognize that the best contribution any producer can make to society is to create value for shareholders and customers by doing what it does well. But to see how far the corporate world has gone in the other direction, keep this in mind: any company supporting a sprawling HR department, pervasive diversity efforts, “sustainability” initiatives, and preoccupations with “stakeholder” outreach is distracted from its raison d’etre, its purpose as a business enterprise to produce something of value. It is probably captive to certain outside interests who have essentially commandeered management’s attention and shareholders’ resources. And this is evidence of rot.

My reference to “portfolio rot” reflects my conviction is that it is a mistake to dilute investment objectives by rewarding virtue signals. They are usually economically wasteful, though sometimes they might be rewarded via government industrial policy, regulators, and the good graces of activists. But ultimately, this waste will degrade the economy, undermine social cohesion, and devalue assets generally.

What Can We Do?

Despite the grim implications of widespread ESG scoring, there are a few things you can do. First, simply avoid any funds that extol progressive activism, whether based on ESGs or along any dimension. If you invest in individual stocks, you can avoid the worst corporate offenders. Here is one guide that lists some of the “woke-most” companies by industry, and it provides links to more detailed reviews. I gave my advisor a list of firms from which I wanted to permanently divest, including Bank of America, which owns Merrill! I also listed various firms that are owned and operated by Chinese interests because I am repulsed by the Chinese regime’s human rights violations.

If you have the time, you can do a little more research before voting your proxies. That goes for shareholder, board, or management proposals as well as electing board members. You are very unlikely to swing the vote, but it might send a useful signal. I recently voted against a Unilever green initiative. I also researched each of the candidates for board seats, voting against a few based on their political, social and environmental positions and activities. Good information can be hard to get, however, so I abstained from a few others. This kind of thing is time consuming and I’m not sure I’m eager to do very much of it.

You can also support organizations like the American Conservative Union, which is “taking a stand against the increasingly divisive and partisan activism by public corporations and organizations that are caving to ‘woke’ pressure.” And there is Stop Corporate Tyranny, which is “a one-stop shop for educational resources exposing the Left’s nearly completed takeover of corporate America, along with resources and tools for everyday Americans to fight back against the Left’s woke and censoring mob in the corporate lane.”

People can make it harder for social credit scoring to enter the consumer realm by protecting their privacy. There will be obstacles, however, as sellers offer certain benefits and apply “nudges” to obtain their customers’ data, and it is often shared with other sellers. Sadly, one day those who guard their privacy most closely might find themselves punished in the normal course of trade due to their “thin” social credit files. There are many dark aspects to a world with social credit scoring!

Conservative Social Scoring?

There are at least two ETFs available that utilize conservative “social scoring systems” in picking stocks: EGIS and LYFE. Both are sponsored by 2ndVote Funds. EGIS has as its stated theme to invest in stocks which receive a favorable rating in support of the Second Amendment right to bear arms and/or in the interest of border security. LYFE seeks to meet its long-term return objectives in stocks with a favorable rating on the pro-life agenda. Both have reasonable expense ratios, as those things go. Unfortunately, my advisor says Merrill won’t allow those funds to be purchased until they have close to a full year of experience.

Are these two ETFs really so special? Are they really just marketing gimmicks? After all, I noticed that EGIS has Goldman Sachs in its top 10 holdings. While Goldman might not be the worst of its peers in terms of wokeness, it has stooped to some politically-motivated “cancel capers”. Moreover, do I really want to mix my investment objectives with my social preferences? Leftist investors are doing it, so countering might be well-advised if you can afford the risk of diluting your returns. My heart says yes, but my investor brain isn’t sure.

Closing

When it comes to investing, I’d prefer absolute neutrality with to respect social goals, other than the social goals inherent in the creation of value for customers and shareholders. Any emphasis on ESG scores is objectionable, but it’s a regrettable fact that we have to live with to some extent. If “social scoring” is unavoidable, then perhaps the themes adopted by 2ndVote Funds are worth trying as part of an investment approach. After all, given my personal blacklist of woke corporations, I’ve already succumbed to the temptation to invest based on social goals. And I feel pretty good about it. Unfortunately, it might mean I’ll sacrifice return and witness the continued descent of western society into a woke hellscape.

Scorning the Language of the Left

12 Sunday Jan 2020

Posted by in Censorship, Leftism, Political Correctness

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It’s hard not to ridicule some the language adopted by our lefty friends, and it can be fun! But it’s not just them. We hear it now from employers, schools, and otherwise sensible people too eager to signal their modernity and virtue. Lionel Shriver dissects some of this “Lefty Lingo” in an entertaining piece in Harper’s. It’s funny, but it aroused my contempt for the smugness of the “wokescenti” (a term Shriver attributes too Meghan Daum) and my pity for those “normals” simply desperate to project progressive sophistication.

Here are a few of Shriver’s observations:

“Privilege”: makes you incapable of understanding that which you criticize.

“Whereas a privilege can be acquired through merit—e.g., students with good grades got to go bowling with our teacher in sixth grade—privilege, sans the article, is implicitly unearned and undeserved. The designation neatly dispossesses those so stigmatized of any credit for their achievements while discounting as immaterial those hurdles an individual with a perceived leg up might still have had to overcome (an alcoholic parent, a stutter, even poverty). For privilege is a static state into which you are born, stained by original sin. Just as you can’t earn yourself into privilege, you can’t earn yourself out of it, either. … . it’s intriguing that the P-bomb is most frequently dropped by folks of European heritage, either to convey a posturing humility (“I acknowledge my privilege”) or to demonize the Bad White People, the better to distinguish themselves as the Good White People.

Meanwhile, it isn’t clear what an admission of privilege calls you to do, aside from cower. That tired injunction ‘Check your privilege’ translates simply to ‘S.T.F.U.’—and it’s telling that ‘Shut the fuck up’ is now a sufficiently commonplace imperative to have lodged in text-speak.”

“Cisgender”: “Cis-” is a linguistic shell game whereby the typical case is labelled cis-typical.

“Denoting, say, a woman born a woman who thinks she’s a woman, this freighted neologism deliberately peculiarizes being born a sex and placidly accepting your fate, and even suggests that there’s something a bit passive and conformist about complying with the arbitrary caprices of your mother’s doctor. Moreover, unless a discussion specifically regards transgenderism, in which case we might need to distinguish the rest of the population (‘non-trans’ would do nicely), we don’t really need this word, except as a banner for how gendercool we are. It’s no more necessary than words for ‘a dog that is not a cat,’ a ‘lamppost that is not a fire hydrant,’ or ‘a table that is actually a table.’ Presumably, in order to mark entities that are what they appear to be, we could append ‘cis’ to anything and everything. ‘Cisblue’ would mean blue and not yellow. ‘Cisboring’ would mean genuinely dull, and not secretly entertaining after all.”

“Microaggression“: Anything you say that bothers them, even a little.

“… a perverse concoction, implying that the offense in question is so minuscule as to be invisible to the naked eye, yet also that it’s terribly important. The word cultivates hypersensitivity.”

“_____-phobic”: the typical use of this suffix in identity politics stands “phobia” on its head. To be fair, however, it started with a presumption that people hate that which they fear. Maybe also that they fear and hate that which they don’t care for, but we’ll just focus on fear and hate. For example, there is the notion that men have deep fears about their own sexuality. Thus, the prototypical gay-basher in film is often compensating for his own repressed homosexual longings, you see. And now, the idea is that we always fear “otherness” and probably hate it too. Both assertions are tenuous. At least those narratives are rooted in “fear”, but it’s not quite the same phenomenon as hate, and yet “phobic” seems to have been redefined as odium:

“The ubiquitous ‘transphobic,’ ‘Islamophobic,’ and ‘homophobic’ are also eccentric, in that the reprobates so branded are not really being accused of fearfulness but hatred.”

“LGBTQ“: Lumping all these “types” together can be misleading, as they do not always speak in unison on public policy. But if we must, how about “Let’s Go Back To ‘Queer'”, as Shriver suggests. The LGBs I know don’t seem to mind it as a descriptor, but maybe that’s only when they say it. Not sure about the trannies. There is a great Libertarian economist who is transsexual ( Dierdre McCloskey), and somehow “queer” doesn’t seem quite right for her. Perhaps she’s just a great woman.

“The alphabet soup of ‘LGBTQ’ continues to add letters: LGBTQIAGNC, LGBTQQIP2SAA, or even LGBTIQCAPGNGFNBA. A three-year-old bashing the keyboard would produce a more functional shorthand, and we already have a simpler locution: queer.”

“Problematic”, “Troubling” and “Inappropriate”: I’m sure some of what I’ve said above is all three. I must confess I’ve used these terms myself, and they are perfectly good words. It’s just funny when the Left uses them in the following ways.

“Rare instances of left-wing understatement, ‘problematic’ and ‘troubling’ are coyly nonspecific red flags for political transgression that obviate spelling out exactly what sin has been committed (thereby eliding the argument). Similarly, the all-purpose adjectival workhorse ‘inappropriate’ presumes a shared set of social norms that in the throes of the culture wars we conspicuously lack. This euphemistic tsk-tsk projects the prim censure of a mother alarmed that her daughter’s low-cut blouse is too revealing for church. ‘Inappropriate’ is laced with disgust, while once again skipping the argument. By conceit, the appalling nature of the misbehavior at issue is glaringly obvious to everyone, so what’s wrong with it goes without saying.”

Here are a few others among my favorites:

“Patriarchy“: This serves the same function as “privilege” but is directed more specifically at the privilege enjoyed by males. Usually white, heterosexual males. It seeks to preemptively discredit any argument a male might make, and often it is used to discredit Western political and economic thought generally. That’s because so much of it was the product of the patriarchy, don’t you know! And remember, it means that males are simply incapable of understanding the plight of females … and children, let alone queers! Apparently fathers are bad, especially if they’re still straight. Mothers are good, unless they stand with the patriarchy.

“Hate Speech“: This expression contributes nothing to our understanding of speech that is not protected by the Constitution. If anything its use is intended to deny certain kinds of protected speech. Sure, originally it was targeted at such aberrations as racist or anti-gay rhetoric, assuming that always meant “hate”, but even those are protected as long as they stop short of “fighting words”. There are many kinds of opinions that now seem to qualify as “hate speech” in the eyes of the Identitarian Left, even when not truly “hateful”, such as church teachings in disapproval of homosexuality. There is also a tendency to characterize certain policy positions as “hate speech”, such as limits on immigration and opposition to “living wage” laws. Hypersensitivity, once more.

“Sustainability“: What a virtue signal! It’s now a big game to characterize whatever you do as promoting “sustainability”. But let’s get one thing straight: an activity is sustainable only if its benefits exceed its resource costs. That is the outcome sought by voluntary participants in markets, or they do not trade. Benefits and costs “estimated” by government bureaucrats without the benefit of market prices are not reliable guides to sustainability. Nor is Lefty politics a reliable guide to sustainability. Subsidies for favored activities actually undermine that goal.

There are many other Lefty catch phrases and preferred ways of speaking. We didn’t even get to “safe space”, “social justice”, and the pronoun controversy. Shriver closes with some general thoughts on the lefty lingo. I’ll close by quoting one of those points:

“The whole lexicon is of a piece. Its usage advertises that one has bought into a set menu of opinions—about race, gender, climate change, abortion, tax policy, #MeToo, Trump, Brexit, Brett Kavanaugh, probably Israel, and a great deal else. Reflexive resort to this argot therefore implies not that you think the same way as others of your political disposition but that you don’t think. You have ordered the prix fixe; you’re not in the kitchen cooking dinner for yourself.”

 

Markets, Ingenuity and Genuine Sustainability

22 Thursday Dec 2016

Posted by in Environment, Markets, Scarcity

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Will mankind drain the world of resources and ruin the environment? Must we curtail economic growth in order to ensure our long-term survival? Only if we give up on markets and give-in to central economic direction and control. Ronald Bailey at Reason.com covers the technical assumptions underlying a recent piece of neo-Malthusian “research” purporting to demonstrate the impossibility of environmentally-sustainable economic growth. Bailey’s article makes a great follow-up to my last post, “The Greening-Carbon Nexus“, in which I discussed the bloom in vegetation taking place around the globe attributable to greater levels of atmospheric CO2.

Bailey describes the concept of “decoupling” resource use from economic growth as fundamental to long-term environmental sustainability. This is another twist on good old-fashioned growth in factor productivity. In the new research cited by Bailey, Australian hydrologist James Ward and his co-authors assert that population growth and consumption will eventually overwhelm technological advance. However, it has long been recognized by demographers that freedom from need and growth in material comfort reduces fertility. Bailey notes that world population growth has been decelerating for many years, and the global population is likely to stabilize within a couple of decades.

Ward, et al lean heavily on assumptions about how various classes of resources are not substitutable, and that mankind will run-up against hard production requirements for minimum resource use, a point at which many tradeoffs become impossible. Bailey summarizes their results:

“They crank the notion that there are nonsubstitutable physical limits on material and energy resources through their equations until 2100, and they find that eventually consumption of both rise at the same rate as economic growth. QED: Economic growth is unsustainable. Or as they report, ‘Permanent decoupling (absolute or relative) is impossible for essential, non-substitutable resources because the efficiency gains are ultimately governed by physical limits.’“

Bailey proceeds to pick apart the assumptions made by Ward and his co-authors. First, even if true, those assumptions would apply with much more force to physical outputs, as opposed to service outputs. The latter are likely to continue on a path garnering an increasing share of world output over time. More fundamentally, Ward, et al give short-shrift to the limitless potential of human ingenuity. A few specific examples of the physical limits they contemplate are already verifiably false, having been overcome by technological breakthroughs. This includes agricultural productivity related to enhancements in plant photosynthesis, new manufacturing methods requiring dramatically fewer raw materials, and methods of energy production that are already available, if not yet heavily relied upon. A glaring assumption made by Ward, et al is that the use of fossil fuels will continue to grow through at least the year 2100. In fact, existing alternatives such as nuclear power might well be more economical. Ironically, greater adoption of nuclear power is held hostage by the political resistance of groups who oppose the burning of fossil fuels.

Bailey also cites the work of Jesse Ausubel, whom I cited at length in a post on “rewilding” in 2015. Ausubel’s work shows that Americans’ use of a variety of productive inputs already has “decoupled absolutely” from production, or is approaching that point. That includes farmland, water, timber, plastics, aluminum and steel. Our use of all of those things has peaked and is now in decline. Ausubel’s work implies that “decoupling” is just a matter of time for many other resources for which use is growing at rates declining relative to production. These trends will spread overseas with continued economic development.

Efficiencies like these are a direct effect of technological advance, but the process of technical change is dependent on incentives, which are, in turn, dependent on market prices, profit opportunities, and secure property rights. First, the funding of research into new techniques and methods is driven in large part by market incentives. That’s the real mechanism at play when we marvel that “necessity is the mother of invention”. Necessity, of course, is often manifest in scarcity of existing productive inputs and high input prices.

New technologies present profit opportunities by promising lower input costs, greater production, or other competitive advantages. The adoption of a new technology nearly always entails short-run costs and long-term rewards, both of which are driven by market prices. As the pace of adoption accelerates, the costs of new technologies tend to decrease along with scale economies and sheer experience, reinforcing the process of diffusion. The driving force in all cases is the competitive market and freedom to trade for one’s own benefit. The increasing efficiency of resource use embodied in the “decoupling” phenomena is dependent on the existence of accurate market incentives and secure rights to the rewards that efficiencies in production can bring.

And what if government responds to political pressure by imposing bureaucratically-established production limits, market quotas, efficiency standards, process rules, regulatory reporting, and tax penalties. Apart from direct confiscation and the additional confiscatory risk these actions entail, compliance requires producers to ignore market incentives to one degree or another. These measures force adoption of  less efficient technologies than the market would dictate and add resource costs that would otherwise be absent. The inescapable fact is that market incentives are blunted or destroyed in the process; the consequent waste of resources prevents the kind of natural improvements in factor productivity that lead to decoupling and sustainability.

Sadly, such regulatory actions are often borne out of private rent-seeking efforts. Dominant market players believe that smaller competitors will struggle under the compliance burden created by regulation, so they work with government officials in an effort to have these rules promulgated. This adds a greater degree of market concentration and monopoly power, which implies an efficiency loss relative to competition. Under the protection of regulators, dominant players can survive for too long using wasteful techniques and inputs. Fortunately, with time, new technologies often outpace even these dominant players and the outmoded regulatory rules they rely upon.

Just as wasteful are authoritarian efforts to promote new technologies before the market is ready to adopt them. Picking technological winners and losers is fraught with peril for society. The government usually lacks the foresight possessed by the market, forcibly redirecting resources from one use to another with little consequence for failure except at the taxpayer’s expense. The premature investment is prone to burdening society with stale or defective early versions of new technology. This is not a reliable way to achieve efficiency in resource use. One of the sure signs that such efforts entail waste is the propensity for insiders to be awarded subsidies for promoting politically-favored technologies. Government is invariably drawn to such opportunities for graft.

I conclude with a quote of my earlier post on Ausubel’s work (linked above):

“It’s worth emphasizing that the nature rebound already taking place in the developed world is largely a product of free market capitalism and the growth in wealth and technology they have made possible. A great benefit of secure property rights for society, and for the environment, is that owners have powerful incentives to husband their resources. Likewise, the profit motive gives producers strong incentives to reduce waste and improve productivity. As economic development becomes more widespread, these incentives are promoting a healthier balance between man and nature.“

 

Those Halcyon Days of Desperation

18 Monday Jan 2016

Posted by in Capitalism, Markets, Poverty

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chickennostalgic

Nostalgia is hard to resist. Youth is fleeting, and for most of us, it seems more magical in hindsight than it might have been at the time. It’s also easy to imagine that certain historical eras were more interesting or romantic than the present. For example, my spouse tells me she’d love to have lived in the frontier days, yet she can’t tolerate the reality of a camping trip. We also tend to lionize certain leaders of the distant past, ascribing greatness based on history written by victors. Our objectivity may be obscured by narratives shaped over many years.

Today, some imagine and aggrandize the past in a different way: as a time when motives were “selfless”; when the world was inhabited by less acquisitive and more “minimalist” folk; when practices were more “sustainable”, or even “legitimate”. Despite the primitive conditions of that world, it was a better place for “free” human beings. So it is said, seriously!

Sarah Sqwire takes a look at these flights of fancy in “The Good Old Days of Poverty and Filth“. She dissects the views of one Luc Sante, a cultural historian, as an archetypical patron of primitivism. She invokes the French phrase “nostalgie de la boue, ‘longing for the mud,’ which means a romantic yearning for a primitive or degraded behavior or condition.” Here are some of Skwire’s colorful comments about the past:

“We don’t need every medieval romance novel to remind us that the heroine’s breath didn’t smell like cool mint Listerine. It’s probably for the best that the historical re-enactors at Colonial Williamsburg don’t actually use authentic colonial medical remedies for their health problems…. Any lover of history will occasionally find him or herself dreaming about attending a performance in the pit at Shakespeare’s Globe, or roughing it in the saloons and shacks of a gold rush town. … But a good student of history will acknowledge that the Globe was undoubtedly loud, smelly, crowded, and occasionally even dangerous for playgoers. And the rugged romance of the gold rush town is offset by the knowledge that you were probably far more likely to die of gangrene or cholera than you were to strike it even moderately rich. And those glorious 18th-century wigs? Heavy, hot, smelly, and prone to harboring bugs.“

She then quotes Sante:

“In the Paris I write about, people ran businesses to make a living, not to make a profit. Cafes, bars: they’re no longer public institutions or part of a community. There’s no possibility for eccentric self-determination amongst the shopkeepers.”

Skwire notes the odd distinction that Sante makes in the first sentence above, as if profit is not how proprietors ever made “a living”, or that they observed certain limits on their finances not imposed by market forces (i.e., their customers). She adds that businesses often seek to “create communities” as part of their business models, now in the era of social media more than ever, contrary to Sante’s presumption. Here’s Skwire’s verdict:

“Sante, though, has so much mud in his eyes that he is blind to the tangible and important progress that has been made in human wealth and welfare. His mucky nostalgia leads him to claim that our increasing wealth — which has given us more health, more discretionary income, more food, and more free time — is a danger more pernicious than terrorism.“

I am surprised that Skwire fails to mentions the environmental left in this context. It is, after all, the source of hysteria related to population and scarcity, and the source of so much criticism of modernity. As an antidote to such nonsense, I recommend the Human Progress web site. This recent entry on Julian Simon is instructive. I also recommend Matt Ridley’s Rational Optimist blog. Try this entry on “The Long Shadow of Malthus” for a start.

Skwire views Luc Sante’s infatuation with pre-modern life and lifestyles as an elitist’s prescription for “other” people. That may well be. It also fits the profile of many environmental elites. Whether or not Skwire’s characterization of Sante is accurate, he is at least ignorant of the great diffusion of prosperity taking place around the globe, fueled by markets and economic development. It seems awkward that anyone would bemoan economic progress when, in fact, world poverty is declining, yet that very misgiving is implied by many critiques of markets and modernity.

Code Word: Sustainability

16 Thursday Apr 2015

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Sustainability is a meaningful concept that has been bastardized as a code word for virtually anything that suits the progressive narrative. It is used as a catch-all for presumed goodness, while “unsustainable” is a catch-all for anything deserving of condemnation. Strictly speaking, a sustainable activity, or level of activity, is one that can be maintained indefinitely. That does not mean that the activity itself or its level is optimal; as any economist or engineer can demonstrate, “sustainable” in that sense does not necessarily imply that something is “too fast” or “too much”. In fact, a thing or an activity can occur at a rate that is unsustainably slow, or too little.

Progressives seem to have stumbled into the use of “sustainable” in another sense: that a thing or idea can be defended in argument as part of their dialectic. The broad array of things deemed to be sustainable, and those deemed unsustainable, map nicely to the progressive policy agenda. This is brought forward in “Sustainability: A new college fad with fangs“, by Geaorge Leef, a review of a paper published by the National Association of Scholars. Some colleges have established “sustainability” programs offering such challenging courses as “Ethics of Eating”, “Trash Studies”, “Environmental Poetry,” and Small Spaces Studio”:

“Frequently, courses link some ‘identity’ belief with sustainability, such as that ‘patriarchy’ is the enemy of sustainable life and therefore must be ended. … Most often, however, courses involve the supposedly unquestionable science of global warming and impending catastrophe.“

And here is a critical assessment of “sustainability” as an academic discipline:

“It’s just a farrago of beliefs, attitudes, and grievances centering around the general notion that most humans aren’t living the right way and unless we make drastic changes, we’re doomed. … [The authors] argue that sustainability is not really an academic discipline; rather, it’s an ‘ideology that unites environmental activism, anti-capitalism, and a progressive vision of social justice.’ Like a religion (hence the reference to fundamentalism), sustainability never questions its tenets. It posits them and even has ‘pledges’ for students and school officials to adhere to.“

It’s fascinating for me to read hysterical claims that capitalism is “unsustainable”. I suppose that means that market prices are simply useless at conveying information about scarcity, and that elite technocrats from the progressive tribe can make better decisions about what the rest of us can do and have. All that in the absence of incentives and information needed to align benefits with costs. I suppose it also means that strong property rights are useless for encouraging individuals to husband resources, and that the tragedy of the commons is a wicked fiction. I suppose it also means that resources should not be directed to their most valued uses, but instead to those uses most valued by the subjective judgement of the technocratic elite.

There are many other logical contradictions in the progressive sustainability mantra. This Scared Cow Chips post from several months ago, “Locavoracious Rent Seeking“, covered the uncritical acceptance of locavorism as “sustainable”.

“The reactionary mindset of today’s locavores prevents them from understanding the true nature of “sustainability,” which is best promoted by markets and a willingness to engage in trades that are mutually beneficial.“

America’s academic institutions should keep progressive sustainability doctrine at arms length. It is fine as a campus movement, but it is not worthy or appropriate as a set of governing rules for a community of higher learning. Ultimately, it has nothing to do real learning and the process of inquiry.

Locavoracious Rent-Seeking

07 Tuesday Oct 2014

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Nothing sets my BS detector on high alert quite like admonitions to “buy local” in the interests of “sustainability” and protecting the environment. I like to support local merchants and producers as much as anyone, but in the end, one should buy what they like without guilt, regardless of its place of origin. The notion that local production is always better for the environment is based on faulty logic and a simple ignorance of actual production costs. The bad economics of locavorism is exposed in a recent Don Boudreaux column, “‘Sustainable’ and Superficial:”

“… transportation consumes only a small portion of the resources required to feed us. Labor, fuel, water, irrigation equipment, tractors and other farm tools, fertilizers, pesticides, packaging and (of course) land must also be used. … the amount of resources required to eat only locally grown foods would be stupendous. Some lands and local environments are better suited than are other lands and local environments to growing particular kinds of crops.”

The following Alberta Farmer post from 2010 illustrates the kind of ignorance cloaked in snobbery that typifies the locavorism:

“With their simplistic focus on food miles, locavores ignore other factors of sustainability. I was in a very chic restaurant in Tucson, Ariz., where the smug chef righteously proclaimed that all his ingredients were locally grown. He was quite offended when I asked him about the environmental and other costs of importing all that fresh water to grow that food in the Arizona desert.”

The author notes correctly that “the locavore fad is primarily restricted to the foodie elite …” who are often willing to pay premium prices to eat fungus and roughage scrounged from local woods and creek beds. (Oh, yum!) That fact is made abundantly clear in a post referenced by Boudreaux: Pierre Desrochers, author of The Locavore’s Dilemma, describes locavorism as “famine food”. His subtitle: “Middle-class foodies are paying a fortune to eat what peasants once lived on.”

“Not surprisingly, as soon as they could do it, our ancestors tried to supplement their local fare with imports from distant places. In time, non-perishable commodities like wheat, wine, olive oil, cod, sugar, coffee, coffee, cocoa, tea, spices, frozen meat and canned vegetables, produced in the most suitable agricultural locations rather than in close vicinity to final consumers, became increasingly plentiful and affordable.”

Our ancestors sensibly embraced these new opportunities to balance and improve their diets. The reactionary mindset of today’s locavores prevents them from understanding the true nature of “sustainability,” which is best promoted by markets and a willingness to engage in trades that are mutually beneficial. In a sense, locavores promote the sort of provincialism that is characteristic of many protectionist anti-trade arguments. That kind of rhetoric often supports monopoly rents for local producers.

Markets Foster Peace With Vampires

24 Thursday Jul 2014

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The prospect of vampire re-ensoulment prompts some entertaining thoughts about economic philosophy in this post at the Volokh Conspiracy. Here is a sample:

Why presume that having more humans or human-like beings on the planet is even a problem at all? The ecological concern seems to borrow from the perspective of doomsayers like Paul Ehrlich, who have been beating the population-bomb drum for decades. And for decades, the doomsayers have been proven wrong.

And here is a classic closing sentence:

By establishing a legal market in human blood, as suggested by Enrique Guerra-Pujol in Chapter 12, we could go a long way toward creating an incentive for vampires (especially re-ensouled ones) to eschew violence in favor of remunerative work in the combined vampire-human economy, to the benefit of both the living and the dead.