Exchange on Costs of Middle East Oil Importation

A reader posts below:

>Let me agree with everything that you say about climate change. But please answer this question: Do cars use oil and do they emit carbon dioxide? If they do use oil, is it not beneficial for us to reduce our consumption so that American wealth is not transferred to the Middle East?

My response:

>I am not opposed to limiting pollution or reducing oil consumption. These can be done with rather than against natural market processes and so limit the dumb mistakes that governments inevitably make.

Murray N. Rothbard had an argument that I found interesting. In the 19th century there were court cases where citizens claimed that pollution was a form of battery and tried to obtain damages from the polluters. The courts threw out this argument. At the time, there was likely a utilitarian argument in favor of pollution, but the judges' decisions (I have no citations) were not fully consistent with the fundamental approach to rights used in the Declaration of Independence. The rights to life, liberty and the pursuit of happiness do not imply the right to harm others. Judge Richard Posner has written a textbook on law and economics in which he argues that judges have acted to optimize efficiency. This is a utilitarian argument. If true, the reason for the judges' mistaken belief that encouraging pollution will maximize social welfare is an antiquated view of social welfare. Also, Posner's utilitarian argument is flawed. It may have made sense in the 19th century when development was just beginning, but it needs to be tempered with rights-based concerns. There ought not be an absolutist right to harm others in order to produce social welfare nor should there be an absolutist claim to limit all harm to the environment while the economy declines.

We now know that pollution does harm to us, including causing diseases like cancer. Also, there is tremendous value in a clean environment. A trip to China in 2003 convinced me of that. Because a clean environment is an inseparable good, that is, there is no way to charge people for its use, and as well pollution is an external cost, which means that polluters do not pay, some correctives are needed. There is market failure. But the correctives can most effectively be accomplished through means that support the market system.

The way to balance the costs of pollution with the benefits (e.g., in increased industrial production) is either through a tort system devised by the courts (where the courts establish standards of care and wrong doing that are stricter than today's) or legislation accomplishing the same thing. A moderate cap and trade system where realistic limits on pollution are coupled with the ability to sell rights to pollute is also workable. Such steps will slow economic growth with respect to consumer goods, though, so they need to be done with care.

Similar standards are in place in areas like automobile safety standards. When there is a car accident, the lack of the ability of the car to withstand the crash to some degree contributes to injuries. The question is how far to go to establish standards. If the courts say that all cars should be crash proof the cost of cars will increase exponentially. Congress and the courts have not concluded that cars can be built without regard to safety, but the standards do not appear to be extreme. Industry fought safety belts, for instance, but ultimately rules supporting inclusion of belts were put into effect and they have not been overwhelmingly expensive. There are tens of thousands of deaths each year due to automobile accidents. But I do not hear anyone proposing to criminalize cars. Rather, the Democrats just subsidized the car industry. So why are they subsidizing industry while aiming to impose massize costs via cap and trade? The goal is not limiting pollution but control and power of the state.

With respect to pollution and cap and trade the Democrats do not aim to maximize social welfare or the balance the need for a clean environment with the need for other kinds of progress. For instance, the cap and trade bill as it was originally proposed included, I believe, retroactive standards on homeowners that would have cost each American homeowner thousands of dollars. The standard of raising energy efficiency by 50% over six years seems arbitrary and capricious.

Moreover, there is a willingness to hand decision making to national and international authority (a cap and trade administrator, for instance) which poses a threat to freedom. Instead of talking in terms of costs and benefits and balancing progress with limits on pollution and capricious state authority, the Democrats and environmentalists have an extremist agenda.

The claim of global warming, for instance, has become an obsession with the Democrats and the environmentalist movement. Rather than debate the question intelligently, they have chosen to falsify research. The Democratic media then report the falsified findings as though they are facts. This is evidence of the partisan nature of the Democratic media such as NPR and the Washington Post.

That said, I agree that it is beneficial to us to reduce consumption of anything, including oil. That is efficiency. But buying a resource from another country is not transferring wealth. The reason we buy oil is to produce wealth. In other words, the benefit of the oil exceeds the cost. If the price of oil rises sufficiently, alternatives will be found. But purchasing oil from the Middle East is not so maleficent a result that government is needed to alter market processes. Firms have been much better at innovation than governments. If that were not so, then Sweden, Cuba and North Korea would be innovation centers.

Certainly, there is little in common between the Middle-Easterners-are-demons argument and the claim that there is global warming. I suspect that there will be alternative fuels coming into being as the real price of oil rises. Meanwhile, if you feel that we should rely on alternative fuels, why not study chemical engineering and work on inventing a low-cost alternative? That is what Americans used to do before the advent of paper money and big universities.

Democrats: the Party of Selfishness, Greed

The "Progressive" Republicans and Democrats, the parties of Theodore Roosevelt, Franklin D. Roosevelt and Barack Obama, have created a system where each aims to steal from each. This system has crystallized most completely in New York State, where the Service Employees' International Union has formed a one million strong unit whose aim is to expand the public sector to create ever greater numbers of unproductive government jobs. New York's economy is no longer founded on productive economic work but rather on the Wall Street bubble economy, which depends on government extraction of wealth from the rest of the world via the Federal Reserve Bank and the Bush-Obama bailout.

The way the Progressive Republicans and Democrats accomplish the wealth extraction is that the Fed deposits monetary reserves in the money center banking system, which is empowered to lend a larger amount (up to six or seven times as much) to the public. The first borrowers are Wall Street banks and hedge funds. The increased monetary reserves push down interest rates and push up the stock market, as has recently occurred. Wall Street benefits. The money circulates, and the poor pay higher prices. Propagandists for Wall Street such as William Greider in his book Secrets of the Temple deny this mechanical process, claiming that inflation affects all neutrally. That is also the claim of university economists. A moment's reflection makes clear that this is impossible. Most of the money is lent to hedge funds, for corporate takeovers, the carry trade and real estate speculation. By the time the money circulates through the economy, its purchasing power has diminished. Only fools would claim otherwise.

Perhaps no phenomena better testifies to the authoritarian greed of the Democratic Party and the "Progressive" Republicans than the bailout, which some have predicted will eventually amount to as much as $24 trillion. All of the advocates of remedying "income inequality" among the Democrats and the "Progressive Republicans" supported this massive transfer to the wealthy in unison.

The Democrats are a party of school teachers who do not educate but demand higher salaries; unions whose workers expect make work jobs; government employees who produce nothing but demand large raises; trial attorneys whose work cripples the economy but lobby for laws that protect their privileges; and on and on.

Karl Popper makes the point in his book Open Society and Its Enemies that, 2,500 years ago, Plato intentionally confused the debate concerning individualism versus collectivism. Plato was a communist who believed in tight state control of every aspect of human existence. To defend this claim, he equated selfishness and individualism. He claimed that collectivism, violent control of humanity, was justice.

The Democrats are very much in the Platonic tradition. Their advocacy of extremist versions of environmental regulation that would impose high costs on homeowners via the cap and trade provision is only the beginning. In upstate New York, Congressman Maurice Hinchey has proposed a plan to turn the Hudson Valley into a federal park. The extent of regulation in a federal park under the regulatory authority of the cap and trade administrator is potentially crushing. The very people who will potentially be forced to leave their homes because of cap and trade continue to applaud Mr. Obama.

Will Cap and Trade Abolish Your Home Equity Value?

Jim Crum had sent me a copy of the Cap and Trade bill. Notice section 202, which creates a federal regulatory authority over home energy standards. The authority could not be controlled by state or local government. What would stop the regulator from establishing insulation standards that are so expensive that your home equity is reduced or eliminated? What would stop them from establishing regulations that force homeowners in rural areas to move to cities, creating large, empty parks regions? Might Congressman Hinchey's recent proposal to turn the Hudson Valley into a federal park dovetail with section 202 of the Cap and Trade proposal?