Fishy Reasons; or Dam Collective Action

by Don Boudreaux on May 30, 2007

in Politics

I read the problem detailed in today’s Wall Street Journal by the insightful Shikha Dalmia as evidence that Bryan Caplan (following Geoff Brennan and Loren Lomasky) is correct that collective political action inspires irrationality.

Here are relevant passages:

If their opposition to the Klamath hydroelectric dams in the Pacific Northwest is any indication, the greens, it appears, are just as unwilling to sacrifice their pet causes as a Texas rancher is to sacrifice his pickup truck. If anything, the radicalization of the environmental movement is the bigger obstacle to addressing global warming than the allegedly gluttonous American way of life.

Once regarded as the symbol of national greatness, hydroelectric dams have now fallen into disrepute for many legitimate reasons. They are enormously expensive undertakings that would never have taken off but for hefty government subsidies. Worse, they typically involve changing the natural course of rivers, causing painful disruptions for towns and tribes.

But tearing down the Klamath dams, the last of which was completed in 1962, will do more harm than good at this stage. These dams provide cheap, renewable energy to 70,000 homes in Oregon and California. Replacing this energy with natural gas — the cleanest fossil-fuel source — would still pump 473,000 tons of additional carbon dioxide into the atmosphere every year. This is roughly equal to the annual emissions of 102,000 cars.

Given this alternative, one would think that environmentalists would form a human shield around the dams to protect them. Instead, they have been fighting tooth and-nail to tear them down because the dams stand in the way of migrating salmon. Environmentalists don’t even let many states, including California, count hydro as renewable.
….
Bruce Hamilton, Sierra Club’s deputy executive director and a longtime proponent of such a mandate, refuses to even acknowledge that there is any conflict in closing hydro dams while fighting global warming. All California needs to do to square these twin objectives, he maintains, is become more energy efficient while embracing alternative fuels. “We don’t need to accept a Faustian bargain with hydropower to cut emissions,” he says.

This is easier done in the fantasy world of greens than in the real world. If cost-effective technologies to boost energy efficiency actually existed, industry would adopt them automatically, global warming or not.

When the personal material cost, at the time of individual action, of expressing one’s fantasies is near-zero, very little exists to check the expression of those fantasies.  No matter how bizarre, inconsistent, or dangerous they might be if real-world attempts are made to act upon them, if a holder of such fantasies suffers no personal cost from advocating his or her crazy idea, lots of crazy ideas will be advocated.  This fact is especially true for those crazy ideas that, when held and advocated publicly by certain people, fill those certain people with a personal sense of distinction, heroism, or self-satisfaction.

And for further evidence of the hand-in-glove relationship between irrationality and politics, see today’s Washington Post column by Robert Samuelson, which begins:

It’s one of those delicious moments when Washington’s hypocrisy is on full and unembarrassed display. On the one hand, some of America’s leading politicians condemn high gasoline prices and contend that they stem from “gouging” by oil companies. On the other, many of the same politicians warn against global warming and implore us to curb our use of fossil fuels that emit carbon dioxide, the main greenhouse gas.

Guess what: These crowd-pleasing proclamations are contradictory. Anyone fearful of global warming should cheer higher gasoline prices, because much higher prices represent precisely the sort of powerful incentive needed to push consumers toward more fuel-efficient vehicles and to persuade the auto industry to produce them in large numbers.

Of course, politicians at the moment are self-righteously condemning the rise in gasoline prices as the result of evil corporate greed and monopoly power.  More Samuelson:

It’s always fun to blame unpopular occurrences on corporate greed. Schumer’s notion, for example, is that the wave of giant oil mergers (among others: BP/Arco, Exxon/Mobil, Chevron/Texaco) has so concentrated U.S. refinery capacity that companies can constrict supply and create artificial scarcities by refusing to build new refineries. It’s a plausible-sounding theory whose major defect is the absence of supporting evidence.

….

Americans want to stop global warming. They want to cut oil imports. They want cheaper energy. Who will tell them that they can’t have it all? Not our “leaders.”

You show me endless examples of market failure; I’ll show you endless examples — and worse ones — of government failure.

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{ 17 comments }

Matt C. May 30, 2007 at 8:57 am

Is it really market failure if government interference causes the markets to fail?

Orlando May 30, 2007 at 9:13 am

You forgot one additional plug for higher gasoline prices: the state governments; at least those with a sales tax on gasoline. They have seen an absolutely unbelievable oil winfall. It is no wonder that in those states with a gasoline sales tax, the opposition to new refineries and new oil fields is fiercest. The higher the price, the higher the winfall.

Russ Nelson May 30, 2007 at 9:44 am

This is the same error which caused Hitler to lose WWII. He thought he could ignore economics and use ersatz goods as needed. As I've said countless times before, "You can ignore economics, but economics isn't going to ignore you."

Nick May 30, 2007 at 10:06 am

"They have seen an absolutely unbelievable oil winfall. It is no wonder that in those states with a gasoline sales tax, the opposition to new refineries and new oil fields is fiercest. The higher the price, the higher the winfall."

Don't most states tax gasoline on a per gallon basis rather than on a percentage basis?

Wojtek May 30, 2007 at 10:56 am

Nope, it's all a percentage game; Otherwise they would have to 1) Keep adjusting the rate by successive acts of parliament, or 2) Make the per gallon rate adjusted to the actual price of gas. Both these options would be just another, silly, way of having a percentage tax — so they go the easy route.

Person May 30, 2007 at 11:35 am

It's not contradictory to want to reduce net CO2 emission *and* oppose gouging. One could support higher gas prices *through taxation* that funds attempts to undo the claimed CO2 externalities, while supporting policies that limit the ability to collude.

Of course, the former, being an efficient, rational transfer, never gets any attention … which I guess was the point.

Jon May 30, 2007 at 11:51 am

@person:
Except for the fact that gouging doesn't exist…

But is this really any suprise to us? I mean the environmentalist crowd are the ones that sined Penn and Teller's petition to ban dihydrogen-oxide (aka h2o, aka WATER) because of the way it was marketed to them by the woman getting signatures. The vast majority of these people are … well I know I'm supposed to believe in some level of rational ignorance, but these people are just plain dumb.

Jeff Hallman May 30, 2007 at 12:02 pm

'Americans want to stop global warming. They want to cut oil imports. They want cheaper energy. Who will tell them that they can't have it all?'

But they can, if nuclear power plants generate electricity cheaply enough. Carbon dioxide emissions are reduced both directly, by replacing coal- and natural gas-fired plants, and indirectly when electricity is used to split water into hydrogen and oxygen for hydrogen-powered cars.

John May 30, 2007 at 1:44 pm

Matt C.,

"Is it really market failure if government interference causes the markets to fail?"

Yes, as sad as it sounds, this is what happens. There is far too much propensity in society to apply a double standard on "failure". Deserved or not, blaming the market is easy. Blaming government failure is not the general predisposition of most people.

So, because markets are usually at the "crime scene" false logic always puts the blame there even the government most often has a hand in incriminating markets.

This goes back to the natural anti-market bias the Caplan talks about.

bret May 30, 2007 at 1:51 pm

Non-optimality and failure aren't the same thing. Politicians and activists bloviating doesn't imply government failure. Which actions (as opposed to talk) in the above post actually constitute failure, by market, government, or both.

It seems to me we've done pretty well on the big picture. We're really pretty free in that we have a lot of choices and fairly little oppression by historical standards. We have a pretty good economic system in that it's pretty flexible and robust and it generates a lot of wealth (more than ever by historical standards). We have a reasonably stable civilization in that the vast majority of the people aren't particularly interested in revolution (or even change for that matter).

All in all, it seems to me that this democracy thing is working well enough. I think we ought to stick with it.

brotio May 31, 2007 at 3:01 am

Nick,
I believe you're correct that most States tax gas per gallon. I know Colorado does. Also, Governor Ritter was griping the other day that more fuel-efficient cars are cutting into the State's oil profits (oops, I mean tax revenue).
Bret,
I also believe this representative republic thing works pretty well, especially when our representatives are called out on their demagoguery and hypocrisy.

brotio May 31, 2007 at 3:15 am

Oh, and Russ said the 'H' word. I hope that doesn't invoke the Internet Law so soon in the thread :P

Bruce Hall May 31, 2007 at 7:29 am

Here is the information you need regarding state taxes on gasoline:
http://hallofrecord.blogspot.com/2007/03/michigan-taxes-and-truth.html

Billy May 31, 2007 at 11:57 am

Person:

Is it the source that makes the same price more or less palatable to you? In other words, is it a fair representation of your view to say that price X fine if it's due to taxation, but gouging if it's due to the seller's pricing decision?

brotio:

No Godwin worries there ;) . In Russ' post, Hitler's the guy who lost a war by ignoring economics, not the evil guy who killed the Jews.

Mr. Econotarian May 31, 2007 at 1:54 pm

Actually it turns out that dams may produce as much if not more greenhouse warming because of their methane emissions from the standing water than is saved in equivalent reduction in CO2 emissions from not burning coal.

Methane is actually a more powerful greenhouse gas than CO2.

Person May 31, 2007 at 3:23 pm

Billy, that's not my view; but yes, someone could hold *without contradiction* the view that high prices due to collusion is bad, while high prices due to a tax earmarked for undoing gasoline externalities is good. That was my point.

Vanya June 3, 2007 at 1:46 pm

It is indisputably true that bad regulation causes market failures, and that this happens quite often (oil market, healthcare market, education, the list seems endless).

A question I've been pondering is whether there are situations where government regulation is beneficial to markets. Easy examples are food and drug safety.

But are there more examples? Is there a way to describe such situations in abstract terms, like "stuff that impacts public safety"? Healthcare delivery impacts public safety, but that market is a disaster right now because of numerous bad laws.

And what does good market regulation, if such a thing exists, look like?

Anyway, a complicated question that I don't know how to answer, though it's fun to chew on.

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