Here’s a letter to the Wall Street Journal:
Like New York Times columnist Thomas Friedman, Gilbert Mathis wants government “to launch a Manhattan-type project to make our nation energy self-sufficient” (Letters, July 26). Even if such an achievement is possible, and even if it would prove to be worth its costs – two big ‘ifs’ – “energy independence” is unlikely to allay one of the chief concerns of its champions. Americans would still be critically dependent upon foreigners for other things of value.
Achieving energy independence in the U.S. would require Americans to gain a comparative advantage at producing all forms of energy. But as every ECON 101 student learns, to go from having a comparative disadvantage to having a comparative advantage in one industry means that a country goes from having a comparative advantage to having a comparative disadvantage in some other industry (or industries). Looked at differently, energy independence would mean that resources now used in other American industries – for example, in agriculture, aviation, or biotech – would shift into American energy industries.
Americans would then become more dependent upon the likes of foreign food suppliers, airplane builders, and pharmaceutical companies. And it’s not at all clear that such “dependence” would be any better (or worse) than dependence on foreign oil suppliers.
Sincerely,
Donald J. Boudreaux
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Well, I never got my question answered; however, I did learn one thing about this blog.
Never question the Prophet and challenge the scriptures of the Libertible, because the fundamentalist will be after you like the Taliban when they know you've besmirched the Koran.
Kinda scary when you realize that raising an issue by questioning on a supposed intellectual blog so many of the participants consider any comment a good answer whether that comment is actually addressing the issue or not.
Oh well, it was kinda fun in a sad way.
It's all in definitions… If I buy technology from someone else that allows me to be more self sufficient energetically, am I really being economically self sufficient?
Here are your original questions:
Why is the comparative advantage/disadvantage concept, cited by the host, a foregone conclusion as stated in relation to energy independence?
I just do not see having an independent means of driving motors or powering solid state electrical devices as meaning of necessity that resources or effort would be automatically be detracted from agriculture, sheet metal production, or any other industrial endeavor. Particularly in this nation.
It seems to me to be speculation of the what if category, a self defeating speculation at that.
Okay, we will largely agree that having energy independence funded and controlled by government would be a bad thing, but energy independence itself a bad thing, excuse me. How?
It is not a foregone conclusion, but a high probability. There is plenty of evidence to suggest this throughout decades of misguided U.S. energy policy. One such example is government regulation of Natural gas throughout the 70's, they rendered our plentiful supply useless, which made us rely more on high priced oil imports – that was a disadvantage to us. Another example is corn based ethanol mandates, which provides about zero independence, and pushes the costs of food up. I could go on.
On your second question, energy independence is not necessarily a bad thing, unless it means we pay more than buying it from somewhere else. We live in an increasingly interdependent world. If we can buy energy cheaper from Canada than we can produce ourselves, then why shouldn't we do that? But this is the argument of the energy independence proponents, that somehow buying energy from others is bad, and it just isn't bad. Can we achieve independence? Yes it is possible, but not likely until prices force us to switch supplies. But that new supply may not be based here in the U.S.
“Depends on a lot of factors doesn't it, factors which you have failed to address. “
It may be easier to understand from the cost-side by comparing and contrasting:
USPS: avergae cost-model that was designed for sustainability but is far-removed from self-sufficiency and has always tetetered on bankruptcy
VS.
UPS: with its marginal cost-model that was designed for specialization and has routinely achieved profitability
It's as simple as this:
No matter how much energy, or anything else, is produced in the US, if you force the US to be independent, that means excluding foreign supply. Reducing supply raises prices.
Energy independence MUST raise prices (relative to not forcing independence).
Forgot to mention above
The problem with avergae-cost models designed for sustainability / self-sufficiency is that they do not assess a cost of capital. Capital is viewed as a cost-free byproduct of the political process, not as an allocator of scarce resources. Soros held this was the major reason that the Soviet Union went bankrupt. It comports with my experience in a USAID project to develop the Ukrainian Capital Market.
If St Francis of Roosevelt had pushed the button nothing would have changed. They'd insist that it “had to be done.” It's the same pass they give JFK, LBJ and Clinton for all the bad crap they did.
Yep unicorns and pixie dust are real too.
Are you more powerful because you have someone else grow your grain and slaughter your meat for you, or less powerful.
So what your saying is trade then be a jack ass and close shop after you got what you wanted right? That's called exploitation.
Something that hasn't been said in the discussion is the reality is that the middle-eastern based petroleum and gas exporters have been very reliable. 1973 embargo and 2001 WTC were “blips” in my opinion.
There was a time I did not trust the Saudi's but not anymore and even if for whatever they became unreliable our economy could adjust.
Small edit: statists worship law selectively; the ones they like, they worship, and the ones they don't (usually guaranteeing or protecting individual freedom) they destroy, or smother with more laws.
Corruptissima republica plurimae leges.
I don't want to be mean to you because you actually did try to say more than “it is because the Libetible says so”, but in answer I'll just repost my reply to Randy above.
warpspeed [Moderator] 2 hours ago in reply to Randy
Well, I never got my question answered; however, I did learn one thing about this blog.
Never question the Prophet and challenge the scriptures of the Libertible, because the fundamentalist will be after you like the Taliban when they know you've besmirched the Koran.
Kinda scary when you realize that raising an issue by questioning, on a supposed intellectual blog, that so many of the participants consider any comment a good answer whether that comment is actually addressing the issue or not.
Oh well, it was kinda fun in a sad way.
Warpspeed,
Do you understand the concept of comparative advantage?
Here is my understanding. Let me know where I am wrong.
The US and Canada both raise wheat and it takes the same amount of resources to grow wheat in each country. They also both produce energy and it takes the same resources to produce it in both countries.
Neither has a competitive advantage in energy or wheat.
Now a producer of energy in the US makes a break through and can produce energy much cheaper than it can be produced in Canada.
Given this situation it is to the advantage of the US to put a lot more resources into producing energy and export it to Canada and it makes economic sense for Canada to focus on wheat production and use it to purchase energy from the US.
The US gains a comparative (relative) advantage in Energy and Canada gains a comparative (relative) advantage in wheat and both become wealthier in the process. But in the process we become more dependent on Canada for food.
Second point: To become “energy independent” would mean that there was no benefit to import any type of energy from anywhere into the US.
So taking your example of electricity. We would have to produce electricity at a comparative advantage over every other energy producer in every type of energy we could import.
So as we gained a comparative advantage over Mexico in producing Electricity we might be better off selling electricity to Mexico and importing gas from Mexico rather than powering cars with electricity.
So we would have to have a comparative advantage over everyone that produces any type of energy otherwise we would be better off importing that type of energy from someone.
Combine that with the fact that others would copy our process for creating energy (It would not be a natural advantage) It would be very difficult and costly to remain energy independent for long.
What do you mean 'found'? There's a big fusion reactor 148 million miles away belching out energy. I would prefer to use the concept of harnassing exist natural energy sources. On the hand, who's advocating for a “Manhatten Project”? Johndewey was the one who brought it up in a strawman context.
It's very sad when you make ill-informed statements on a blog dedicated to economics without at least taking the time to learn about the the topic, and then turn around and accuse those who are trying to correct you as being politically motivated, when all that is being discussed in Don's post is economics.
If you believe that Don (& standard macro) is wrong, then please set up a single example where this is so. That will be sufficient. Others can then look at your example to point out either where you erred, or (if your initials are DK) where Don was not perfectly exact because he is writing a letter and not a treatise, or accept that you may be correct. However, you have repeatedly failed to do so.
You have also failed to set up any kind of real argument: You claim that Don's “must” should be a “can, but isn't necessarily so”, but have repeatedly failed to provide a single example where that would apply. A single example is all you need, whereas Don would require to present an elaborate proof.
You repeatedly confuse comparative advantage with absolute advantage. You repeatedly believe in free lunches, including in the post I'm replying to.
There are plenty of political reasons for achieving energy independence, but no economic reasons. Your failure to recognize this distinction permeates your every post.
There are two claims that Don makes:
1- “Achieving energy independence in the U.S. would require Americans to gain a comparative advantage at producing all forms of energy.”
2- “to go from having a comparative disadvantage to having a comparative advantage in one industry means that a country goes from having a comparative advantage to having a comparative disadvantage in some other industry”
Let's address claim #1:
Imagine there exists 2 industries: Energy, and Others. Others is everything that is not Energy. Now also imagine that there are 2 countries: United States, and Rest. Rest is the rest of the world. Let's also imagine that, for the US, every unit of production in Energy costs 2 units of Other. However, for Rest, the production of Energy merely requires 1.5 units of Other. Now, imagine the total productive capacity is 10 for US, and 100 for Rest.
Now, again, imagine that today, the current production & consumption of those industries is:
Country Energy Other
————————–
US 2 6
Rest 50 25
————————–
Total 52 31
Given this, the US has a comparative disadvantage in Energy. If the US shifted production to Other, and imported all its Energy, while Rest did the opposite to compensate, the production would then be:
Country Energy Other
————————–
US 0 10
Rest 52 22
————————–
Total 52 32
Thus, world production has increased, and the US can trade the extra 4 units of Other to get 2.66 units of Energy instead of just the 2 it had previously, a net gain of 0.66 units of energy. Or, it can trade 3 units of Other to get the 2 units of Energy it had previously, and keep the extra 1 unit of Other.
Ok, now that we've done a review of Comparative Advantage, how does that work when there are multiple energy sources? Let's divide up Energy as Green and Oil. Let's start with the assumption that the US has a Comparative Advantage in both of those energy sources: They both trade 1-1 for Others, whereas Rest requires (once again) a cost of 1.5 units of Other to produce either.
In that case, the US can produce all the energy it needs and doesn't need to import it.
Country (Green+Oil) Other
————————–
US 10 0
Rest 42 37
————————–
Total 52 37
Now, let's change the ratio such that the US has a comparative advantage in Green, but a disadvantage in Oil. It takes 2 units of Others for the US to produce Oil, but 1 unit to produce Green. In that case, we have:
Country Green Oil Other
————————–
US 1 1 7
Rest 25 25 25
————————–
Total 26 26 32
Any arbitrary split between Oil and Green would work as long as World energy production is the same. Or if not, then some cost in Others must be made to trade off more Energy vs less Others.
But, looking at this table, there is no point for the US to produce Oil at all: It can gain Others by importing its Oil (and instead producing Others and importing some of the excess Others).
Country Green Oil Other
————————–
US 1 0 9
Rest 25 26 23.5
————————–
Total 26 26 32.5
That is, any demand in Oil would require importing that Oil.
One way around that is to eliminate the demand for the industry with the disadvantage (eg: Oil). But that necessarily requires that the other productions (eg: Green) be perfect substitutes (otherwise, there is still demand for Oil). But if they are perfect substitutes, there is no point in classifying them as different industries to begin with. So if Green was a perfect substitute for Oil, there would be no need to differentiate them, and we'd just be talking about the Energy industry, which, again, would require a comparative advantage to eliminate imports.
So yes, if there is a demand for Water Buffalos and/or Water Buffalos are a perfect substitute for Oil in some circumstances, then the US needs to have a comparative advantage over Rest in Water Buffalo production to avoid imports of oil (or Water Buffalos). See tables above.
And now, for claim #2:
2- “to go from having a comparative disadvantage to having a comparative advantage in one industry means that a country goes from having a comparative advantage to having a comparative disadvantage in some other industry”
This is merely the nature of Comparative Advantage.
Let's start with our initial production & demand table above, assuming the US has a 2:1 disadvantage in Energy vs Rest's 1.5:1 ratio.
Country Energy Other
————————–
US 2 6
Rest 50 25
————————–
Total 52 31
Production would, once again, shift to:
Country Energy Other
————————–
US 0 10
Rest 52 22
————————–
Total 52 32
If the US gains a Comparative advantage in Energy, let's say to a 1:1 ration, then production would shift this way:
Country Energy Other
————————–
US 10 0
Rest 42 37
————————–
Total 52 37
World gain is 5 units of Other.
Why does production shift this way? Because if the US has a Comparative Advantage in Energy, then it's worth it for itfor US to produce more Energy and less Other, then trade the extra Energy for Rest's Other: There is a profit to be had above the status quo.
But to address the claim directly: With the comparative disadvantage of 1:2 for Energy:Other in the US vs 1:1.5 for Rest is the same as a comparative advantage of 2:1 in Other:Energy for the US vs 1.5:1 for the Rest.
Similarly, changing the ratio so that a comparative advantage of 1:1 for Energy:Other in the US vs 1:1.5 for Rest is the same as a comparative disadvantage of 1:1 in Other:Energy vs 1.5:1 for Rest.
We're talking 4th grade math here.
Finally, for the last part of the proof: Given that obtaining a comparative advantage in Energy requires a disadvantage in Other, there must necessarily be at least one component of Other that must be made to be disadvantaged.
QED.
And now, for the remainder of your idiocy:
|> I have asked above in some small detail for someone to tell me/show me where becoming energy independent would cause a current advantage to be turned into a disadvantage in those industries. No one has made the case, no one has even tried, all that has been done is to slather more mantra and make attempts to denigrate me for even having the balls to challenge that mantra.
geoih, johndewey, S_M_V, myself, and I'm sure others as well have all tried to show you why you're wrong. You might have balls, but you have little else.
“For my part, I question the amount of control Saudi Arabia ever had on oil prices.”
Saudis learned that lesson themselves during the '70's oil embargo. They mistakenly thought they could impose monopoly pricing. And it cost them dearly. They will not do that again–at least for any financial motive.
Gil: ” who's advocating for a “Manhatten Project”? “
Gil, please read the very first sentence of Professor Boudreaux's post above, It is Thomas Friedman and Gilbert Mathis who are proposing a Manhattan type project.
B'oh!
the ones they don't (usually guaranteeing or protecting individual freedom)
Statists cannot comprehend the concept of natural rights because those are rights that exist in absence of their Law.
They will use terms like Constitutional Right to imply that rights like freedom of speech came into existence as a result of the First Amendment, and that laws are needed to protect that right.
They completely ignore the words “Congress shall make no law” that clearly recognize that rights need protection from government, statists and their Law.
How do you store that energy for those times when there is a planet between you and that big fusion reactor that can compare to the energy density and portability of fossil fuels?
Indeed. What would be the use of artificial fusion power when we can't hardly use the giant one out there?
Why not? Let's say you think you can't swim and accidentally fall in a body of water, you might find you can swim to save your life. Your personal discovery would also occur if someone were to pick you up and throw in the same body of water.
Your comments show that you lack even an elementary understanding of math and physics, because if you did you wouldn't ask such stupid questions.
That's not the same thing as declaring that an unknown alternative to fossil fuels exists because the Law says so, then diverting resources into finding it that could have been used for something else.
Easy, man! Drink some coffee! Gil sometimes writes things I disagree with and he can frustrate me with what I believe to be inaccuracies. I think he gets in a hurry and perhaps responds without thinking things through. But I don't think he's disrespectful like some other commentors, is he?
I believe that is totally unfair of you to say. This blog and the ecosystem of commenters around it are better than most out on the net. Not everyone always agrees with Don all of the time. But Don's logic is usually straight forward and simple and using sound fundamental economic principles, so it's hard to challenge that. Now you might claim that Don is improperly applying an economic principle or not applying it completely correctly, but otherwise it usually is hard to find fault in Don's logic.
I believe that those replying to your statements were in general addressing what you asked of them. To me you did seem somewhat vague at times because you made the claim that a comparative advantage did not automatically mean a comparative disadvantage, but you did not explain how this could come to be. You merely brushed that off when someone called you out and said it wasn't your responsibility to show that. I disagree, it is only your responsibility. After you explain that, then we can begin to discuss the economic principles behind your example.
I never got my question answered
Yes you did, many times over.
You just didn't get the answer that you wanted.
I scanned through the thread and I didn't see you personally attacked, I saw your ideas challenged. There's a difference.
That your parting shot is to personally attack the host and every one of the participants who were respectful enough to respond to you says more about you than about us.
Oh so elaborate and still oh so off point.
The reason I can deride most of those replied because of their replies is because with all the boohaha no one answered my question. Actually no one even addressed it, least of all you, my self-righteous little Taliban.
You prove my position by saying this:
“If you believe that Don (& standard macro) is wrong, then please set up a single example where this is so.”
When I distinctly asked this:
“Why is the comparative advantage/disadvantage concept, cited by the host, a foregone conclusion as stated in relation to energy independence?”
I asked why he was right, not claimed he was wrong.
All I got from everyone was what and how which was evidently your issue, but no one has told me “why”. I firmly the reason no one addressed the why is because it is theory and not a foregone conclusion. The reason it is theory is that it deals with the actions of people and no one can predict those actions……as for God's sake it has only been made clear over and over here on this Cafe…..remember the invisible hand? People my little intellectual Taliban, people, nothing is inevitable or a foregone conclusion when it concerns people.
Adios.
Rather than beat this horse any longer and repeat myself, just read my reply to my detractor-in-chief just above here.
No in this (“I believe that those replying to your statements were in general addressing what you asked of them.”) I will repeat this, all I got was what and how and that was never the question. The question was why it was a foregone conclusion (and I made this specific in asking about especially the three things Don listed, agriculture, aviation, and biotech) and no one addressed that, no one.
See above reply.
Sorry Dude, no one addressed my question of why.
No, what I'm really saying is when people talk about “energy independence” they are not necessarily talking about economic independence.
Cars allowed for transportation independence. Instead of being stuck going to locations that were within walking distance or along a bus/train route, you could now go wherever you wanted. Economically, you are not necessarily more “independent” because very few people know how to make cars compared to the number of people who know how to walk.
Why what? Be specific.
And please don't phrase it in a way where any answer validates a premise.
For example I could ask you “does your wife still beat you to a pulp?”, and any answer validates the premise that you wear a dress.
Holy goal-post moving Batman!
Your original post asked a question and then clarified that question with economically bogus statements. Others have addressed the bogus statements. Others also attempted to get you to answer your question by getting you to show that the opposite results in non-sense.
I asked what prompted the question by requesting a single example where Don's statements don't hold. When you refused, I and others called your bluff and answered your question. When you were so thoroughly rebuked, you then turn around and change the question so you can complain that no one would answer your “real” question.
If your new question was really your original question in the first place, why not further clarify it or rephrase it when you were not satisfied with the first 9 replies? Instead of asking yourself if the other 9 posters perhaps misunderstood you, or that perhaps you were not clear in your line of questioning, you proceeded to insult them and disparage the good name of the professors who own this blog. Only later do you turn around and claim that you meant something else all along.
Ok, fine, I'll answer your “original” question:
The law of Comparative Advantage is true irrespective of human choice. It's true of computers, bee colonies, that flower in your backyard, aliens from planet Krypton, and a rock.
If a pine tree has a Comparative Advantage in domain “X”, then it necessarily has a Comparative Disadvantage in domain “Not X”. If a pine tree has a Comparative Advantage in domain X, then it necessarily must have a Comparative Advantage in all subdomains of X. Why that is is answered in the post you replied to.
This is unrelated to self-assembling systems, so the Invisible Hand is irrelevant. There is no human choice involved.
Finally, please don't confuse Theory with Hypothesis.
http://en.wikipedia.org/wiki/Scientific_theory
http://en.wikipedia.org/wiki/Hypothesis
Who's the religious nut again?
Direct quote from my original comment (lead sentence):
“Why is the comparative advantage/disadvantage concept, cited by the host, a foregone conclusion as stated in relation to energy independence?”
Does that address the issue of “why”, how much more fucking specific do I have to be, did I have to be, or do I have to repeat that question over again for umpteenth time?
All I got from every commenter was what and how, which we all already know.
It is a pain in the ass dealing with people who won't read.
Wow the more you post the more frantic and otherworldly you get.
Now we have pine trees in domain x and not in domain y, with no input as to where or what domain x and y are. But by God them there plants of yours demonstrate comparative advantage/disadvantage. Maybe, my libertarian Taliban, I'll just take the Ibuprofen pill and go to bed.
It's simply amazing the kinds of people that will not read.
LOL, please do not now tell me to choose between the red pill for reality and the blue pill for mundane socialist existence. If you do, I know my screams of laughter will wake the state for sure.
“Why is the comparative advantage/disadvantage concept, cited by the host, a foregone conclusion as stated in relation to energy independence?”
That was answered a number of times.
I think that you are asking for a specific answer and not getting it.
What is the answer that you would like to hear?
You should have learned in your youth that the question why is not answered by saying it is because I said so, or it is because it is.
I got the what, which I already knew: I got the how which I already knew: I never got the why, particularly in relation to agriculture, aviation, and biotech i which asked about because Don evidently thought those three likely candidates where a comparative advantage would be turned into a disadvantage.
I know people are capable of being rational but rarely are, so to tell me that the theory of comparative advantage/disadvantage “must” always happen as a foregone conclusion is not something I accept, again particularly in 21st century America.
Adios, I have lost interest in this as I know I won't get an answer, much less a convincing one and we will just keep beating the dead pony.
Would anyone else prefer instant vaporization in, say, Nagasaki, to being burned alive in, say, Tokyo?
You'd need a big roof, and a helluva lot of batteries. Given the life span and expense of the batteries, it's questionable that you'd ever be able to recoup your costs.
Although the prospects of a “Manhattan Project” scale energy promising, on an economic point of view, the likelihood of finding a energy source as powerful and cheap as oil is slim. Many large scale projects, including solar,wind, and bio-fuel actually require more energy calories from oil than calories of energy paid off from alternative energies. This highlights the idea that if an effective enough energy source was found, the global economy would have to shut down, and firms would have to invest vast amounts of capital to produce city grids, modes of transportation, and communication run on this new fuel. It is likely, entrepreneurship would be discouraged because of higher costs than returns, and high risk. Furthermore, developing countries playing “catch-up” with more developed nations are exponentially increasing their oil demand, increasing the global dependency of a rapidly diminishing resource. In my opinion any new found “independence” from oil is more than optimistic.
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