As Russ Says, There’s No Such Thing as a Kosher Ham Sandwich

by Don Boudreaux on November 7, 2011

in Energy, Environment, Other People's Money, Politics, Reality Is Not Optional

Here’s a letter to the New York Times; I ignore in this letter Krugman’s head-scratching suggestion that green-energy is failing in the market in part because the cost of supplying it is falling too rapidly (Poor Solyndra; it just couldn’t keep pace with the falling costs of green energy):

Overlook Paul Krugman’s dubious suggestion that government can know today what will be the industries and energy sources of tomorrow (“Here Comes the Sun,” Nov. 7).  (If the cost of producing commercially viable energy from solar radiation really is falling as spectacularly as Mr. Krugman claims, surely private investors can make multiple mints, without subsidies extracted from taxpayers, bringing such energy to market.  And just as surely Mr. Krugman is already investing his own money in such efforts.)

Focus instead on Mr. Krugman’s complaint that the chief obstacle preventing ‘green’ energy from blossoming is “politics.”

It’s way-curious that people such as Mr. Krugman, who are most eager to entrust humankinds’ fate and fortune to politicians, so frequently complain that their dreams of Beautiful Tomorrows are forever being dashed by politics.  Do Mr. Krugman and his “Progressive” comrades not realize that politicians have no more prospect of being politics-free than holiday hams have of being kosher?

Sincerely,
Donald J. Boudreaux

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Jon Murphy November 7, 2011 at 8:47 pm

A major source of objection to a free economy is precisely that provides what people want, not what a group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.
-Milton Friedman

Economiser November 7, 2011 at 9:51 pm

+1

Randy November 8, 2011 at 2:17 pm

+1 more

Ken November 8, 2011 at 7:14 pm

Ooh-rah. Preach it, brother. :)

Greg Webb November 8, 2011 at 10:20 pm

Excellent quote!

Invisible Backhand November 9, 2011 at 10:52 am

“The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on.”

L. F. File November 7, 2011 at 8:47 pm

Libertarians always seem to think that somehow our money will be safer from the rogues that buy the politicians by removing the politicians so that the rogues can get our money directly.

lff

Jon Murphy November 7, 2011 at 8:51 pm

How do the rouges get out money?

Under the current system, the government taxes us, and then hands that money over to the rogues, whether we want them to or not. If we refuse, we are thrown in jail.

Under a pure free market system, the rogues only get money if we voluntarily give it to them in exchange for some good or service. They cannot forcibly extract it from us (legally).

Tell me, sir, which system does a better job of preventing money to go to rogues?

The most single important fact about a free market is that a transaction does not occur unless both parties benefit.

Methinks1776 November 7, 2011 at 9:30 pm

If he knew the answer to any of your questions, he wouldn’t be a libtard. Brain death is a terrible thing.

Greg Webb November 7, 2011 at 9:45 pm

;)

L. F. File November 8, 2011 at 6:46 am

…”They cannot forcibly extract it from us (legally).” “Legally” has no meaning in the context you provide. Laws must be legislated, promulgated and enforced. This requires government, politics and politicians and in order to legislate, promulgate and enforce a rule of law government requires resources. Taxes are those resources.

One purpose of the law is to keep society’s rogues from stealing the property of others. Being imperfect, governments of men fall prey to the rogues to some extent and so some rogues use some politicians for some illegal ends.

Eliminating politicians and relying on the market without government financed by taxes to create and enforce the law does not solve the problem it merely puts all control in the hands of the most powerful rogues.

lff

Jon Murphy November 8, 2011 at 8:02 am

I think you are confusing law with Law. Governments create laws. Nature creates Laws. Natural Laws (right to life, liberty, and property) are impossible to remove by means other than force. Secular laws are often used in contrast to Natural Laws.

You are right that some secular laws prevent rogues from violating Natural Laws. However, secular laws are, more often than not, used to circumvent Natural Law. So, the eternal question for Humanity is how to balance the two. Libertarians propose a limited government in order to prevent the damage done from greed.

A marketplace is a natural and organic answer to this question. The most fundamental characteristic of a free market is that no transaction will occur unless both sides benefit. Even for rogues to get money in a marketplace, they must provide some good or service in return, in which case, they are no longer truly rogues. If they resort to trickery, thievery or force, they will quickly be disposed of; people will not do business with them.

The free market is the best mechanism to prevent damage done by greed.

L. F. File November 8, 2011 at 9:38 am

The history of mankind could be construed as little more than a tale of the disputes over the definition of “Natural Law”. Why should anyone accept your definition?.

You might prefer a Randian “Natural Law” but I would prefer a “Rawlsian” one.

“The free market is the best mechanism to prevent damage done by greed.”

Who is to define what free market is and how is it to be kept free? Lacking regulation by an enlightened government it will just be defined and controlled by the most greedy and most powerful rogues.

The power of wealth must be balanced by the power of the electorate but don’t expect perfection just work for it.

lff

Jon Murphy November 8, 2011 at 9:52 am

A free market decentralizes power. Even a rogue’s power is limited when the market is free to operate from outside interference.

For example, have you ever been to a sporting event? Have you noticed, during half time (or in between innings), everyone gets up to go get snacks or use the bathroom. It’s chaos. However, these natural roadways of people develop. There is no sign saying “everyone going left move to this side” or “Everyone who wants a pretzel, form line here.” It’s almost as if this order spontaneously emerges. And what happens if some rogue tries to cut to the front of the line? He gets pushed away. What happens if one rouge tries to force his way into a stall? He gets rebuffed.

That is the free market a work. When I first realized this (at a Boston Celtics game) I nearly shit bricks.

Jon Murphy November 8, 2011 at 9:59 am

Ordo ab chao, as my granddad used to say

L. F. File November 8, 2011 at 12:01 pm

Jon Murphy: “A free market decentralizes power. Even a rogue’s power is limited when the market is free to operate from outside interference.”

When you ask a Marxist about the flaws in a communist world he talks about the process of “Dialectical Materialism” solving all the problems. Libertarians think the “Free Market” will solve all the problems but the basis for their belief is no more solid than the Marxists.

To me your experience at the basketball game better illustrates herd instinct then the free market. Are you sure that crowd control is not incorporated into architectural design? If so someone has to be the architect for the market. Just who would that be?

lff

Jon Murphy November 8, 2011 at 12:09 pm

“Are you sure that crowd control is not incorporated into architectural design?”

If that were true, then you would not see it in nature, only in man-made structures. And yet, order emerges everywhere.

You see this everywhere you go. In the city, in the forest, in the ocean, everywhere. There is a natural order that develops spontaneously.

If you assume that order only comes from structure, then how would you explain the earliest civilizations? The first market transactions? These things did not develop at the behest of some central planner; they developed organically.

L. F. File November 8, 2011 at 4:14 pm

Jon Murphy: “…explain the earliest civilizations? The first market transactions? These things did not develop at the behest of some central planner; they developed organically.”

Is your viewpoint really so panglossian? What is it? Things were going swimmingly until FDR came along?

“Things” didn’t just develop “organically”. The market system didn’t just unthinkingly spring from plants and animals. Mankind developed the political systems necessary to support money, property rights, security, law and law enforcement so that there could be a market.

The idea of a “free market” is just a shibboleth. In reality a market cannot stand alone. It requires a government and a legal system to regulate market activity.

lff

vikingvista November 8, 2011 at 4:22 pm

“In reality a market cannot stand alone. It requires a government and a legal system to regulate market activity.”

Outside the influence of a state institution, trade does not exist? Riiiiight. First came the state, then individuals discovered trade. Got it.

Jon Murphy November 8, 2011 at 4:25 pm

Sorry man, but markets existed long before politics came about. When the first caveman traded with another, that market was born.

The economy is organic, not some man-made machine. Markets exist in the absence of politics and structure: the black market, lunchroom trades, the drug market, the Internet.

Failure to see the organic nature of the market often leads to fallacies in economic prescriptions.

Do me a favor, next time you are in a place with lots of people (a park, mall, sporting event, concert, whatever), just watch them. Make notes of your observations. Contact me when you have done that, and we’ll talk some more.

vikingvista November 8, 2011 at 4:27 pm

“The power of wealth must be balanced by the power of the electorate but don’t expect perfection just work for it.”

“Balanced”? It’s the power of the electorate (and the necessary associated state institutions) that makes the “power of wealth” dangerous. It’s like saying the power of an armed robber has to be balanced by the power of his gun.

Jon Murphy November 8, 2011 at 4:31 pm

I’m going to go one step further and say no state could exist without trade.

We have established trades exist without states (black market, lunchroom trades, etc).

However, has any state existed without makes (internal or external)?

Jon Murphy November 8, 2011 at 4:48 pm

That should say “markets” not “makes”

L. F. File November 8, 2011 at 4:48 pm

Jon Murphy: “…When the first caveman traded with another, that market was born.

Cavemen didn’t trade with each other. They just hit each other over the head and took what they wanted. Trade only developed when there was enough security provided by some political organization so that individuals and groups could trust one another.

Your examples of black markets is interesting. They have their own internal laws, organization and governance. You don’t need a state to provide the necessary structure for a market but you need some kind of central control so that there can be enough trust for their to be trade.

lff

vikingvista November 8, 2011 at 4:49 pm

Jon,

You are right. Trade is a fundamental human interaction. It is safe to assume that it predates history, and likely exists nearly anywhere two people interact.

States, on the other hand, are complex institutions derived from and dependent upon some underlying and preexisting society (society being much more than the state). Furthermore, even a so-called totalitarian state lacks direct influence in some parts of its realm at times, and I dare say, in those parts trade is more likely to be free.

vikingvista November 8, 2011 at 4:51 pm

“Cavemen didn’t trade with each other. They just hit each other over the head and took what they wanted. Trade only developed when there was enough security provided by some political organization”

Odd. How then do you suppose those political organizations managed to form, with everyone just going around conking each other on the head?

Jon Murphy November 8, 2011 at 4:52 pm

“Black Markets have their own internal structure.”

You are absolutely correct. But that structure is not some top down approach. There is no head of the black market. It is a set of rules developed by the players of the game, a bottom-up approach, if you will.

As for cavemen, that’s dead wrong. If all cavemen did was club one another, civilization would never have been born.

kyle8 November 8, 2011 at 8:09 am

Your argument is true in so far as you are making a straw-man argument that libertarians are for anarchy. But no, that would mean that they are not libertarians but anarchists. The two are not the same.

Most libertarians, such as myself want a government that is very limited in scope, but not limited in it’s power and efficiency in pursuing those limited goals as long as it is consistent with the rights of the citizen.

In the pursuit of thieves and murderers I want the government to be efficient and not overly hamstrung, but still adhering to constitutional rights.

If government is limited in the ECONOMIC arena then it is much much much less likely that any rogues will get my money.

L. F. File November 8, 2011 at 10:08 am

As long as libertarians provide only criticism with no realistic solutions they are the straw men I portray.

“Most libertarians, such as myself want a government that is very limited in scope, but not limited in it’s power and efficiency in pursuing those limited goals as long as it is consistent with the rights of the citizen.”

That is fine as an ideal but how is it to be implemented? Do we tear everything down and start again?

lff

kyle8 November 8, 2011 at 11:59 am

Pardon me but if you think that libertarians lack for specific policy solutions then you have your head up your ass. Please go to the cato institute or hell just google ” libertarian policy ____” with whatever problem in the blank space.

There are plenty of solutions, the problem is that there are not enough libertarians.

As for tearing everything down, well, yes actually a lot of the Federal structure is unconstitutional and should be eliminated. That is not so far fetched as it seems because we are running out of both money and credit. When there is no longer the ability to pay for big government then some real solutions will have to be tried.

Josh S November 8, 2011 at 12:39 pm

kyle8, I think you are not understanding L. F. File. He defines a solution he doesn’t like, i.e. any solution that doesn’t involve increasing the power of the political class, as a non-solution. That way he can avoid rational argument and dismiss you as “not offering solutions.”

Invisible Backhand November 7, 2011 at 9:47 pm

When scientists want infinite power we call it mad. When dictators want infinite control they we call it evil. When libertarians want infinite property they call it liberty.

Josh S November 7, 2011 at 9:51 pm

Who wants infinite property? I can barely manage my small apartment and eight video game consoles.

Jon Murphy November 7, 2011 at 9:55 pm

That and property is finite. And I cannot oppress you with my property. Well, I suppose I could, if I had a gun. But if you have a gun (or a bigger gun), it cancels out my threat.

Methinks1776 November 7, 2011 at 10:14 pm

Or if he’s a better shot ;)

Josh S November 7, 2011 at 11:37 pm

I actually just unlocked a bigger gun in Killzone 3 today!

L. F. File November 8, 2011 at 6:20 am

And what is slavery except oppressing others with property? I have the land so you will work for me or starve.

lff

Jon Murphy November 8, 2011 at 7:15 am

That is what property is limited. If a free market, you cannot limit property, so you cannot oppress someone.

Josh S November 8, 2011 at 7:23 am

Comparing employees to slaves is as ugly and disrespectful as comparing yourself to a Holocaust victim when you’re inconvenienced at the supermarket.

Invisible Backhand November 8, 2011 at 2:00 pm

And I cannot oppress you with my property.

Oligarchs do it all the time:

Oligarchs are actors who personally command or control massive concentration of wealth—a material form of power that is distinct from all other power resources, and which can be readily deployed for political purposes.

http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6677116

Darren November 8, 2011 at 2:35 pm

And what is slavery except oppressing others with property?

And since government owns by far the most property, that would make them the biggest oppressor, since you can’t own property without oppressing someone.

L. F. File November 8, 2011 at 3:45 pm

Darren you replied: “…you can’t own property without oppressing someone.”

To my: “… what is slavery except oppressing others with property?”

It is beyond me how I could be so misconstrued? Is English your first language? You seem to require assistance comprehending a rather simple sentence.

lff

L. F. File November 8, 2011 at 3:52 pm

Jon Murphy: “That is what property is limited. If a free market, you cannot limit property, so you cannot oppress someone.”

When and where has there ever been a truly “free market”? The “free market”is is a theoretical construct like “dialectical materialism” and no less mythical.

lff

vikingvista November 8, 2011 at 4:14 pm

“When and where has there ever been a truly “free market”?

Everywhere and always. The free market refers to the set of all free trade negotiations between any two parties. Free trades do, in fact, exist–observable, and experienced by almost everyone who has ever lived.

What is mythical is the belief that the mere existence of violent interactions obliterates all voluntary ones. It is akin to believing that because water is not everywhere pure, water doesn’t exist.

Jon Murphy November 8, 2011 at 4:27 pm

The black market is as truly free market as one can get (of course, that’s not to say the products for sale on it are desirable in a society), but they do exist. How about one one first grader swaps his PPJ sandwich for a cupcake?

vikingvista November 7, 2011 at 10:14 pm

What the hell is “infinite property”?

Josh S November 7, 2011 at 11:38 pm

Apparently, self-ownership. Since you are infinitely valuable, if you own yourself, then you have infinite property. This is dangerous, which is why IB thinks the state should own you instead.

vikingvista November 8, 2011 at 12:39 am

It still makes no goddamn sense. “Infinitely valuable”? How about infinitely stupid?

Invisible Backhand November 8, 2011 at 2:02 pm

Ursa: You are master of all you survey.

General Zod: [bored] So I was yesterday. And the day before.

Superman II

ArrowSmith November 8, 2011 at 1:55 am

Liberals are apparently infinitely stupid.

GAAPrulesIFRSdrools November 8, 2011 at 10:11 pm

+1

Greg Webb November 8, 2011 at 10:17 pm

Yep!

Martin Brock November 8, 2011 at 9:19 am

Some nominal “libertarians” are more nearly proprietarians, but the classically liberal tradition always distinguished liberty from property; otherwise, “life, liberty and property”, as a summary of the classical rights of man, is redundant.

vikingvista November 7, 2011 at 10:13 pm

The politicians are the rogues.

Sam Grove November 7, 2011 at 10:38 pm

Do you suppose that the rogues are never politicians?
Have you any idea how the world really works.

Darren November 8, 2011 at 2:33 pm

Do you suppose that the rogues are never politicians?

No. Rogues are by definition NOT politicians. Politicians are benevolent angels with no ulterior motives who work only in the best interests of the proletariat.

GAAPrulesIFRSdrools November 7, 2011 at 11:03 pm

Oh a new troll to slap around.. goody.

Invisible Backhand November 8, 2011 at 2:03 pm

You need to connect once in a while, beancounter.

GAAPrulesIFRSdrools November 8, 2011 at 10:13 pm

You need stronger meds, detritus

Invisible Backhand November 9, 2011 at 10:53 am

You’re just an expense.

vidyohs November 8, 2011 at 6:18 am

The fact that a looney lefty can look at the evidence and consistently draw the wrong conclusion is proof of my theory that the only thing that explains any looney lefty is they have broken brains.

Martin Brock November 8, 2011 at 9:16 am

Libertarians always seem to think that somehow our money will be safer from the rogues that buy the politicians by removing the politicians so that the rogues can get our money directly.

Well put. “Always” is the usual hyperbole, but you nicely summarize what I often think. Furthermore, no rogue buying the politicians is necessary, because the politicians are rogues themselves.

Nick November 7, 2011 at 8:55 pm

@ lff

You are incorrect. Libertarians look to starve the beast called government so that we the people may do with OUR money what WE please.

AnthonyL November 7, 2011 at 9:19 pm

Happy to TRADE money to rogues that provide me with something I value.
As opposed to handing over my money to politicians that use it to buy things other people value.

Invisible Backhand November 7, 2011 at 9:27 pm

It’s way-curious that people such as Mr. Krugman, who are most eager to entrust humankinds’ fate and fortune to politicians, so frequently complain that their dreams of Beautiful Tomorrows are forever being dashed by politics.

Have you considered writing children’s books? I’ve got the cover for one ready:

http://i.imgur.com/ZZING.gif

m November 7, 2011 at 9:29 pm

Don,
You seem to have misread K-Thug’s column and missed the point. He never called for additional subsidies, nor did he call for extensions existing ones. However, he did call for pricing externalities generated by fracking.

He didn’t even make the “dubious suggestion that government can know today what will be the industries and energy sources of tomorrow.”

Rob McMillin November 7, 2011 at 9:37 pm

“Externality” = “A tax I can raise without end.”

m November 7, 2011 at 9:49 pm

Do you not believe in externalities, do you not believe that they should be priced, or do you not believe that they can be priced properly? (or maybe something else?)

vikingvista November 7, 2011 at 10:16 pm

Do you believe externalities can be compensated for, without incurring all new externalities?

m November 7, 2011 at 10:19 pm

In the absolute sense: no. In the practical sense: yes. In other words, I believe that situations can be made better and done in such a way that inefficiencies introduced are insignificant compared to the benefits.

m November 7, 2011 at 10:32 pm

Also, I wasn’t trying to score a rhetorical point, but actually interested in RM’s views on the matter.

vikingvista November 8, 2011 at 4:04 am

“insignificant” to whom? Values are individual and subjective. The interests are all different, and no one action treats everyone equally. Pricing in a market sense refers to bidding, with every participant given a veto. Pricing in the pigovian sense is entirely different. It is one party imposing a unilaterally-determined cost upon others. Objectively, there is merely a set of cost alternatives, imposed variously on different parties. The choice of which alternative can only be subjectively determined. As such, the cost is entirely the result of the subjective morals of the dictating party. Naturally valuing its own interests above others, the state will tend to act to maximize its own benefit while increasing the costs to others.

That’s what RM meant by a “tax…without end”.

It’s a mistake to even think about externalities as you do (that there exists a price that can be set), precisely because there is no objective standard of value. There are, however, different ways of dealing with externalities, and the rational ways at least recognize the reciprocal nature of the problem. And more importantly, they recognize the dangers of having an authority empowered to unilaterally determine and impose one standard.

No party wants to bear any of the costs, and so no solution is entirely satisfactory to anyone. But at least a negotiated solution between the parties, such as with coasian bargaining, allows a peaceful solution reflecting the value judgments of all involved parties, without establishing a dangerous concentration of coercive power.

GAAPrulesIFRSdrools November 7, 2011 at 11:07 pm

Externalities exist, but no prince or politician will price them appropriately.

Gil November 8, 2011 at 12:30 am

People aren’t rewarded for positive externalities so why should they be punished for negative externalities?

Jon Murphy November 7, 2011 at 9:38 pm

” He didn’t even make the “dubious suggestion that government can know today what will be the industries and energy sources of tomorrow.””

Yes he did. By advocating green energy (and saying there is propaganda against it), he is saying it is the wave of the future.

Don Boudreaux November 7, 2011 at 9:40 pm

That’s how I read him.

m November 7, 2011 at 9:43 pm

A key distinction here is that Krugman is not the government. He’s also explicitly not asking the government to do anything to “pick” green energy.

I read it as an expectation that left on their own market forces will make solar a big part of the energy mix, but a warning about government interference.

Jon Murphy November 7, 2011 at 9:48 pm

I disagree. He ends his column complaining about the political barriers to solar energy, suggesting he wants government support for this industry.

m November 7, 2011 at 9:53 pm

I’ll give you that he is calling for action on fracking, but I don’t see a call for government support. I read the last three paragraphs as his fears about what congress might do to suppress new solar technologies.

Emil November 8, 2011 at 6:37 am

Solar energy can only survive on subsidies (in large scale). Therefore, the following two statements mean the same thing:
- a fear that congress might supress new solar technologies
- government should subsidise solar energy

m November 8, 2011 at 8:00 pm

Based on my reading of the article (and a little subsequent googling), the prediction is that “Solar energy can only survive on subsidies” will not be the case going forward. Time will tell I suppose.

Jon Murphy November 8, 2011 at 8:08 pm

“Time will tell I suppose.” Right. So, why waste money now if we don;t know if this is gonna work out in the future? I mean, if solar energy is the way to go, why aren’t politicians investing in it?

m November 8, 2011 at 8:11 pm

I’m sure that I misunderstand you. You want politicians to support it with subsidies?

Jon Murphy November 8, 2011 at 8:14 pm

No, I want no subsidies. Let the market decide the benefits of solar power.

m November 8, 2011 at 8:21 pm

That’s what I thought. So what did you mean by this: “I mean, if solar energy is the way to go, why aren’t politicians investing in it?”

J. W. November 8, 2011 at 8:28 pm

He means politicians risking their own money.

Jon Murphy November 8, 2011 at 8:28 pm

Why aren’t politicians investing their own, personal funds into solar energy. I should have been more clear. I apologize.

J. W. November 8, 2011 at 8:35 pm

You were clear. The people who aren’t are politicians who say “We’re going to invest in X” when they mean “I’m going to spend your money on X.”

Jon Murphy November 8, 2011 at 8:37 pm

No, J.W., failure to communicate is always the fault of the communicator. If M (which, I am wondering, is a reference to the Franz Lang movie of the same name?), was unclear of what I meant, it is my fault. But it has been cleared up

J. W. November 8, 2011 at 8:42 pm

How noble of you. That’s a good attitude to take in discussions. Keep up the good comments.

m November 8, 2011 at 8:43 pm

oops misplaced follow up. See below.

Jon Murphy November 8, 2011 at 8:45 pm

Yep, I got you M. BTW, why did you pick M? Is it a reference to Franz Lang, or just an initial?

m November 8, 2011 at 9:23 pm

No good reason. Initial, but I may change it to mp2c shortly.

GAAPrulesIFRSdrools November 8, 2011 at 8:33 am

A key distinction here is that Krugman is not the government.

No, not officially, but he is part of the government media complex.

m November 8, 2011 at 7:44 pm

You’d think “part of the government media complex” would have a lot more positive to say about the President than he does.

m November 8, 2011 at 8:36 pm

Sorry for being thick. How do we know that politicians (or at least those that would tend towards this sort of thing) aren’t investing their own money?

Topic for debate: I see no reason to think that pols would be above average investors. In fact, I’d hope that they are below average while in office. That is to say, I don’t want them spending their productive hours analyzing companies for personal gain.

Jon Murphy November 8, 2011 at 8:43 pm

I think the politicians have every right to invest their own money into the market. I’m sure many of them do. However, you never hear “I believe X is the future of this country, that’s why I am investing in it.” You hear “X is the future of our country so we must invest public money in it.” It’s a lot easier to spend other people’s money than it is your own. You’re a lot less careful with it. If a politician had a pet project, say fracking, rather than devoting government funds to such a project, I’d rather him say “I like this project so much I am investing in it. I suggest you do too!” and allow people to make their own choices. If you don’t like fracking, you don’t invest in it.

Invisible Backhand November 7, 2011 at 9:50 pm

“Love means never having to say you’re sorry.” –Love Story

“Hayek means you never have to internalize the externalities.” –CafeHayek

indianajim November 7, 2011 at 10:30 pm

“‘Invisible Backhand’ means you can’t find your ass with both hands.”-me

Methinks1776 November 7, 2011 at 10:31 pm

:)

Greg Webb November 7, 2011 at 10:38 pm

LOL!

Sridhar Loke November 7, 2011 at 11:22 pm

Hilarious…laughed out loud and almost woke my kids up!

GAAPrulesIFRSdrools November 8, 2011 at 8:34 am

It might also mean a reciprocating supinated palm.

Invisible Backhand November 8, 2011 at 10:59 am

Are you THE indianajim?

http://indianajim.net/main/

oh my god oh my god oh my god canIhaveyourautograph ohmygod

Gil November 8, 2011 at 12:31 am

Indeed, haven’t read how Walter Block defends the litterer? No one’s property was harm = no foul.

kyle8 November 8, 2011 at 8:14 am

I would like to see someone define exactly what are the external costs of Fraking, a system which has not been proven to be harmful to anyone whatsoever despite the highly dubious circumstantial “evidence” presented by the evirowhackos.

Krishnan November 7, 2011 at 9:33 pm

“Green energy investments by GOVERNMENT are failing because the prices are dropping too quickly” – Really? Someone with an IQ above zero actually thinks that? (Oh wait – that person cannot have a measurable IQ or anything resembling intelligence)

If so, I have a question – How is it that the price of the microprocessor and RAM and storage devices kept falling even as more companies made even more monies by investing their own monies?

m November 7, 2011 at 9:46 pm

Individual market participants can fail while their market as a whole grows. It has happened to far better companies than Solyndra.

Jon Murphy November 7, 2011 at 9:53 pm

Companies fail when their abilities do not keep up with the market. It’s how the market separates the winners from the losers. To artificially support a company (though bailouts, subsidized loans, etc) who would have failed otherwise is just prolonging the problem and wasting resources.

m November 7, 2011 at 9:59 pm

Is this post meant to be in relation to the costs of fracking? I’m largely unconvinced that the nat gas companies would fail even if the costs were properly priced in.

Jon Murphy November 7, 2011 at 10:06 pm

No, it’s just meant to explain the market process. And argue against Solyndra.

As for fracking, I’ve no official opinion.

Josh S November 7, 2011 at 11:40 pm

If it’s impossible for a natural gas company to fail, then stock in and bonds issued by gas companies would be the most secure investments on earth, and traders would drive the price down to the point where the marginal return is zippo. That hasn’t happened.

m November 7, 2011 at 11:58 pm

Josh,

I certainly didn’t mean that they can’t fail. I was just expressing a general expectation that either reducing the amount of frackable land or slapping a pigovian tax on fracking wouldn’t be enough to drive most of them into bankruptcy.

This all ties back to K-Thugs’s argument that current policy amounts to a subsidy for the oil and gas industries, and was merely an educated guess as to the impact of a change (rather than trying to state some grand truth).

Josh S November 8, 2011 at 7:26 am

Depends on how high the tax is. And what good would it do? It would make energy more expensive for consumers, and it would give politicians more resources to waste on things like cowboy poetry festivals and foreign wars. The problem with the Pigou tax is that it comes with the unwritten assumption that whatever politicians would do with the money would somehow offset the effects of the externality, which it would not. When a politician takes the revenue from a Pigou tax and uses it to subsidize some failing business that his buddy owns, we now have the externality *and* some squandered resources.

kyle8 November 8, 2011 at 8:16 am

despite the fact that it is impossible to measure in any meaningful way the external impact of fracking.

m November 8, 2011 at 9:55 am

Josh,
No it doesn’t. If the tax was set so high that all companies exited fracking, many would still produce from other sources (and sell the reduced quantity at much higher prices).

Jon Murphy November 8, 2011 at 10:01 am

The Pigou tax does carry the assumption that the proceeds from the tax is used to correct the externality. If the funds are incorrectly used, then the tax is only half working.

vikingvista November 8, 2011 at 12:36 pm

Question, are we taking about frakking in the Battlestar Galactica sense?

Josh S November 8, 2011 at 12:43 pm

m, the purpose of a Pigou tax is not a ban. And what other sources? All sources of energy have externalities, and since you think a Pigou tax should function as a ban, you support simply not having energy at all. As nice as dying in the winter sounds, I’d rather not.

A Pigou tax only works at all when it’s a tax on a specific pollutant, because it creates an economic incentive to find a way to minimize soot emission/chemical leakage/etc. Your idea of just using a Pigou tax to utterly eradicate anything that has an externality would simply extinguish the human race.

vikingvista November 8, 2011 at 1:35 pm

“All sources of energy have externalities”

All human action has externalities. Breathing itself, apparently, has externalities due to CO2 production.

The inescapable interconnectedness of everything in the universe, regardless of how insignificant, is used as the philosophical foundation of environmental fascism specifically and often statism generally–with, of course, the fascist acts themselves getting a free pass.

The mere fact that one person’s existence affects another’s cannot be a rational justification for deliberate forceful acts against another. Existence is not itself offensive or something you can retaliate against or rectify.

m November 8, 2011 at 2:38 pm

Josh,

You implied that a pigou tax would drive them out of business. I was pointing out an upper limit and how some would stay in business. Sorry if I was unclear or misunderstood your argument further up the thread.

Invisible Backhand November 8, 2011 at 2:56 pm

To artificially support a company (though bailouts, subsidized loans, etc) who would have failed otherwise is just prolonging the problem and wasting resources.

The Chinese disagree with you:

“A couple of things are driving the drop in costs. Solar-panel technology is getting more efficient, true, but that’s just part of the tale. China is also heavily subsidizing its domestic industry, driving a 40 percent plunge in prices over the past year (and bulldozing a few U.S. companies into bankruptcy)

http://www.washingtonpost.com/blogs/ezra-klein/post/solar-is-getting-cheaper-but-how-far-can-it-go/2011/11/07/gIQAuXXuvM_blog.html?wprss=ezra-klein

Jon Murphy November 8, 2011 at 3:18 pm

And how much is it costing the Chinese? Could not the man power and funds being put into these companies be put to better, more productive uses?

Unless solar power is the epitome of human achievement, in which case all must work towards it. Nothing else.

Jon Murphy November 8, 2011 at 3:20 pm

But, in the mean time, if Beijing wants to keep spending Yuan to keep my energy bills down, I am all for that. I got electric heat in my apartment and that shit’s expensive.

Jon Murphy November 8, 2011 at 3:20 pm

I mean, that is a huuuuuuuuuuuge win-win for me

ben November 7, 2011 at 10:34 pm

I ignore in this letter Krugman’s head-scratching suggestion that green-energy is failing in the market in part because the cost of supplying it is falling too rapidly

I didn’t see where Krugman said that. He did say Solyndra failed because of those low costs, but Solyndra isn’t the market. And he explained solar’s lack of market success so far as being in spite of those cost reductions and due to political interference (which is hard to believe given the love governments around the world have for the technology).

nailheadtom November 7, 2011 at 10:39 pm

The sum total of Krugman’s knowledge of both fracking and solar panels is the product of television newscasts and uninformed magazine articles. The externalities of fracking, which he lists as contaminated water wells and damaged roads, could occur, maybe, under some circumstances. But neither fracking or heavy truck transportation are new. They’ve been going on for decades. Fracking has become news because it’s being applied in new areas that are particularly favorable for the technique. State laws determine the loads that trucks are allowed to carry and they’re enforced. One of the problems with human activity seems to be that even the most innocuous behavior can produce what someone might consider an “externality”. Not long ago the NIMBYs down the road successfully lobbied against the installation of a paving plant across an interstate highway and over a mile from their homes on the basis that it might produce foul odors, even though the property was zoned for the planned use.

I find a huge quantity of oak leaves in my yard, but have no oak trees. The leaves that fall from my neighbor’s oaks are an externality, wouldn’t you say? Do you think that they’ll come rake my lawn if I let them read Krugman’s column?

m November 7, 2011 at 10:51 pm

Well, the fracking issue will be much harder to call, but we should know if his prediction on the costs of solar panels comes true in, say, 3 years.

Josh S November 7, 2011 at 11:41 pm

If it’s like his prediction of inflation in the 1980s, we already know what will happen.

m November 8, 2011 at 12:03 am

Would you enlighten me on the 80′s inflation prediction?

As an aside, this prediction would seem to be outside of the two areas where he tends to make calls.

Josh S November 8, 2011 at 7:30 am

When Krugman worked for Reagan, he predicted that the expanding economy and falling real interest rates would cause an acceleration of inflation:
http://old.nationalreview.com/nrof_luskin/kts200406170833.asp

This is in line with what Keynes said. However, Keynes didn’t understand the first thing about money, which is why this prediction was so wrong. And making macro predictions about inflation and deflation is very much the sort of thing Krugman does all the time.

kyle8 November 8, 2011 at 8:22 am

Since you seem to have a high regard for Mr Krugman can you explain why he has, since the year 2001, repeatedly made statements that are in direct contradiction to the things he wrote about economics back in the 1990′s when he won a Nobel prize?

I guess it is because he has moved further to the left over the years and has found that it is more convenient or lucrative to champion left wing causes than to adhere to his economic beliefs.

m November 8, 2011 at 9:57 am

I was referring to him making a call on the falling price of solar energy being outside of his normal areas.

m November 8, 2011 at 10:16 am

Josh,

Thanks for the link. Good read.

Kyle,
No, because I’m not aware of them. However, he’s written posts on his blog about how his views and models have evolved over time. Perhaps you could find your answer there?

kyle8 November 8, 2011 at 8:19 am

There are no measurable costs due to fraking. all of the so called evidence can be attributed much more easily to other natural or man made phenomenon.

Fraking is simply something that the enviro whackos discovered fairly recently and glommed on to as a new cause to push their radical anti-oil agenda.

Krishnan November 8, 2011 at 9:41 am

If fracking is used to discover some new compound/element that would make solar panels more efficient, the enviro whackos would be all for it – EVEN IF it actually destroys the environment – Look at the damage wind turbines are doing to birds, the environment and they still want more of it

m November 8, 2011 at 7:55 pm

As an FYI–fracking technology is actually being considered for geothermal energy extraction. There are some big differences (specifically the additional chemicals used for extracting oil and gas, and result lack of a waist water problem), but the fracturing is similar in nature.

Martin Brock November 8, 2011 at 9:02 am

Practically all politicians are thoroughly political, and so are most economists, Krugman being the premier example; however, the idea that a rapidly falling cost of production can limit production is not fundamentally ridiculous.

A particular technology for producing a particular widget may be very costly to realize. This technology may produce less costly widgets on a sufficiently large scale, but reaching this scale is costly, and once the scale is reached, recouping the investment takes time.

The next technological innovation, enabling a new but very different mode of production and producing widgets at even lower cost on a sufficiently large scale, can occur before investment in the earlier technology pays off. This next mode of production need not be a simple alteration of the previous mode.

If I can’t simply replace a few parts in my current factory and start producing widgets with the new technology, then the new technology makes the old technology obsolete, and moving resources from the old mode of production to the new mode of production may be very costly, even more costly than starting over from scratch.

We can imagine two intervals, the time until the next innovation and the time required to profiting from investing in the current innovation. Both intervals are highly uncertain, of course. Krugman asserts that expectations of the first interval are less than expectations of the second. This assertion is not fundamentally unreasonable. I’m not saying the assertion is true in the case of “green energy”, but it’s not fundamentally unreasonable.

I doubt that the assertion is true in the case of green energy. I rather suppose that brown energy has more life left in it than green energy proponents wish to believe.

m November 8, 2011 at 7:57 pm

+1

Jeff Neal November 8, 2011 at 9:27 am

The professor covered the impossibility of predicting innovation some months ago – producing this reply from me:

> http://wp.me/p1jTK0-25

Freedom produces innovation, not government thinkers.

m November 8, 2011 at 10:13 am

Off topic.

HaywoodU November 8, 2011 at 3:55 pm

-1

m November 8, 2011 at 4:40 pm

exp(i*pi)

Jeff Neal November 9, 2011 at 12:23 pm

huh?

Martin Brock November 8, 2011 at 12:10 pm

Investors have expectations even if the expectations are not rational (mathematically calculable). Rational expectations are a (presumably very small) subset of investor expectations, but investors invest regardless, based on faith in their own, non-rational expectations. A non-rational expectation isn’t necessarily irrational or contrary to a rational expectation. It’s just that precise, mathematical methods can’t tell you what to do. Faith is all you have.

For example, if your investment yields have a fat-tailed distribution, you can’t lower your risk by diversifying. A diversified portfolio of these investments is as risky as a single investment. This fact doesn’t prevent you from investing. Some investors still profit by investing, but these investors can’t lower their risk by diversifying.

Market capitalism doesn’t work because smart investors calculate the right investments. If it did, socialism would be possible. Market capitalism works because resources do not long remain organized unprofitably, because unprofitable investments fail and the resources then are reorganized. The new organization may not have a rational expectation of profit either, but at least it’s not the old organization which is definitely unprofitable.

In other words, capitalism works like evolution by natural selection (or market selection), not like “intelligent design” with a central-planner-in-the-sky.

In a sense, the market itself is an intelligent designer, and smart, individual investors do inform markets, but these facts don’t contradict the market selection story. Markets are less efficient without smart investors, but ironically, smart investors are themselves the reason that a process like evolution by natural selection dominates.

The harder smart investors work to profit from rational expectations, the more and more quickly market prices reflect these expectations, leaving only the non-rational expectations.

Martin Brock November 8, 2011 at 12:16 pm

Jeff, You might be interested in this presentation by Terence Kealey.

http://www.tomwoods.com/blog/the-myth-of-science-as-a-public-good/

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