Posted tagged ‘regulation’

Can Obama plug the hole?

May 31, 2010

The Gulf oil spill is producing two crises. The obvious one is the disaster with coastal fisheries, but it poses an ideological crisis as well. For liberals, government is supposed to be the solution to all problems. The oil spill is a big problem. So if the government is impotent in solving it, what does that say about the possibilities of government? If the oil spill is a problem that government cannot solve, might there be other such problems? That thought is too horrible to contemplate.

It is boldly apparent that government cannot plug the hole. The government does not have the technology, the expertise, or the equipment. If government did have the technology, expertise, and equipment that would mean that those resources had been diverted out of the productive private sector into the non-productive government sector. That’s not a good idea. People who know how to drill for oil ought to be left to do that, not put behind desks in faceless bureaucracies.

Every time government fails, the outcome can be spun as (a) poor leadership in government, (b) not enough regulation, or (c) regulators tied being too lax because of industry ties. Katrina was a disaster, the Left would have us believe, not because it was a large hurricane striking New Orleans, but because George Bush provided poor leadership. The bust in the housing market was supposedly due to not having enough regulatory laws, so Congress passed new laws regulating largely-unrelated activities — as if the weight of the paper the laws are printed on suppresses underlying problems, never mind the relevance. Airline crashes are supposedly due to cozy relationships between the airlines and government regulators.

In a pinch, there are two more options: (d) increase the number of regulators, and (e) ban the activity altogether. Increasing the number of regulators is surprisingly unpopular. That is because the notion on the Left is that not only is government all-knowing and good, it accomplishes its work cleanly and efficiently. That’s nonsense, but it is part of the ideological package. There is a final method of preserving the good name of government. What happened as a consequence of the Bernie Madoff scandal? There were plenty of laws and plenty of regulators; the regulators looked at Bernie’s operation. He simply scammed them, with surprising ease. So were the regulators all fired? Was there a call for a private rating agency to be set up, like the bond rating companies? No, as a lesson in government, it was ignored. The final refuge is to ignore the lessons of failed government.

Now here comes the oil spill. It was the consequence of chance events accumulating, typical of the scenario behind many air crashes or auto accidents. The oil companies suffer tens of billions of dollars of financial loss when such events occur. The financial penalty is so great, it is unrealistic to suppose that adding some additional regulatory hoop to jump through will make much difference. If a ten billion dollar penalty doesn’t work, would ten billion plus an official reprimand turn the trick? the situation is different if it involves companies that cannot cover the risks they take. Big oil covers their bets.

Obama cannot plug the hole and he has, correctly, said so. That is not a satisfactory answer for the Left, because it is contrary to the ideological principle that government ought to have the solution to every problem. Insofar as the reality penetrates that government cannot prevent oil spills, the leftist alternative is option (e), ban drilling. In this particular case, decreasing domestic oil production means that much more will be imported by tanker. Oil well blowouts are rare. Oil tankers are probably no safer.

I am all in favor of technology as a way to solve problems. Whatever the causes of the BP spill, they ought to be investigated and a solution put in effect. It is virtually impossible to stop a solution from being found, government or not. Oil companies are no more fond of losing tens of billions than anyone else — well anyone else in the private sector. My objection is to demands for complete safety, guaranteed by government as a sure thing. We should minimize risks and then get on with living. In that respect, it is like airline crashes or auto accidents. Auto crashes take over 30,000 lives a year in the U.S., and despite seat belt laws and all else, government cannot completely solve the problem.

I think there is a role for government in cleaning up the mess, though it would be better if it were accomplished through an industry consortium. Oil spills are so uncommon that it is inefficient to demand that each company be independently prepared to handle every contingency. Obama can be held accountable for management of the clean up, but, hey, we are dealing with government and government is inherently inefficient.

We should accept that life involves risk, and not expect government to remove the risks. So find a way to prevent blowouts like the BP one, and get on with drilling.

Why does government prefer rationing?

July 27, 2009

It’s a straightforward observation: when government is presented with a problem, there is a strong tendency to use some form of rationing as a major part of the solution. We see this in health care, water supplies, electricity, and many other aspects of government regulated or government-run operations. It’s is a reasonable to unexpected emergencies, like World War II shortages or hurricane interruptions, But it is an unreasonable response to chronic problems. So why is it the preferred tool? I think it is because it does not require long term planning, it enhances government authority, and it perpetuates an illusion of fairness.

It should not take too many examples to establish the existence of the rationing preference. My state of California has chronic problems with water shortages. There are a number of ways to increase the supply of water. New dams could be built in the mountains to hold spring runoff for the dry summers, and the Pacific Ocean has the potential for desalinated water. In recent years those solutions have been consistently rejected in favor of water rationing. The price charged for water escalates rapidly to discourage use, but an official promised that people would not be allowed to “buy their way out” of rationing. The government will put flow restriction devices on customers who do not obey dictates.

California took the same approach to electricity shortages, with a system of brown outs to ration supplies. Shortage were easily foreseeable.

Government health care systems around the world depend uniformly on rationing to limit demand. The most popular method is to build long queues for treatment. That discourages people from seeking care, gets rid of some that die while waiting, let’s people live in pain as an alternative to providing service, or encourages them to seek care outside of the government system.

The proposed cap-and-trade system is a mechanism for rationing energy. There is fairly uniform opinion of experts that a straight tax on energy would do a much better job of reducing consumption, assuming one really wants to do that, but a tax is rejected in favor of rationing.

In each case, there is an option to provide all of what is needed on a scale of increased cost. The free market does this naturally. It is only when government intervenes that it doesn’t happen. For example, people who can afford it could sign up for desalinated water to keep their gardens alive in droughts. This could be privately financed so it would cost the taxpayers nothing. It would have the general benefit of increasing the demand for desalinization technology, which ultimately drives the cost of technology down.

In the case of cap-and-trade, the reason for a rationing system is rather transparently related to a quest for government power. Government gets to decide who will get the coupons and at what price. This has the general feature of supporting the theory that government makes better decisions than the free market, so those who have faith in government get to propagate their faith. In particular, it allows politicians to reward their friends and punish their enemies. The coupons will go to buying off key votes to get the legislation passed, to damaging business in states that don’t come along peacefully, and rewarding influential donors who will benefit from the market for rationing coupons.

Politicians are elected for short terms, so the pressure is for them to make a quick fix rather than a long term solution. Environmentalists oppose dams and desalinization, preferring instead a quasi-religious austerity to please the gods of nature. Any politician who goes for a practical long term solution will face the ire of this new brand of fundamentalism. Most voters would probably prefer water to the moral purity of drought asceticism, but so long as water generally comes out of the tap, they are unwilling to ponder the long consequences of avoiding new supplies. In the short term, the politician gains the fanatical support of eco-fundamentalists and loses little general support.

Ignoring the long term is likely to lead to crisis, and politicians may suffer from that. California electricity shortages brought on by the political logic of rationing was eventually swamped by the reaction of the general voters, so a little something was done to eliminate brownouts in the short term. It has to get to the point where the peasants are lighting their torches and marching towards the castle where government lives.

When government manages to stamp out all alternatives to the government system, people tend to be more accepting of rationing as a necessary part of life. They think it is the way things have to be, rather than a consequence of particular policies. The logic is that droughts are a result of the forces of nature, not a consequence of government failing to keep supplies at a pace with population. Similarly, long queues in a health care system are accepted as a natural consequence of working system, not an unnatural consequence of a failed system.

Rationing also perpetuates an illusion of fairness. We don’t want the rich getting more water or better health care, do we? The answer is that in fact we should want the rich to get the better things, so long as they pay for it voluntarily. We should want it as a simple matter of free choice, a fundamental right to spend money as one wishes. However, the invisible hand works to the general advantage as well. The rich get to pay a premium price for the latest technology, be it laser eye surgery or water desalinization or whatever, with the result that it drives the cost of that technology down for everyday use. If in some cases it does not, then we benefit from discovering that fact without a government funded research project.

Politicians are largely not sophisticated enough to recognize the benefits of free markets, or if they do recognize it they find it easier to sell government-imposed fairness to the voters.

Understanding the reasons behind government rationing brings the realization that is not an accidental outcome. It is inherent in government control of markets.

Economic Stimulation

March 1, 2009

History has shown us that liberal governmental economic policy does not help the economy (the New Deal, Jimmy Carter). Well, let’s see what it was that they did.

Conservatism was weak in the 1920s and panic lead the nation from recession to depression.

The New Deal (which extended the Great Depression  years) created government jobs, taxed the rich, and tryed to control the economy through central economic planning. He ended the gold standard, forever inflating the dollar. He set minimum wages and prevented people from working more than so many hours a week. He also created the now infamous Fannie Mae.

The result of the New Deal was… nothing. The unemployment rate lurched between 13%. and 24% until WWII.

Carter, on the other hand, tried to control the free market indirectly. He cut imports on foreign oil. His attempts to control the United States energy resulted in the still-remembered fuel-shortages. Carter essentially ruined the economy.

Reagan, on the other hand was successful at economic recovery. With large tax cuts and deregulation, he brought down inflation and unemployment.

History seems to speak against Obama, whose policies (government jobs and central economic planning, as well as regulation) resemble Roosevelt’s and Carter’s. Their policies failed.

As George Santayana once said, “Those who cannot remember the past are condemned to repeat it.”