Monthly Archives: December 2009

Realistic Skepticism About Copenhagen

In his editorial, “Climategate and Copenhagen: History as farce”, Robert Robb discusses exactly the core issues at stake in the current climate debate. They are not about denial of climate change or of human impacts to climate change, but rather about the extent of those impacts, and most importantly about the validity and wisdom of the proposed “solutions” like Cap and Trade”

After discussing the recent “Climategate” e-mails Robb suggests:

Even before these revelations, there were reasons to be circumspect about what was known about the effect of industrialization on global climate. There is, first of all, the hubris of believing that human beings can concoct a series of mathematical equations in a computer model that fully duplicate the interactions within the earth’s atmosphere…….

Then there is the inconvenience of counter-indicative trends. The emails reveal frustration with not being able to explain the global cooling that has been going on since 1998. But that is not the first uncertainty. There was a much longer cooling trend from the 1940s to the 1970s. So, for a fairly large portion of the industrial age, global temperatures have been going down, not up.

He goes on to the responsible perspective on all this:

That is not to say that greenhouse gases are not something to worry about. We know that the pre-industrial age atmosphere worked. We know that emitting greenhouses gases produced by industrial age activities changes the atmosphere. And we know that as the developing world industrializes, greenhouse gas emissions will increase, on the present course dramatically.

Even most climate change skeptics agree that greenhouse gases interact with the atmosphere in ways that tend toward higher global temperatures. The disagreement is mostly over the magnitude of that influence compared to other influences and natural variations in climate, and the advisability of various policy options to address it.

He goes on to address all the very real reasons that Cap and Trade is doomed to fail in its intended climate impacts as it has already proven to fail in Europe. Robb supports the responsible solution favored by economists across the political spectrum as well as those serious about climate solutions like NASA scientist James Hanson – a revenue neutral carbon tax.

A revenue neutral carbon taxes don’t involve massive giveaways to corporate campaign contributors or allow regulators to manipulate the economy to favor campaign contributors, so the unfortunate political reality is that no real or effective solutions for limitting carbon emissions are likely to be considered, no matter what one thinks about the risks of climate change.

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Filed under Climate Policy, Energy Policy

Capitalism – Its All About The Competition

In Capitalism Without Romance, Jeffrey Friedman provides both the best explanation for the financial meltdown I have seen yet and one of the most compelling cases for competitive capitalism that I have ever read, all in one short article.

The article explains how capitalism is completely misunderstood by liberals and conservatives alike and why the current economic situation poses fundamental risk to our economic future unless we get the story of capitalism right.

Friedman explains how with all good intentions, bank regulators passed an obscure new financial regulation in 2001 that strongly encouraged banks to favor mortgage backed security over other types of assets, thus concentrating systemic risk and creating an unsustainable bubble in those derivatives.

He goes on to dispel the myths that capitalism is about the magic of the market, the invisible hand,  self interest, greed or all the other fallacies associated with it by liberals and conservatives alike. Fundamentally, capitalism is about the competition among ideas. No matter what  motivates them, the market ends up forcing economic actors to compete with the best ideas and the best ideals in their fields, or be left behind.

The problem with socialism, corporatism or over regulated markets of all kinds is that competition gets lost, ideas don’t face pressure from competitive alternatives and the dictates of a powerful few end up putting entire systems at risk, as happened with the recent global financial crisis.

Its hard to convince a regulator, politician or CEO of a monopolistic enterprise that while their ideas may be good ones, there’s also a possibility that they aren’t the best solution and maybe we shouldn’t be putting huge systems under their control with no competetive alternatives.  The temptations of concentrated power are too great.

The reason Silicon Valley is so successful is the intense competition, the relatively unregulated market for the products and services it produces, and the high tolerance for risk and failure that attracts and concentrates the best people, the best ideas and the best resources. People and ideas are experimenting and competing intensely and the constant churn of what Schumpeter called the “creative destruction” of capitalism assures that only the best ideas succeed.

The way things are done in Washington is quite another story. Folks in Washington don’t favor real competition. But if  they realized that their proper economic role should be assuring a fertile environment for competition to thrive, perhaps politicians and regulators would better understand that the stifling nature of their dictates are fundamentally contrary to their intended goals of a strong and vibrant economy.

The old cliche is true, capitalism is the worst possible economic model in the world – except all the other ones.

Hopefully the path won’t be too painful as our governing leaders relearn the failures of socialism.  Hopefully in the not too distant future we will elect leaders who will set aside naive and unattainable notions of equality of good outcomes and instead embrace the equality of opportunity. History has proven that most critical  factor to social and economic progress is the real and fair  competition among ideas – the real definition of capitalism.

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Filed under Best Stuff, Economic Policy, Fundamental Perspectives