Entrepreneurs Make Science Work: Getting breakthroughs out of the laboratory by Matthew McCaffrey

Science doesn’t necessarily mean progress until it moves out of the lab and into the market.

Consider graphene: This major scientific breakthrough was discovered by Andre Geim and Konstantin Novoselov. They were awarded the Nobel Prize in Physics in 2010 for their work on the substance. Graphene is a layer of pure carbon just one atom in diameter, making it the thinnest existing material — essentially two-dimensional. And it’s remarkable in other ways, as well: it’s the lightest known substance, the strongest compound, the best conductor of heat at room temperature, and the best conductor of electricity. Because of these special properties, graphene, along with similar materials, is being touted as the Next Big Thing in science — and maybe in business too.

Since the initial results were produced, research to commercialize graphene has taken off in a big way; for instance, the University of Manchester announced it will be devoting £60 million to develop applications of the technology, and other universities and firms are following suit with similar ventures.

The story of graphene is a useful heuristic for scientific achievements in general, because when it comes to human progress, people tend to overlook one enormously important point: scientific discoveries and technological advances do not in and of themselves improve the welfare of humankind.

For science to improve our lives, it has to be part of them first. A scientific breakthrough in a laboratory, however technologically revolutionary, does not immediately benefit most people. In fact, the majority of scientific results are simply consumption goods for researchers and the institutions they work for. Universities and other publicly funded organizations, operating outside of most market forces, don’t usually produce lasting value in the marketplace. It’s only when entrepreneurs spread breakthroughs through the market that they begin to change lives for the better.

The role of markets can’t be emphasized enough, because it’s the profit-and-loss system that reveals the ultimate worth of an invention. It’s unlikely that the average consumer will see any real benefit from the vast majority of publicly funded research — and that’s one reason to be suspicious of the incessant calls from the scientific community for more subsidies. Still, is more research really a bad thing? Don’t public organizations get it right sometimes?

The Internet is usually held up as a classic case of government research that greatly benefitted humanity, proving that public organizations can produce path-breaking innovations just as market innovators do. But economists point out that the Internet wasn’t actually very useful until the market brought it to consumers. GPS navigation was another government science project that’s now a part of everyday life only because it was eventually commercialized. And so it goes with all manner of inventions and innovations: until entrepreneurs find ways to bring them into our daily lives, even the best ideas languish in obscurity.

Yes, public science sometimes turns out to be valuable to consumers — even a stopped clock is right twice a day. But science outside the sphere of entrepreneurial calculation lacks any direction in its search for lasting value, whereas inside the nexus of calculation, profit and loss push ceaselessly toward consumer satisfaction. Without the threat of loss, there is little reason for researchers to produce results with serious practical value. Entrepreneurs, on the other hand, don’t just have an incentive to spread useful science throughout society; in many ways, their livelihoods depend on it.

Government interference in the market, however, puts hard limits on what science can do for humanity. Take medical research as an example: if the regulatory cost of drug development is so high that some valuable research becomes impossible (it is), or if intellectual property laws prevent drugs from going to market at realistic prices (they do), then science as such can do little to help anyone. But entrepreneurial competition can increase the quality and quantity of drugs, lower the price, and ensure they get to the consumers who need them most urgently.

In other words, if we are going to be serious about scientific progress, we have to realize it goes hand in hand with entrepreneurial progress. When barriers to entry are eliminated and individual sovereignty rules the market, entrepreneurs can increase welfare using whatever scientific means are at hand. What’s more, their success in turn encourages the production of more and better research.

Our task is to do what we can to help entrepreneurs work with the top minds of science for the benefit of all. A good start would be to eliminate regulatory requirements that drive up the cost of R&D, along with the intellectual property laws that prevent competition in ideas. Once the barriers between research and enterprise have been broken down, we can use markets to get the best of both worlds.

matthew mccaffreyABOUT MATTHEW MCCAFFREY

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Obama’s Climate Legacy DOA?

We are told that Barack Obama hopes to leave a legacy of stopping global warming/climate change/climate disruption as his major accomplishment in his last term. If so, even Obama must be discouraged by his latest failure, along with the many others that have occupied the media in the last two weeks. The People’s Climate March (September 21st, 2014) was a dismal failure, the Climate Summit at the United Nations (September 23, 2014) was even worse.

The fiasco began with a lengthy article in Saturday’s Wall Street Journal by Dr. Steven Koonin, a former Undersecretary for Science in Obama’s Energy Department, titled “Climate Science is Not Settled.”

In the article Dr. Koonin was refreshingly honest in admitting that decades of computer modeling (and $150 billion) have brought us no further in understanding or predicting the climate. Climate models simply don’t match actual climate data. There has been no global warming – measured by ground thermometers and by satellites and balloons – for 18 years. Antarctic sea ice is at a record high; Arctic sea ice is coming back to normal levels (in spite of official forecasts of an ice-free Arctic in 2013). Major hurricanes hitting the US are at a record low (since 2005’s Wilma); tornadoes are far below average for three years in a row. Increasing CO2 demonstrably doesn’t cause warmer temperatures.

Below is a plot of atmospheric temperature differences from average as a function of CO2 content. Temperature goes up, goes down, and, on the whole, stays the same as CO2 increases. Do you see a correlation here? The correlation (R2) coefficient is 0.002; this is laughably irrelevant. Thursday’s WSJ contains a rebuttal letter from Ben Santer of Lawrence Livermore Labs, insisting that terrible climatic events are obvious. Dr. Santer’s insistence is not a substitute for data.

CO2tempcorr

For a larger view click on the chart.

end-capitalism-2a

The People’s Climate March in New York City. For a larger view click on the image.

On Sunday 100,000 socialists showed up for the People’s Climate March in New York City. The picture on the right demonstrates their understanding of climate science:

“Capitalism is the Disease; Climate Change is the Symptom; Socialism is the Cure.”

Good luck with that one, kids; socialism has never helped the world’s biggest problem – poverty. Ask the Indians, ask the Chinese. I watched the People’s March on television where several of the marchers proudly identified themselves as illegals who came from some third world country to tell you and me how to improve America.

On Tuesday (September 22, 2014) the U.S. Secretary of State John Kerry lectured Foreign Ministers from 120 countries on the importance of stopping Climate Change, which is more dangerous than the Islamic State (ISIS). According to Kerry the Islamic State is only a local problem, but “climate change affects the whole world.”

unsummit_climate

United Nations climate summit.

You may rightly wonder why the diplomats came back on Wednesday to hear Barack, but there’s a good reason – money.

Remember the Climate Conference in 2009 at Copenhagen, that President Obama had to flee hurriedly to get back to the White House ahead of a blizzard? Before he left, he promised to contribute to a Green Climate Fund; wealthy countries (you know who that is, right?) promised $100 Billion. So far, the Green Climate Fund has $2.3 Billion, of which $1.3 Billion was raised last week. Did I mention that the deal is for an annual $100 Billion to help developing countries? Even with global warming, Hell will freeze first. But the UN marches on. The next meeting is in November, in Lima; the goal is to raise $10 Billion for the Climate Fund.

In the meantime, China has stated it has no intention of reducing its CO2 emissions (now 28% of the world’s total). India has made the same declaration. To quote Prime Minister Narendra Modi:

“The world had agreed on a beautiful balance of collective action – common but differentiated responsibilities. That should form the basis of continued action. This also means that the developed countries must fulfill their commitments for funding and technology transfer”.

Mr. Modi is quoting from the Kyoto Protocol, which died because of China and India’s refusal to limit their emissions. But it’s still our obligation to send money and technology. Sure!

In short, I think Mr. Obama’s “Climate Legacy” is dead, especially if the Polar Vortex returns this Winter.

But diminishing America’s technological and commercial leadership – by shutting down our fossil fuel energy advantages – fits well in the Obama ideology of trashing America. He’ll keep trying.

And speaking of the Polar Vortex, New England utility National Grid has announced that household natural gas prices will go up by 37%, about $33 per month over last year. This sounds like a cruel joke; natural gas prices are going down, because of fracking, right? Yes, but because of the low price, everyone wants all the natural gas they can get – i.e., demand is way up. But the region’s two major natural gas pipelines are already practically filled to the brim, constricting supply and sending already-elevated rates ever higher.“We’re a stranded region,” says Gilbert Metcalf, an economics professor at Tufts University. “We have a major bottleneck for getting natural gas into New England.” The EPA’s efforts to shut down coal-fired generators adds to New England’s problem.

Elsewhere, the Bardarbunga volcanic vent in Iceland continues pouring out molten lava, throwing it 130 meters into the air. Yes, that’s the report – 130 meters. For comparison, the Statue of Liberty, from ground to torch, is 93 meters; the Brooklyn Bridge is 84 meters above the water. The smell of sulfur in the air is evident as far away as Paris. How long will this continue? The Laki eruption in 1783-1784 went on for eight months, and caused extremely cold weather around the world. It also caused thousands of deaths.

And, in Japan, a volcano erupted without warning, killing a number of Summer mountain climbers. Suspicion is growing that this increased volcanic activity is caused by, yes, you guessed it, global warming. According to the National Post:

19,000 years ago the glaciers of the most recent Glacial Age (i.e., the Wisconsin Glaciation) began to melt, lifting billions of tons of ice off Earth’s crust and weakening the ability of the crust to resist the flow of magma from below. The magma from the mantle then was able to surge up and out. This is demonstrated by the numerous volcanoes in the British Isles and Scandinavia, which were heavily glaciated in…oh, wait!

However, in spite of the disappointments at the People’s Climate March and the UN Climate Conference, the Administration is bringing out the heavy guns – yes, Vice-President Joe Biden has added his voice to the scientists warning us of the dangers of anthropogenic climate disruption.

The VP recently reminded us of “the 161,000…fathers, mothers, brothers, grandparents….lost” in the tornadoes in Joplin, Missouri in 2011. Not to mention the “thousands of cars tossed around like leaves.” Incidentally, Joplin’s population is about 50,000. That, friends, is the man who’s a heartbeat away from the presidency.

Not to be outdone, the Brits have a rival to Biden. Ebola may be more dramatic, but climate change is a bigger threat to public health. That’s the conclusion of the British Medical Journal (BMJ), a weekly peer-reviewed medical journal, publishing since 1840. This week it ran an editorial calling on the UN’s World Health Organization (WHO) to declare climate change a public health emergency.

“Deaths from Ebola infection, tragic and frightening though they are, will pale into insignificance when compared with the mayhem we can expect for our children and grandchildren if the world does nothing to check its carbon emissions,” said the editorial, written by the magazine’s editor in chief, Fiona Godlee.

I don’t make this stuff up, folks, I just report it. But I figure quoting these people – occasionally – is as good as trying to argue with them.

Creating More Homeowners Without Building a Crisis

Wealth Building Home Loans are fixed-rate, 15-year loans that build equity much faster than a 30-year mortgage.

By William M. Isaac and Edward Pinto

Sales of existing homes in August were down 5.3% year-over-year. The housing lobby says credit is too tight. The commissioner of the Federal Housing Administration and the director of the Federal Housing Finance Agency (regulator of Fannie Mae and Freddie Mac ) have called for lenders to further loosen lending standards.

While the housing market needs a shot in the arm, the financial crisis in 2008 taught us the extreme danger that loose lending standards—poor underwriting, risky loans and government-backed credit expansion—pose to homeowners and the economy. We think there is another way.

For most of the past 50 years, U.S. housing policy has relied on ever looser underwriting standards in an attempt to lift homeownership and stimulate the economy. The focus has been on attracting more low- and moderate-income home buyers in an attempt to build wealth for these households. Yet the homeownership rate has changed little since 1960, while homes in the past half-century have proved to be highly volatile assets. This is particularly the case for lower-priced homes bought by low-income households with highly leveraged 30-year loans.

A better option is what we call the Wealth Building Home Loan—a 15-year, fully amortizing, fixed-rate loan that will build equity much faster than a 30-year mortgage. The WBHL concept was unveiled in early September by Mr. Pinto and his colleague at the American Enterprise Institute, Stephen Oliner. The market embraced the idea, and WBHL-style loans are already being originated and distributed by the Neighborhood Assistance Corp. of America (NACA), a national nonprofit based in Boston that works primarily with low- to moderate-income borrowers. Citigroup and Bank of America have signed on to fund NACA’s 15-year mortgages.

In the first three years of a WBHL, 77% of monthly mortgage payments pay off principal while in a 30-year loan only 32% goes toward principal. After 15 years the home is owned free and clear, and starting in year 16 the family has cash flow available for life-cycle needs such as their children’s education.

The big question is whether a 15-year mortgage can be affordable. We think it can. First, the rate on a 15-year loan is already below that for a 30-year loan. Further, studies by Fitch Ratings, the Urban Institute and others indicate that 15-year loans have half the risk of similar 30-year loans. Add common-sense underwriting features such as gauging a borrower’s ability to repay by evaluating his entire budget, as opposed to looking at a monthly debt-to-income ratio that ignores such items as income taxes and living expenses. Today only the Department of Veterans Affairs considers a borrower’s total household budget. We estimate these steps will result in a two-thirds reduction in a lender’s foreclosure risk.

Another feature of the WBHL would allow a home buyer to use some or all of his down payment to “buy down” the interest rate on his loan. These differences allow the WBHL to provide more than 90% of the home-buying power of a 30-year fixed-rate FHA loan with a monthly payment almost as low.

Because of the rapid increase in equity and the dramatically lower risk of default, a WBHL can be safely offered with little or no down payment to a wide range of prospective home buyers. Within 10 months, this loan, even with no down payment, has a lower loan-to-value ratio than an FHA loan with 5% down. After the 41st month, the loan-to-value of a WBHL drops 80% while the it is still over 90% for an FHA loan.

A safe, sustainable version of the WBHL designed specifically for low-income borrowers can provide 96% to 100% of the home-buying power available with an FHA mortgage, the most common loan type used by low-income first-time home buyers. A modest subsidy to the home buyer provided by a foundation or the federal government could accomplish this goal.

So what’s standing in the way of offering WBHLs to as many qualified lower-income borrowers as possible? Regulations designed to promote sound lending that end up standing in the way. One is the Consumer Financial Protection Bureau’s “ability to repay” rules that ignore the benefits of evaluating the borrower’s entire budget. The other is the Federal Housing Finance Agency’s mortgage-insurance-company requirements that fail to consider the much lower default risk of a 15-year loan compared with a 30-year loan.

If regulators learn anything from the mortgage meltdown that led to the 2008 financial crisis, it should be that the goal of increasing homeownership—particularly among lower-income Americans—cannot safely be advanced by loosening lending standards. It can be by the Wealth Building Home Loan.

William M. Isaac

William M. Isaac

ABOUT WILLIAM M. ISAAC

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is senior managing director at FTI Consulting and the author of “Senseless Panic: How Washington Failed America” (John Wiley & Sons, 2010). Mr. Pinto, former chief credit officer of Fannie Mae, is co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute.

EDITORS NOTE: This column originally appeared in the Wall Street Journal.

Equal Work? Government Has No Idea What That is

“Equal pay for equal work!” the mantra goes. “Women get only 73 cents on a man’s dollar!” These are oft-heard slogans, and we may well hear them again during the fall campaign with the War on Women afoot. Now, going beyond the rhetoric, it’s not widely known but nonetheless true that the intersex pay gap is attributable to different career choices men and women make: women tend to choose less lucrative fields (e.g., soft sciences instead of hard ones), work shorter hours even when “full time,” are more likely to value personal fulfillment and job flexibility over money, are more inclined to take time off, generally have less job tenure and more often decline promotions. But while I’ve examined these factors at length in the past, the topic today is something more fundamental. This is that there would be a problem with even a well-intended equal-pay-for-equal-work scheme:

Hardly anyone knows what equal work is.

And the government hasn’t the foggiest idea.

Recently I mentioned how women tennis players now receive the same prize money as the men at Grand Slam events (Wimbledon; and the US, French and Australian opens) and how this is hailed as a victory for “equality.” Yet since the women still only play best of three sets but the men best of five, this actually means the men must work longer for the same pay. Even this, however, doesn’t truly illuminate the issue: what actually constitutes “equal work” in professional tennis?

I’ll introduce the point with another example. The top 10 female fashion models earned 10 times as much as their male counterparts in 2013. Is this unequal pay for equal work? Not really.

While I don’t know if women models’ job is more labor intensive, I know they don’t get paid because they’re capable of posing, wearing clothing, standing under hot lights or parading down runways. It’s because their “work” helps to satisfy a market — and it satisfies a bigger market than the men’s work does.

Note here that while people today frown upon discrimination based on innate qualities, integral to doing the women models’ work is being female. If the male models were women, they might be able to do the same “work” and satisfy the market equally.

Likewise, does the “work” in tennis directly have to do with number of sets played? As an aspiring 12-year-old tennis nut, I’d sometimes play 10 sets a day under the sweltering summer sun, but no one thought of compensating me and I never felt oppressed. Professional tennis players earn money because they satisfy a market, and the men’s “work” does this more effectively than the women’s. And how would we characterize this more valued work?

It is success on the men’s tour — people want to see the grandest stage in the game.

Thus, the only way a woman in tennis could do work equal to that of Roger Federer or Rafael Nadal is to compete on, and succeed equally on, the ATP Tour. Of course, a woman who could would not only enjoy the same prize money (it’s greater in men’s tennis overall), but would become a sporting sensation and might very well receive endorsements dwarfing the men’s. So her “work” then could actually be greater.

There are endless more mundane examples. A woman gynecologist I know will only hire female assistants because she believes it makes her patients more comfortable. Not only is this an example of why sex discrimination is often justifiable, but what if she was forced to hire a man? If the patients were indeed less comfortable — and, therefore, perhaps less likely to visit her practice — would that man truly be doing “equal work”?

Now consider female police officers. Forget for a moment that standards on forces were long ago lowered to accommodate women based on “disparate impact” theory and that Eric Holder is currently suing the Pennsylvania State Police for treating women equally. Imagine a study found that people in general, and the criminally inclined in particular, found male officers more imposing and therefore were more likely to mind their p’s and q’s around them. Would, then, even a highly competent female officer be able to perform “equal work”? And if not, and reflecting the phenomenon with fashion models, wouldn’t being male (or at least appearing so, to head the “transgender” argument off at the pass) be integral to the “work” of policing?

What of a female reporter in male athletes’ locker rooms? Not only wouldn’t it be allowed if the sexes were reversed, but if those men were less comfortable and less likely to be forthcoming in their comments — or even if they just had to modify their behavior — could her “work” really be equal to that of a male reporter’s?

Next, my local hardware store provides knowledgeable workers, all men, who render valuable advice on products and how to perform various home repairs. If it was determined that people found a female in that role less credible and were then not quite as likely to buy from the establishment, would even a highly competent woman be able to do “equal work” in that capacity?

What about the little West Indian restaurant, with all-black workers, I loved when I spent a few weeks in Tampa? If hiring a white person made the eatery seem less authentic and negatively affected its appeal, would that individual be able to do “equal work”? The same, of course, could be asked about a black person working in a German restaurant. In these cases race would be integral to the “work.”

And what of a homosexual Boy Scout troop leader? If his presence made parents less likely to enroll their boys in the organization, could he be capable of “equal work”?

Of course, one knee-jerk reaction here is to say that people “shouldn’t” view female cops or hardware specialists, or homosexuals differently than anyone else. But this is a moral argument of questionable morality, as it applies a bias in selectively objecting to market biases. People take little issue with gynecologists or day-care centers that won’t hire men, with male models being paid less or with ethnic restaurants hiring only non-whites. But try only hiring only male cops or employees; compensating a male hardware specialist more handsomely; or, as with Abercrombie a few years back, valuing employees who don’t wear hijabs over those who do. You may have an experience with the DOJ or EEOC that’ll make a dance with the IRS seem pleasant.

We could also talk about how we “should” value work. If we were deific or at least angelic, we would certainly value a mother-of-four’s labors or Mother Teresa’s loving charity more than Facebook and completely devalue rappers’ vulgarity. And even though I earn less than mainstream-press profferers of pablum, I consider my work infinitely more valuable. But flawed though market determinations may be, they’re still the best guide available.

Even within this worldly context, though, some may say there’s more nuance to the matter of work than my examples express. They may contend, for instance, that female police and hardware specialists might have strengths that counterbalance or even outweigh their weaknesses. And guess what?

I agree.

My examples could possibly be lacking.

And this just buttresses the point: virtually no one — if anyone — can properly assess what constitutes equal work in every situation.

This is yet another reason why the matter of work and pay is none of the government’s business. Are bureaucrats, politicians and judges qualified to determine what equal work might be in the thousands of professions in America? Government isn’t God; it’s not even the market, which can be defined as economic democracy expressed through purchasing decisions. When it intrudes into the economy it’s more like Hitler trumping his generals during WWII and deciding on military strategy: an autocratic agency as incompetent as it is arrogant.

Contact Selwyn Duke, follow him on Twitter or log on to SelwynDuke.com

EDITORS NOTE: The featured image is of students and teachers uniting on the streets to protest for equality. Picture Credit

In Praise of Peace: Happy Birthday, Dr. Mises by Robert P. Murphy

The great Austrian economist Ludwig von Mises was born September 29, 1881, making today the 133rd anniversary of his birth. I thought it would be fitting for Anything Peaceful to commemorate this extraordinary thinker’s writings in praise of social cooperation.

Although Mises rejected the idea of natural rights in favor of a cool utilitarianism, he nonetheless was one of the most principled champions of classical liberalism. For Mises, social bonds were upheld not by mere emotional yearnings or even biological urges. No, they were due to empirical facts about production and the ability of human reason to grasp these truths about the world.

Specifically, labor was more productive under the division of labor; it was a simple fact that when one man specialized in growing crops and the other specialized in making shirts, both men ended up with more food and clothing. But for people to seize these gains, they needed private property and the possibility of trade.

So far it may seem as if Mises is merely echoing standard results. Yet Mises pushed the analysis much deeper. He thought that civilization itself rested on these empirical facts and their mental recognition among enough people. The traditional rules of morality ultimately derived from these principles, according to Mises. To allow anti-social behavior (such as murder or theft) threatened the division of labor and hence society itself.

Throughout history many writers have celebrated war as an expression of power and national prestige. Mises would have none of it. Indeed he would often write passages that would sound “soft” if they hadn’t been penned by a man who was an officer in the Austro-Hungarian artillery in World War I and fled Nazi persecution later in life. Here is Mises explaining the relative virtues of war and peace:

[An author] errs if…he asserts that “true” civilization and the “good” society are an achievement of people blithely indulging in their passion for violence, murder, and cruelty, that the repression of the impulses toward brutality endangers mankind’s evolution and that a substitution of barbarism for humanitarianism would save man from degeneration. The social division of labor and cooperation rests upon conciliatory settlement of disputes. Not war, as Heraclitus said, but peace is the source of all social relations. To man desires other than that for bloodshed are inborn. If he wants to satisfy these other desires, he must forego his urge to kill. He who wants to preserve life and health as well and as long as possible, must realize that respect for other people’s lives and health better serves his aim than the opposite mode of conduct. [Human Action, Scholar’s Edition, pp. 172–173.]

On this anniversary of his birth, let us celebrate not only the great economics of Ludwig von Mises, but also his abhorrence of war and appreciation for peace.

20140929_RobertP.MurphyHeadShot1ABOUT ROBERT P. MURPHY

Robert P. Murphy has a PhD in economics from NYU and the author of The Politically Incorrect Guide to Capitalism. He is the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute.

Hayek: The Knowledge Problem by Jeffrey A. Tucker

We must stand humble before complexity and order without planning.

F.A. Hayek is an epic figure in the history of human freedom. He stood for liberty at a time when most intellectuals in the world embraced ideologies of command and control. His literary legacy continues to provide some of the most powerful arguments ever made for the depoliticization of the social order, including its commercial life.

But, in my personal experience, he can also be one of the most difficult thinkers to grasp.

After F.A. Hayek died in 1992, for example, a magazine commissioned me to do a final tribute to his life and work, summing up his main contributions. It was supposed to be for a popular audience. There’s nothing like such a writing assignment to reveal how much you actually know — or do not know — about a subject.

I thought it was going to be a snap. I covered his biography and politics just fine; I mentioned his business-cycle studies and his work on capital theory. But of course his main contribution to the world of social science is summed up in the phrase “the knowledge problem.” Even though I read most of his major work, and read his seminal articles on the problem of knowledge, I was stunned to find myself with writer’s block.

What I came to realize is that I didn’t understand, much less appreciate, his writing on this topic. So I covered the basics (the knowledge needed to run the social order is distributed in individual minds and inaccessible to planners), but my heart wasn’t in it. That’s where matters stood for me for about twenty years.

I tried to make an effort to get how it was that Hayek was able to write vast literature on this one subject, why his seminal article “The Use of Knowledge in Society” was the most cited article in the second half of the twentieth century, why innumerable dissertations have been written on Hayek’s insight, and why he has influenced countless scholars in so many disciplines for so long.

Part of the problem is that Hayek did not always write with his logic and conclusions on his sleeve. His rhetorical style is not so much hortatory or doctrinaire as it is searching and exploratory. You get the sense that he is thinking through an issue as he writes, struggling to find the right combination of words, the right phrasing, the right examples, to capture his insight — which always seems to be unfolding in real time rather than stated like a final product for consumption.

For someone who is looking for final answers and pure theory, this type of writing can be frustrating. There was the additional problem that Hayek can just be downright annoying in places, contradicting himself by endorsing political programs at odds with his own theory. He also has a habit of backing away from the hardest conclusions of his own narrative. If you seek a clear definition of ideas like freedom or property rights in Hayek’s work, you will come away disappointed. He often seemed so consumed by the complexity of the world that he shied away from clarity for fear that he had missed something. For readers looking for ironclad deductions and arguments, his approach can give the impression of being an elaborate display of obscurantism.

In order to understand Hayek and to learn from him, you have to be prepared to think alongside him as he writes. His work presumes an open mind that is ready to think about complex topics, most often from the inside out. He is asking and seeking to answer a completely different set of questions than most people are even willing to consider. Most readers are not prepared to consider them. This is a point it took me many years to understand.

What changed for me? I needed a visual application of the knowledge problem, something that connected the theory with reality. This happened to me at a bar atop one of the highest spots in São Paulo, Brazil, a spot where you could make a complete turn and see the lights of the city as far as you looked. It was a world without end, in all directions.

I was overwhelmed at its utter incomprehensibility. It was too much for my mind because it is too much for any mind. The revelation hit me like a truck: this is an order that no one can possibly comprehend in either its totality or its parts, and, as such, an order that no one can possibly control. It cannot be built by anyone in particular; it is built only by an extended and hyper-complex process that is driven by individual minds that takes many generations to unfold.

It can only be harmed by those who would presume to control it — and the bureaucrats and politicians in this city surely do. The regulators can pass regulations. The planners can order buildings built and torn down. They can loot those who are willing to comply. But, in the end, in this city of more than 11 million people, even in the presence of overweening government, society somehow takes its own course. How this happens and why cries out for explanation.

“The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form,” explains Hayek, “but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”

I came to realize, right there, that this is not just about São Paulo. It’s about any city in the world. In fact, it’s about every social setting, large or small. It’s about the whole world. Only individuals possess the knowledge that nearly all social scientists — and bureaucracies — imagine that they can, must, and do possess. Anyone who seeks to control the social order is presuming that the unanswerable questions are already answered and proceeds from that point. Hayek is digging deeper to observe that we cannot possibly know what we must know if we seek to design much less rule the world. The knowledge is dispersed and, by its nature, uncollectible.

Is Hayek describing a world of disconnected chaos and uncoordinated randomness, a nihilistic social order of swirling unpredictability? That is not the world in which we live. Why not? Because of the existence of institutions like prices, mores, habits, signaling systems of culture and learning — of knowledge that we all possess, not always consciously but mostly inchoately. They are institutions that we ourselves have not created, but they assist us in making the most of our lives.

“We make constant use of formulas, symbols, and rules whose meaning we do not understand,” writes Hayek, “and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess. We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up.”

As I stood at the same bar in São Paulo looking all around me, my vision changed from macrocosm to microcosm. I observed two people standing close by. They were embracing, kissing intimately. I wondered whether this was a first date or if they had been together for many years. I had no access to that information, and nothing they did gave me the answer. They seemed to be courting each other but at what level and in what way I could not know. And yet this information was foundational to everything both of them were thinking at the time. To truly understand this relationship, I would have to know not just something but countless bits of information I could not really know.

What’s more, even this two-person society was not comprehensible to the two people themselves. Part of the spark of their relationship was the emotional dance they were engaged in right there on the spot. Their intimacy was their means of accessing, however incompletely and briefly, the true spirit of the other’s intellectual and emotional state of mind. They can come close, through every means available, but never entirely achieve that oneness for which true love strives.

Even so, both people in this two-person society were seeking longingly and lovingly for the ideal, coordinating their actions through shared cues, language, and symbols. And in so doing, they created their own micro-order right there, as had everyone else in that bar, as has every one of the 11 million people in that city, as has every one of the 7 billion people on this planet.

We all seek some form of individuality but also a connection to others. We can create institutions to make this possible, but mostly we embed ourselves within them. The institutions emerge from within the structure of our shared experience, chosen and not imposed, and we gravitate toward those who work and eschew those who don’t, in an ever-evolving process of discovery.

Let’s say you set out to plan the world. “If we possess all the relevant information,” writes Hayek, “if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.” We only need to plug in the right data into our calculus and issue orders. The problem is that this solution presumes that the unsolvable problem — gaining that information — has already been solved.

What is the significance of this revelation? It lays waste to a century — or many centuries — of intellectual pretense. The social order is built by the coordination of plans. If those plans are always individual plans, radically individuated and subjectivized, coordinated only through evolved institutions created by no one in particular, the dreams of every would-be master of the universe come crashing down.

The most obvious conclusion is also the most powerful one from a political point of view. The source of order is not the government, even though people continue to believe that despite all evidence. The bureaucratic class and the politicians who empower that class are no more or less smart than you and I are. They are just people with no special insight. Because of government’s legal right to plunder, the government is corrupt and exploitative. It takes stuff from people. That’s about the whole of it. It is not the source of anyone’s order.

What then is the source of social order? It is our individual minds, however imperfect they may be in making judgments about our world. Freedom is the only real option there is. Anything else is based on a lie — a “pretense of knowledge,” as Hayek would say. Anything that subverts that freedom, which means any state at all, amounts to an attack on the very source of social order.

“If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place,” Hayek concludes, “it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.

We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used.

I’m drawn to Hayek’s use of the terms “immediately” and “promptly.” With these words he introduces the ultimate enemy of all those who would control the world: the passage of time. With the existence of time comes change, and with change comes new and different knowledge. Even if it were possible somehow to gain a complete snapshot of the world with all its existing knowledge, by the time it could be used for any purpose to bend the world from its course to another, that knowledge would be outdated and hence useless. Even under the best circumstances, the planners would only be planning the past.

Here, then, is the knowledge problem. It is about more than the ability to plan an economy. It is about the whole of our lives. It is about the ability to plan and direct the course of civilization. That capacity to manage the world, even the smallest part of it, will always and everywhere elude our grasp. That’s a beautiful insight, because it reveals the truth about human freedom.

Freedom is not just one way to organize society. It is the only way.

20121129_JeffreyTuckeravatarABOUT JEFFREY A. TUCKER

Jeffrey Tucker is a distinguished fellow at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Broken Windows: The Flawed Economic Logic of EPA’s Carbon Regulations

EPA’s Gina McCarthy gave a speech to Resources for the Future defending EPA’s proposed carbon regulations on economic grounds. However, the crux of her argument is based on a logical fallacy that will be costly to jobs and the economy.Here are two passages from her speech:

Climate action is not just a defensive play, it advances the ball. We can turn our challenge into an opportunity to modernize our power sector, and build a low-carbon economy that’ll fuel growth for decades to come.

Not only is global climate action affordable, but it could actually speed up economic growth.

In her mind, new mandates and regulations that end coal (and eventually natural gas) use in electricity generation will result in jobs and economic growth. McCarthy mentions that smart economists helped develop EPA’s carbon plan. However like her, they succumb to the “broken window” fallacy. This is the logical misconception that generating jobs and economic activity by breaking things is good for society.

In his essay, “That Which is Seen, and That Which is Not Seen,” the French economist Frédéric Bastiat tells the parable of the broken window:

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

One unseen cost of EPA’s attempt to restructure the power grid, will be the shutdown of reliable coal-fired power plants. For instance, Duane Highley, CEO of Arkansas Electric Cooperative Corp. and Arkansas Electric Cooperatives Inc., told Arkansas Business he “would prefer to invest in scrubbers” for the 1,480-megawatt plant near Redfield, “and let it run for another 20 or 30 years” rather than shut it down.

What’s more, enormous investments that have already been made to many of these plants to make them meet other EPA standards. Take the Ferry Power Station in Hatfield, PA. The plant’s owner installed $650 million of scrubber technology in 2009, but closed it four years later because of more EPA regulations.

During a July 23 hearing of the Environment and Public Works Committee, Senator Deb Fischer (R-NE) summed it up when she said that EPA’s regulations will

force the premature retirement of efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices.

Let’s not forget some of the significant costs that we will see. EPA estimates that its regulations will mean electricity price increases of six to seven percent nationally in 2020, and as much as 12% in certain places. There are also the job losses. The United Mine Workers expects over 152,000 jobs lost in the coal sector by 2035.

(We could have a clearer understanding of the proposed carbon rule’s job effects but EPA has failed to do the analysis.)

All these seen and unseen costs, and for what? Minimal global impact, as the Institute for 21st Century Energy’s Matt Letourneau notes:

The reduction in emissions from EPA’s rule would actually only decrease global emissions by 1.3%.  Based on projections from the U.S. Department of Energy, the amount of carbon dioxide emissions that will be reduced from EPA’s power plant rule is equivalent to just 13.5 days of Chinese emissions in 2030!

McCarthy can puff up the economic benefits of EPA’s carbon regulations all she wants. By using a little bit of logic and looking at the facts, we can see her agency’s plan will be a millstone on the economy. Just as a concerted effort to break windows doesn’t benefit the economy, forcing the restructuring of the power grid is not a path to sustained economic growth.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

EDITORS NOTE: Image credit: Elvert Barnes. Licensed under a Creative Commons Attribution 2.0 Generic license.

Scarier than Global Warming: Capitalism vs. Climate

this changes everything klein

This Changes Everything: Capitalism vs. The Climate by Naomi Klein, Simon & Schuster.

“The most important book yet from the author of the international bestseller The Shock Doctrine, a brilliant explanation of why the climate crisis challenges us to abandon the core “free market” ideology of our time, restructure the global economy, and remake our political systems.” (Amazon.com)

“This is the best book about climate change in a very long time—in large part because it’s about much more. It sets the most important crisis in human history in the context of our other ongoing traumas, reminding us just how much the powers-that-be depend on the power of coal, gas and oil. And that in turn should give us hope, because it means the fight for a just world is the same as the fight for a livable one.” (Bill McKibben, author of The End of Nature and co-founder of 350.org)

“Journalist Klein is a resolute investigator into the dark side of unchecked capitalism. . . . This comprehensive, sure-to-be controversial inquiry, one of the most thorough, eloquent, and enlightening books yet on this urgent and overwhelming subject—alongside works by Bill McKibben, Elizabeth Kolbert, and Diane Ackerman—provides the evidence and the reasoning we need to help us shift to a ‘worldview based on regeneration and renewal rather than domination and depletion.’” (Booklist (starred review))

Well, there you go. Saving the climate (from what?) will be easy. Who ARE these people? Bill McKibben is the founder and leader of a group called 350.org, whose crusade is to decrease the amount of carbon dioxide (CO2) in the atmosphere to 350 parts per million by volume (ppmv). That’s what it was in 1988, when Dr. James Hansen testified to a Senate subcommittee that anything higher would lead to catastrophic climate change. It’s presently 400 ppmv and going up with each new coal-fired generator China and India bring on line, about one per week. Klein is a board member of 350.org. Would you be surprised to learn she comes from a family of communists? Needless to say, she has no scientific training, but she almost completed a degree in journalism. Almost.

Many of us who recognize there is no scientific evidence for anthropogenic global warming (AGW), let alone catastrophic AGW (CAGW) have suspected it’s a club to attack capitalism and Western prosperity. Ms. Klein deserves credit – I suppose – for making this quite clear. Her previous books simply attacked capitalism, per se; this one seeks additional acolytes in the holy name of “saving the Earth.” Want more from Ms. Klein? Don’t buy the book; it has only one message, which you can read in Britain’s Guardian newspaper.

So why has Ms. Klein written a new book, pouring the old wine of anti-Capitalism into the frayed wineskin of Environmentalism? The cynical suspect an attempt to capitalize (yes, pun intentional) on the UN’s Climate Summit  (23 Sept) and the People’s Climate March on Sunday, 21 Sept.

The list of attendees is notable: Ban Ki-Moon, Barack Hussein Obama, John F. Kerry, Gina McCarthy, the President of Zimbabwe, Naomi Klein, Bill McKibben, and thousands of other morons.

The list of NON-attendees is even more notable: President of China Xi Jinping, Prime Minister of India Narendra Modi, Chancellor of Germany Angela Merkel, Prime Minister of Australia Tony Abbott, Prime Minister of Canada Stephen Harper, Prime Minister of Japan Abe. Merkel, whose “green” country is building 28 new coal-fired electricity generators, has a new problem; Italy is forecast to go broke in two years, and France (with the EU’s only Socialist President) is soon to follow.  Zimbabwe has already announced it will need $10 billion to wage the good fight against climate change. You should resist any cynical thought that Zimbabwe knows a sucker (see attendee list above) when it sees one; Zimbabwe’s request is a pittance in the “entirely affordable” effort. $4 trillion will do it easily.

The “climate change” fraud, and the money to keep it going, is a difficult line to walk. It has to always be “the last possible minute to save the planet.” If the fraudsters were to admit we have another twenty years to gradually reduce our greenhouse emissions, government might cut back on next-year’s financing. On the other hand, if it’s already too late, they might cut back the financing altogether. Can’t have that either. You’ll be surprised to hear the latest estimate from Lord Stern is that we still have 15 more years to get the problem under control. Whew! Glad to hear that!

I guess I should stop and assure you (and Dr. Swier) I am not making any of this up. Meanwhile, in the real world (not that of Ban Ki-Moon and Naomi Klein):

antarctic.seaice.color.000.thumbThe extent of sea ice around Antarctica is at a new record high, 7.6 million sq miles or 20.0 million sq kilometers (according to ABC News, Australia). That’s three times the area of Australia, and twice the area of the contiguous USA. This is the third year in a row of a new record high.

We’re nearing the Solstice, Fall in the Northern Hemisphere, Spring in the Southern. Record high ice extent has more effect in the sunlit hemisphere (Spring, Summer) than in the dark (Fall, Winter), because it reflects sunlight, that would otherwise warm the ocean. One way to change Earth’s temperature is to change the albedo of the Earth. A change of Earth’s albedo caused by increasing or decreasing ice and snow cover meets that criterion. Incidentally, there are people suggesting spraying sulfuric aerosols into the stratosphere – in order to stop CAGW.

The interesting thing about increasing ice and snow is that this is one of the few positive feedbacks in the climate system. Increased albedo due to ice and snow causes a temperature decrease, leading to more ice and snow, causing a further temperature decrease, leading to more ice and snow, and so to a cascade of colder conditions. At some point, the process becomes a runaway. I wonder how close we are?

Well, as you see in the picture, the tip of the Palmer Peninsula, the northernmost point of Antarctica, is about 60 degrees South. It looks like the sea ice fills the 60 degree circle of latitude. It’s never done that before – that we know of.

And in the Northern Hemisphere, Arctic sea ice is back to normal, in spite of “forecasts” by Al Gore and many, many others that the Arctic would be ice free this Summer.

Perhaps the most worrisome event is the continuing outpouring of molten lava from Bardarbunga volcano in Iceland. Volcanologists are beginning to compare it to the 1783-1784 eruption of Laki, which killed  20,000 farm laborers in England in the Summer of 1783. How? The sulfurous fumes from Laki mixed with moisture in the lungs of outdoor workers, burning them with sulfuric acid.  In all, it’s estimated Laki killed six million people globally, including one-fourth of the population of Iceland. It was followed by

the longest period of sub-zero temperatures in New England, the icing-over of Chesapeake Bay, and freezing of the Mississippi at New Orleans. The smell of sulfur is becoming apparent already in Norway.

But, as we all know, thanks to Naomi Klein and John Kerry, warming is the thing to worry about.

RELATED ARTICLE: Capitalism in crosshairs as Socialism promoted at opening event of People’s Climate March

The Story of Electricity in America

Can you imagine a world in which you depended on unreliable energy to light up your world? Sounds like an unstable place to call home. That’s why the Story of Electricity is so important notes Tom Pyle from the Institute for Energy Research (IER).

IER reports solar energy accounts for only 0.2 percent of the electricity Americans use everyday. Wind and solar aren’t much better. Altogether, wind and solar provide about 4 percent of our electricity. Without affordable, reliable sources of power, our future would be pretty dark.  IER created the Twitter campaign #StoryofElectricity, which presents, among other things, these truths about American produced electricity:

EDITORS NOTE: For those interested in learning more about this topic may visit the power of electricity.

Rave reviews for the Wealth Building Home Loan

The Wealth Building Home Loan (WBHL), a new approach to home finance, opened to rave reviews at the American Mortgage Conference held September 8-10.  Six leaders of national stature made favorable comments from the podium.

Lewis Ranieri, considered the “godfather” of mortgage finance, in his keynote address praised the WBHL:  “Fundamentally, what I find exciting is the wealth building nature of the product.  Anyone who knows me knows how concerned I am that too often the mortgage has been utilized as an ATM for a boat or big screen TV, as opposed to building equity; if we’re to meet the needs of Americans who desire a home, this type of SAFE experimentation will be critical.”

Carol Galante, FHA commissioner,David Stevens, Mortgage Bankers Association CEO and former FHA commissioner, Joseph Smith, monitor of the National Mortgage Settlement of the State Attorneys General and Lenders, and James Lockhart, former director of the Federal Housing Finance Agency also made note of the innovative approach taken by the WBHL.

Bruce Marks, CEO of the Neighborhood Assistance Corporation of America (NACA), announced that the WBHL, which provides low-income borrowers a straight, broad highway to building wealth based on a 15-year, fully amortizing, fixed-rate loan, will be available in an initial rollout undertaken by NACA and the Bank of America within 60 days.

Long-time industry observer Tom LaMalfa, in an email, stated:

“In an industry in which few agree on much, there was remarkable agreement on the value of the WBHL among an array of industry leaders speaking at the AMC this week.”

Stephen Oliner (codirector of AEI’s International Center on Housing Risk) and I announced that additional WBHL pilots are in the works with lenders around the country.

Smith spoke extensively about the challenge in providing access to credit and home ownership, particularly among low- and moderate-income borrowers.  He asked:

“[I]s the thirty year fixed-rate mortgage what we need?  Contrary to the opinion of many people whom I admire and respect, the thirty year fixed rate mortgage is neither a Constitutional nor human right…. While it is a proven ‘affordability product’ of long standing, the thirty-year fixed-rate mortgage does not build equity very quickly. Further, a lot of things can happen to a borrower over those thirty years – job loss, health problems, divorce. [a]s Monitor of the National Mortgage Settlement, I have done a lot of listening in the last two and a half years; including to distressed borrowers, the people who represent them, and public officials who deal with the fallout from increased foreclosures and bankruptcies. What I have heard confirms what I know from prior experience: that one or two of those life issues – or, in many, many cases, the trifecta – have resulted in real financial crisis on a large scale. Absent substantial home equity at the outset, the thirty-year fixed rate mortgage increases the fragility of a borrower’s overall financial position and puts the borrower at risk for a very long time.”

Smith went on:

“The traditional answer to the concerns I have just expressed is to require a substantial down payment. That’s certainly effective – for the people who can afford it. But it reduces access to credit and home ownership, particularly among low- and moderate-income borrowers.  If we want to keep homeownership an option for an expanding portion of the population, we should build some additional features into the mortgage product to reduce fragility. At the very least, we should consider the inclusion of product features that allow and even encourage early equity build-up. In that regard, I am pleased to note AEI’s Wealth Building Home Loan.”

Steve and I created the WBHL to serve the twin goals of providing a broad range of homebuyers – including low-income, minority, and first-time buyers – a more reliable and effective means of building wealth than currently available under existing policies, while maintaining buying power similar to a 30-year loan.

A WBHL has a much lower foreclosure risk because of faster amortization and common-sense underwriting. Its monthly payment is almost as low as 30-year, fixed-rate loan while providing the buyer with more than 90 percent of the buying power. It requires little or no down payment and has a broad credit box, meaning sustainable lending for a wide range of prospective homebuyers. While the WBHL is designed to reduce default risk for all borrowers, this is a critical importance for borrowers with FICO scores in the range of 600-660.

The WBHL will help these borrowers reliably and sustainably build wealth.

EDITORS NOTE: The featured image is courtesy of SNMC.

Shale Boom Drives Net Petroleum Imports to 28-Year Low

Tapping into domestic energy resources with hydraulic fracturing continues to improve America’s energy security by pushing net petroleum imports to their lowest level in 28 years. John Kingston at Platts reports on new Energy Information Administration data:

US petroleum import dependence in June dropped to 4.659 million b/d. That’s only the second time in the post-shale era that number had been less than 5 million b/d. And the last time the US recorded a number that low was back in 1986.

U.S. Net Imports: Crude Oil and Petroleum Products

For a larger view click on the chart.

 Energy security benefits look even better when you consider North America as a whole:

[T]he US certainly would view Canada or Mexico as a supplier less prone to disruption than many other countries. So once you take away US net import dependence with Canada, that number slips to 2.282 million b/d. Take away Mexico and you’re down to 1.962 million b/d. Those numbers are easily the lowest ever recorded by the EIA. So in essence, that 1.962 million b/d of net import dependence is the figure for the rest of the world outside North America. In 2005, that US net import dependence figure after Canada and Mexico were taken out regularly recorded numbers in excess of 9 million b/d.

Texas and North Dakota continue to see success in their shale oil development. Texas produced over 3 million barrels of oil per day again in June. “Oil production in the Lone Star State has more than doubled in less than three years,” notes Mark Perry at the American Enterprise Institute. Also, North Dakota set another record in June by producing 1.093 million barrels per day.

Unfortunately the good news didn’t extend to offshore production, Kingston writes:

Federal offshore production of 1.43 million b/d remains below the levels in place when the Macondo moratorium was put in place in April 2010. It was 1.531 million b/d in May of that year.

There’s much more to be done to improve energy security. The administration should speed up the permitting process (about 7.5 months) to increase development on federal landsopen up more of the outer continental shelf to oil and natural gas exploration, and approve the Keystone XL pipeline to transport more Canadian oil sands crude and Bakken oil to Gulf Coast refineries.

By developing America’s energy resources, we can continue this success.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

EDITORS NOTE: The feature image is of an oil pump jack just outside of Watford City, North Dakota. Photographer: Matthew Staver/Bloomberg.

Time to tell your lawmaker to let the Export-Import Bank expire!

Mac Zimmerman, Director of Policy Americans for Prosperity, in an email states:

Members of Congress have finally returned to Washington after a month-long vacation, and they’ll be deciding extremely soon whether or not to put an end to the wasteful, corrupt Export-Import Bank.

AFP activists have been leading the charge for months against the Export-Import Bank, and as our elected officials prepare to make their final decision, now’s the time to get all hands on deck to put an end to Ex-Im.

Video – “Break the Bank!”:

By paying foreign companies to buy American exports, the Export-Import Bank tilts the playing field away from mid-sized and small businesses in favor of large, politically connected corporations. Eliminating the Export-Import Bank would level the playing field and allow U.S. companies to compete for business on their merits rather than the strength of their political ties to the bank.

Not only does the Export-Import bank interfere with the free market, it also jeopardizes billions of taxpayer dollars. According to MIT, the bank is actually losing $200 million a year. These risky loans and poor accounting practices are harmful to taxpayers, who are left footing the bill. In fact, taxpayers have already bailed out this bank once before at a cost of $3 billion.

America deserves an international trade policy that is based on free-market mechanisms, not paying foreign companies to buy exports from large corporations with political connections.

EDITORS NOTE: To send a AFP prepared e-letter to your elected officials asking that they let the Export-Import Bank expire  you may go here.

CLICHÉS OF PROGRESSIVISM #21 – “Capitalism’s Sweatshops and Child Labor Cry Out for Government Intervention” by Paul L. Poirot

Prevalent in the United States and other industrialized countries is the belief that without govern­mental intervention, such as wage and hour legislation, child labor laws, and rules concerning work­ing conditions for women, the long hours and grueling conditions of the “sweatshop” would run rampant.

The implication is that legislators, in the days of Abraham Lin­coln, for instance, were cruel and inconsiderate of the poor—no better than the caricatured fac­tory owners of the times who would employ men and women and children at low wages, long hours, and poor working conditions. Otherwise, had they been humani­tarians, legislators of a century ago and earlier would have prohibited child labor, legislated a 40-hour work week, and passed other laws to improve working condi­tions.

But the simple truth is that legislators of a few generations ago in the United States were powerless, as Mao or Nehru or Chavez or Castro has been powerless in more recent times, to wave a wand of restrictionist legislation and thereby raise the level of living and abolish poverty among the people. If such a miracle were pos­sible, every dictator and every democratically chosen legislator would “push the button” without hesitation. (Editor’s note: See the recommended readings below for abundant historical evidence of this point).

The reason why women and children no longer find it neces­sary to work for low wages under poor conditions from dawn to dusk six days or more a week is the same reason why strong healthy men can avoid such onerous labor in a comparatively free industrialized society: surviving and earning a living are made easier through the use of tools and capital accumu­lated by personal saving and in­vestment.

In fiction, the children of na­ture may dwell in an earthly para­dise; but in the real life of all primitive societies, the men and women and all the children strug­gle constantly against the threat of starvation. Such agrarian econ­omies support all the people they can, but with high infant mortal­ity and short life spans for all survivors.

When savings can be accumu­lated, then tools can be made and life’s struggle somewhat eased—industrialization begins. And with the growth of savings and tools and production and trade, the pop­ulation may increase. As incomes rise and medical practices im­prove, children stand a better chance of survival, and men and women may live longer with less effort. Not that savings are ac­cumulated rapidly or that indus­trialization occurs overnight; it is a long, slow process. And in its early stages, the surviving women and children are likely to be found improving their chances as best they can by working in factories and so-called sweatshops. To pass a law prohibiting such effort at that stage of development of the so­ciety would simply be to condemn to death a portion of the expand­ing population. To prohibit child labor in developing countries today would be to condemn millions to starvation.

Once a people have developed habits of industry and thrift, learned to respect life and prop­erty, discovered how to invest their savings in creative and pro­ductive and profitable enterprise, found the mainspring of human progress—then, and only then, after the fact of industrialization and a prosperous expanding econ­omy, is it possible to enact child labor laws without thereby pass­ing a death sentence.

A wise and honest humanitarian will know that poverty (and worse) lurks behind every minimum wage law that sets a wage higher than some individual is capable of earn­ing; behind every compulsory 40-hour week rule that catches a man with a family he can’t support ex­cept through more than 40 hours of effort; behind every legislated condition of employment that forces some marginal employer into bankruptcy, thus destroying the job opportunities he otherwise afforded; behind every legal ac­tion that virtually compels retire­ment at age 65.

Men will take their children and women out of sweatshops as fast as they can afford it—as fast as better job opportunities develop—as fast as the supply of capital available per worker increases. The only laws necessary for that purpose are those that protect life and private property and thus encourage personal saving and in­vestment.

To believe that labor laws are the cause of improved living and working conditions, rather than an afterthought, leads to harmful laws that burden wealth creation, sap the incentive of the energetic, and close the doors of opportunity to those least able to afford it. And the ultimate effect is not a boon to mankind but a major push back toward barbarism.

Paul L. Poirot

Summary

  • Sweatshops and child labor were commonplace in preindustrial, precapitalist days because production and productivity were so low, not because people disliked their wives and children more than they do today.
  • Savings, investment, and economic growth improve working and economic conditions faster and more assuredly than well-intentioned but misguided laws that simply close doors of opportunity.

For further information, see:

“Child Labor and the British Industrial Revolution” by Lawrence W. Reed

“Sweatshop Blues: An Interview with Benjamin Powell”

“Book Review: Child Labor and the Industrial Revolution by Clark Nardinelli” as reviewed by David M. Brown

“Why Economies Grow” by Aaron Schavey

“The Man Behind the Hong Kong Miracle” by Lawrence W. Reed

ABOUT PAUL L. POIROT

Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.

EDITORS NOTE: Paul L. Poirot was a long-time editor of FEE’s journal, The Freeman. This essay is slightly edited from the original, published there in 1963 under the title “To Abolish Sweatshops.”) The featured image is courtesy of FEE and Shutterstock.

Happy Capital Day? Why not? by Lawrence W. Reed

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

Capital can refer to either the tools of production or the funds that finance them. There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture funding behind him. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

Harmony of Interest

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Perhaps subconsciously, Americans do understand to some extent that those who invest and deploy capital are important. After all, most people would surely have an easier time naming the “top ten capitalists” in our history than the “top ten workers.” We take pride in the kids in our neighborhoods when they put up a sidewalk lemonade stand. President Obama continues to be roundly excoriated for his demeaning remark, “You didn’t build that; somebody else made that happen.”

Bad Eggs

That’s not to say there aren’t bad eggs in the capitalist basket. Some use political connections to get special advantages from government. Others cut corners, cheat some customers or pollute a stream. But those are the exception, not the rule, in a society that values character. Workers are not all saints either—who among us doesn’t know of one who stole from his employer, called in sick when he wasn’t, or abused the disability or unemployment compensation rules? Those exceptions shouldn’t diminish the importance of work or the nobility of most workers.

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that!

But this year on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. Indeed, what could possibly be wrong about having a “Capital Day” in odd numbered years and a “Labor Day” in the even-numbered ones?

Labor Day and Capital Day. I know of no good reason why we should have just one and not the other.

EDITORS NOTE: This article first ran on September 3, 2012.

larry reed new thumbABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

An Economist’s Bad Climate Advice

If I need my car repaired, I do not take it to a dentist. If I am seeking advice about the climate I check out what climatologists and meteorologists are saying, at least those who have not sold their souls to the global warming/climate change hoax.

On September 3rd the Wall Street Journal published a commentary by Edward P. Lazear titled “The Climate Change Agenda Needs to Adapt to Reality: Limiting carbon emissions won’t work. Better to begin adjusting to a warming world.”

Wrong! Wrong! Wrong!  It’s cooling, not warming.

Apparently Mr. Lazear is unaware that the Earth has been in a cooling cycle for seventeen years. A visit to ClimateDepot.com or a subscription to the Heartland Institute’s monthly Climate & Environmental News or a copy of its policy studies, “Climate Change Reconsidered”, would help him understand why he’s wrong. Check out www.climatechangedispatch.com as well for the latest commentaries.

Perhaps his error should be forgiven because Mr. Lazear is an economist. He was the chairman of the President’s Council of Economic Advisors (2006-09) and head of the White House Committee on the Economics of Climate Change (2007-08). Presently he is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.

He’s not a fool, but like a lot of academics who lack a background in science, he has been fooled by the legion of global warming/climate change charlatans from Al Gore through the ranks of organizations such as the United Nations Intergovernmental Panel on Climate Change that depend on maintaining the hoax.

Mr. Lazear has fallen for the greatest lie ever; the assertion that greenhouse gases, especially carbon dioxide, are warming the Earth. The hoaxers are calling the past seventeen years “a pause” in warming, but it is actually an indicator that the Earth is on the cusp of the next ice age. The period in between ice ages is calculated at 11,500 years and we are at the end of the current interglacial period.

“The Obama administration is instituting a variety of far-reaching policies to reduce carbon emissions and mitigate climate change. Are any of these capable of making a difference”, asked Mr. Lazear. “Simple arithmetic suggests not.” Up to this point I was very pleased with his conclusion, but then he wrote “Given this reality, we would be wise to consider strategies that complement and may be more effective than mitigation—namely, adaptation.”

Humans have been adapting to the climate—the weather—since they emerged as homo sapiens about 195,000 years ago.

What Mr. Lazear wants the U.S, to do is limit “carbon emissions” but admits that “The economics also work against a major transformation in the technology of producing power, either mobile or stationary. Coal is cheap. Natural gas is becoming even cheaper.”

The primary flaw in his commentary is simply that more carbon dioxide is a good thing. As the primary gas utilized by all vegetation, more means greater crop yields and healthier forests. What carbon dioxide doesn’t do is “trap” heat long enough to lower the Earth’s temperature. It represents a mere 0.04% of the atmosphere.

The Earth is not a greenhouse with a glass roof. The amount of heat in the atmosphere is totally dependent on the amount of heat the Sun produces. In its current cycle, it is producing less.

“Carbon math,” wrote Mr. Lazear, “makes clear that without major effort and a good bit of luck, we are unlikely to control the growth of emissions enough to meet the standards that many climate scientists suggest are necessary.” Those scientists are usually on college or university faculties where securing federal and other grants to study a warming that is not occurring leads to urging limits on carbon dioxide. Others are just huge liars who, like Al Gore, have been making predictions of warming that have not and are not coming true.

There’s another reason why there will be more carbon dioxide in the atmosphere. It involves two of the most swiftly developing nations in the world, China and India, both of whom are building coal-fired plants to generate electricity as fast as they can. This is happening while the Environmental Protection Agency has been engaged in an all-out war on coal that has closed several hundred U.S. plants. If an especially cold winter occurs, the demand for electricity to warm homes and other facilities may overload a system that has been diminished in scope.

The United Nations Intergovernmental Panel on Climate Change is the driving force behind the global warming hoax. It is holding a climate change summit on September 23. Guess who won’t be attending? Chinese president Xi Jinping, India’s prime minister, Narenda Modi, and for good measure, Germany’s chancellor, Angela Merkel. Others whose leaders will not be attending include Canada, Japan, and Russia.

In typical fashion, always predicting climate conditions decades from now, the United Nations, according to a report in The Guardian, “is warning of floods, storms and searing heat from Arizona to Zambia within four decades, as part of a series of imagined weather forecasts” to publicize the climate summit.

All of the forecasts made by a legion of climate charlatans in the 1980s and 1990s turned out to be WRONG.

You cannot trust the UN’s World Meteorological Organization which like the IPCC is just part of a vast matrix of groups that have been so severely corrupted by the global warming/climate change hoax that one must exercise caution when hearing its forecasts. If they are for anything beyond two weeks hence, you would be wise to be dubious.

Mr. Lazear is just one of many, often with distinguished careers in other fields than meteorology or climatology, who have bought into the hoax and who declaim the need to reduce carbon dioxide. He’s wrong. The others are wrong.

And you need to educate yourself to avoid being afflicted by various government policies intended to advance the hoax. To start with, do not vote for any politician who talks of global warming/climate change or uses the term “sustainability.”

© Alan Caruba, 2014