Grantcoulson's Blog

    Do not think about, write about or deal with  human behavior without determining the effects of incentives.

Populism and the denial of the invisible
What the bureaucrats don’t see is killing us.
by John Hayward

Experts are hoping the housing market will hit bottom any day now, and begin rebounding in 2012.  The market is in bad shape for a number of reasons, including high unemployment rates which decrease the pool of potential homeowners, and tougher standards for securing a home loan.

The big problem, of course, is the glut of excess inventory in the housing market.  The subprime mortgage bubble put a lot of house-buying money in the hands of people who really couldn’t afford what they were purchasing.  Large amounts of housing were built in pursuit of that money.  The bubble burst, foreclosures ran wild, and now the fruited plains are covered with empty houses.  Excess supply caused the value of homes to drop – which is much more cheerful news if you’re looking to buy a home, rather than sitting on a house you can’t sell, and watching the value of your investment plummet.  Falling prices have not yet been able to increase demand enough to gobble up that inventory, in no small part because houses remain uniquely expensive purchases, which both buyers and banks are nervous about making.

What caused this awful situation to occur?  Home buying was flat between the mid-80s and the mid-90s, leading President Bill Clinton to conclude that “sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate declined for the first time in forty-six years.”  To reverse this trend, it was decided that the federal government would “partner” with local governments, nonprofits, and private industry to “lower barriers that prevent American families from becoming homeowners.”  We all know what happened next.

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     This is what the elite do. They decide a “social” trend is unacceptable and then confiscate money and use other coercion to fix it. Naturally, they make it worse.

Writing at Café Hayek, Russ Roberts offers an alternative explanation for the “problem” that government set out to “solve” by wrecking the housing and financial industries.  After noting that home ownership did indeed decline in the Eighties and stagnate in the Nineties, he writes:

The picture seems to reinforce the claim by Clinton that “it became much harder for many young families to buy their first home.” After all, the home ownership rate fell, didn’t it?

But something else happened in the 1970s that may explain the decline in home ownership. As I have observed before, the divorce rate rose in the 1970s and there was a big increase in the number of households. In the 1970s, population increased 11.5% but the number of households increased 26.7%. Most of those new households were single people, newly divorced. They rented. They didn’t buy their own house. So the home ownership rate fell because the divorce rate rose, not because it became harder to buy a home in any fundamental sense. What a costly error of interpretation.

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      Aside from being incapable of dealing with numerical data, socialists frequently distort them.

This is one of many cases in which a populist impulse – make young voters happy by helping them buy a house! – ignored powerful economic undercurrents that were difficult for both central planners and voters to perceive.  The image of benevolent politicians beaming warmly as happy constituents clutched their government-supported loan paperwork and marched into their new houses, on the other hand, was very easy to see.

Politicians are naturally inclined to see only problems they can “solve” in a high-profile way, with the only tools at their disposal: regulation and compulsion.  They didn’t merely fail to notice the forces Roberts describes, which involved large numbers of people making personal decisions.  Politicians are incapable of perceiving such forces.

Populist solutions are all about blindness, short-sightedness, and the arrogant denial of the invisible.  What happens to Social Security now that Obama’s “payroll tax cut” has further drained its already shaky funding?  Who cares?  All anyone can see is a smiling politician waving and telling them how he’s dropped an extra forty bucks in their paychecks, because he really cares about them.

This impulse keeps providing popular support for government actions that turn into disasters, because of unforeseen consequences.  Pass laws to “help” workers and “protect” them from their cruel employers, and jobs dry up, because hiring someone becomes akin to contracting an incurable disease.  Pick “winners” in the marketplace, bail out politically favored losers… and watch real business opportunities die in the shadows, unseen and unlamented.  Soak the rich with taxes, and watch the economy grind to a halt as they hide the money that otherwise would have provided investment capital.  Rail against “greed” until the masses foolishly grant you the authority to define it.

We set ourselves up for these debacles by talking about what we “deserve,” instead of what we have earned.  The invisible undertow of complex economic relationships, some of which are morally unacceptable to discuss according to the ruling class, does not go away because we ignore it.

Such unseen forces are the ruin of many a private enterprise as well… but there lies the essential difference.  Private enterprises can be ruined.  The blind giants of the State march on forever, until they drop dead in their tracks, crushing us all beneath them.  Somewhere in Washington, at this very moment, a politician is looking at poor home sales and thinking – as if no one else has ever had this thought before – that the solution lies in using government force to make it easier for “young families” to take out loans they can never repay.

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      I haven’t done the math on this, but I will bet that buying a bunch of houses and giving them to people would have been much cheaper and have had much less impact on the financial markets than setting up the elaborate mechanism which failed. Many of the houses would now be in ruins as the owners would have neither maintained them nor been able to pay municipal taxes. This would have been a more substantial lesson to those who believe that the people who have no money are worthy, but unlucky, one of the enduring liberal myths.

     As many economists have pointed out, it’s the things that don’t happen and are thence invisible, that political processes force upon us. They can point to a factory “saved”by subsidy, but can’t, and never would, point to the jobs destroyed by the subsidy.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

Do not think about, write about or deal with human behavior without determining the effects of incentives.

A ‘crank’ may be just what America needs

Editorials National Post December 9, 2012

In 1984, after serving three terms in the House of Representatives, Ron Paul was defeated by Phil Gramm in Texas’s Republican Senate primary. Paul left Congress, and a few years later he left the Republican Party entirely to run for president on the Libertarian ticket. In the 1988 election, after a campaign that Texas Monthly compared to something “out of Robert Altman’s movie Nashville,” he took home just 0.47% of the popular vote.

Thus marginalized by the public, the former congressman proceeded to marginalize himself. Through the various newsletters that bore his name — most notably the Ron Paul Political Report and the Ron Paul Survival Report — he spent the early 1990s as a peddler of far-right paranoia. In an exhaustive 2008 piece for Reason magazine, Dave Weigel and Julian Sanchez argued that the most abhorrent language in Paul’s eponymous newsletters — the claims that the Rev. Martin Luther King Jr. “seduced under-age girls and boys,” that AIDS sufferers “enjoy the attention and pity,” and so on — weren’t actually written by the man himself. But the fact that they had Paul’s imprimatur suggests that the former congressman had grown comfortable way out on the xenophobic fringe.

That fringe is like the Hotel California: When public figures hang out there for a while, they usually find that it’s easier to check out than to leave. Yet in 1997, Paul was back in Congress, representing the same Republican Party that he’d previously abandoned. In 2008, after a decade as a marginal figure on the Hill, his longshot campaign for the presidency suddenly gained him one of American politics’ most devoted followings.

There are two commonplace interpretations of Paul’s unusual trajectory. To his many sympathizers — libertarians, dissident conservatives and some left-wingers as well — the extremism in his past has nothing to do with the issues that he’s campaigning on today. The case for Paul, as The Atlantic’s Conor Friedersdorf put it, is that “he alone, among viable candidates, favours reforming certain atrocious policies” — scaling back America’s overseas commitments, ending a failed war on drugs, curbing a runaway public sector and reducing the powers of an imperial presidency. The newsletters may reflect badly on his past, but in the current political landscape he’s a voice of reason rather than of madness.

To his many critics, on the other hand, Paul’s present-day positions are connected to his past derangements, because they share the same essentially conspiratorial root. Then as now, Paul blames shadowy elites for the country’s ills; then as now, he flirts with narratives that are straight out of the fever swamp. For all its superficial idealism, the critics insist, his campaign is a conduit through which fundamentally poisonous ideas are entering the mainstream body politic, and thus he needs to be not only defeated but repudiated.

But consider a third possibility. There’s often a fine line between a madman and a prophet. Perhaps Paul has emerged as a teller of some important truths precisely because in many ways he’s still as far out there as ever. /font/p p br /font size=”4″ face=”Tahoma”The United States is living through an era of unprecedented elite failure, in which America’s public institutions are understandably distrusted and our leadership class is justifiably despised. Yet politicians of both parties are required, by the demands of partisanship, to embrace the convenient lie that our problem can be pinned exclusively on the other side’s elites — as though both liberals and conservatives hadn’t participated in the decisions that dug our current hole.

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The failures of the elite are always traceable to the belief that the commons needs to be directed by those with more knowledge and wisdom. This has always led to an imperial and imperious civil servantry#160; renowned for indifference, incompetence, arrogance and special privileges. No good has ever come from this, but the cumulative effect, where failures become more evident, is harder and harder for tax-payers to bear. “You call me a goat and insist the goat calls you sir.

In this climate, it sometimes takes a fearless crank to expose realities that neither Republicans nor Democrats are particularly eager to acknowledge. /font/p p br /font size=”4″ face=”Tahoma”In both the 2008 and 2012 campaigns, Paul has been the only figure willing to point out the deep continuities in American politics — the way social spending grows and overseas commitments multiply no matter which party is in power, the revolving doors that connect K Street to Congress and Wall Street to the White House, the long list of dubious policies and programs that both sides tacitly support. In both election cycles, his honest extremism has sometimes cut closer to the heart of our national predicament than the calculating partisanship of his more grounded rivals. He sometimes rants, but he rarely spins — and he’s one of the few figures on the national stage who says “a plague on both your houses!” and actually means it.

Obviously it would be better for the country if this message weren’t freighted with Paul’s noxious baggage, and entangled with his many implausible ideas. But would it be better off without his presence entirely? I’m not so sure. Neither prophets nor madmen should be elected to the presidency. But neither can they safely be ignored.

Ah yes, social spending–the belief that productive people should give money to unproductive people and create a better society.

Cheerio and ttfn,

Grant Coulson

Cui Bono–Cherchez les Contingencies

    
     Do not think about, write about or deal with  human behavior without determining the effects of incentives.

Solar power for grid electricity has been and will be an economic loser for ratepayers and a burden to taxpayers

Solar Hype and Failure: A Long Story

Solar companies Solyndra of California, Evergreen Solar Inc. of Massachusetts, and SpectraWatt of New York have all filed bankruptcy petitions and face drastic restructuring if not liquidation. “There is a crisis in the solar manufacturing world…no question about it,” recently stated Ken Zweibel, director of the Solar Institute at George Washington University.

The crisis transcends the companies in question. The underlying reality is that solar power is radically uneconomical against conventional electricity generation on the grid. Thus special government favor for short-term profits sets up the industry for longer-term failure when the subsidies dry up—or if other countries bait the same perilous hook and beat us at our own political game.

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      By “beating” us in solar energy, other countries are shooting themselves in both feet. We should let them and be happy because we’ve avoided podiatric disfigurement.

We should know that solar is not competitive by a long shot. As DOE secretary Chu told the New York Times last year, solar technology would have to improve five-fold to find its own way in the competitive world.

False Promises

Here are some examples of the false prognostications made by solar advocates:

Environmentalist and erstwhile presidential candidate Barry Commoner (1976):

Mixed solar/conventional installations could become the most economical alternative in most parts of the United States within the next few years.

The head of the Solar Energy Industries Association (1987):

I think frankly, the—the consensus as far as I can see is after the year 2000, somewhere between 10 and 20 percent of our energy could come from solar technologies, quite easily.

Cynthia Shea of the Worldwatch Institute (1988):

In future decades, [photovoltaic technologies] may become standard equipment on new buildings, using the sunlight streaming through windows to generate electricity.
Enron’s Misdirection

Back in 1994, the New York Times excitedly reported that solar’s competitive moment had arrived thanks to Solarex, the second largest U.S. manufacturer of photovoltaic cells, operated and half-owned by Enron.

The feature, complete with a photo of an Enron executive holding a panel up in a sunny sky, concerned a project in the southern Nevada desert that would be the largest in the country, generating enough electricity from sunlight to power the equivalent of a city of 100,000 people. It was expected to begin operating by year-end 1996.

The project came with a bang and ended without a whimper. Here is what I wrote about the “smoke-and-mirrors” project in my book Capitalism at Work (pp. 310-11):

Enron hoodwinked the public back in 1994, claiming that its proposed $150 million project could produce solar power “at rates competitive with those of energy generated from oil, gas and coal.”

A business-section feature in the New York Times, “Solar Power, for Earthly Prices: Enron Plans to Make the Sun Affordable,” reported Enron’s pledge to deliver power for $0.055 per kilowatt hour from a 100 megawatt solar farm in the Nevada desert within two years, comparable to the average cost of delivered electricity across the nation. Enron’s rate was unheard of, exceeding even the most optimistic estimates from environmental pressure groups. But it was highly contrived, depending on a raft of government subsidies, as well as questionable assumptions about financing, technology, and delivery schedules. The rate was also back-loaded, with compounded annual cost escalations for thirty years.

Still, the article described the enticing profit prospects of Enron’s advances. Two officials from the Clinton Administration’s Department of Energy were quoted. “This establishes the benchmark we want and restarts a stalled solar industry,” said the head of DOE’s photovoltaic section. Deputy Secretary William White (aka Bill White, one of Enron’s last defenders [and later Houston’s mayor from 2004 through 2009]) stated his intention to try to help make the economics of the project work.

But the smoke-and-mirrors project was too much for the Clinton Administration—and even for Enron, despite a suite of special subsidies. It languished and quietly died. Nevertheless, it was a heady PR moment for a politically correct company and a credulous press that either did not know or did not report the whole story.

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     Experts are wrong with predictions–what’s next–government waste?

Don’t expect false hopes to disappear. The European solar lobby is now predicting that solar will be cost competitive by 2020.

But the failed past of solar informs the present, and Obama’s new push for “green” energy should be judged accordingly. Although stand-alone solar power has a certain free-market niche and does not need government favor, using solar power for grid electricity has been and will be an economic loser for ratepayers and a burden to taxpayers.

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   If only the market would be allowed to do its useful work, all of this waste would not occur. The rationale for subsidies, Global Warming and the imminent end of conventional energy, are both absent in reality, so the subsidies will be a charade.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

   Do not think about, write about or deal with  human behavior without determining the effects of incentives.

     In my opinion, Margaret Thatcher represented the best of the spare Protestantism, in the sociological sense of Max Weber, which is responsible for much of the progress of the Western world-no window-dressing or special deals for “special” groups such as the lazy, unemployable or unions. The Protestant Ethic requires hard work, prudent management and belief in the progress and accumulation of capital which derive from these operating principles. It is the opposite of the interventionist state which gives away stuff to the lazy and decides on winners in the market such as “renewable energy”.

An iron lady’s vindication
Conrad Black, National Post · Jan. 7, 2012

Though it is probably happening too late to be overly gratifying to her, events are piling on to vindicate Margaret Thatcher completely in her reservations about British integration in Europe. Her response to the proposal to reduce Britain to a local government in a federal Europe was, memorably: "No, no, no, and never." And her reward for her refusal to get on board what was then the thundering bandwagon of Eurofederalism, was to be sent packing by her own ungrateful party, though she was the only British political leader who had won three consecutive, full-term election majorities since before the First Reform Act expanded the electorate in 1832.

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    Many countries are probably wishing they had never heard of the European Union, let alone become part of it.

She was immensely popular with millions of Britons as a patriotic and courageous leader who took Britain off financial life support, saved it from strangulation by overmighty, almost anarchistic unions, built a prosperous, home-owning democracy, threw the Argentinians out of the little corner of the British Empire they had wrongfully seized (the Falkland Islands), and played a starring role in winning the Cold War.

But Thatcher was virulently unpopular with some influential groups. In particular, there were those who resented a female leader. A swath of males, from the "luvvies" of the British entertainment and cultural scene to Euroleaders and left-leaning journalists, were so frightened in her presence, they seemed to fear being hand-bagged, or even having a hair-brush taken to them.

And as she liberalized the economy; imposed a free, secret ballot for labour strikes; lowered all taxes; privatized industry, housing, airports, almost everything except the National Health Service and the BBC; jolting economic growth resulted. Unfortunately, its most conspicuous exemplars included many successful entrepreneurs and financier types who offended British sensibilities by their garish and spivvy ostentation. The basis of Margaret Thatcher’s support was the Daily Telegraph-reading, gin and tonic-drinking, cricketloving middle class, the backbone of the nation. But her enemies identified her with an infelicitous combination of Colonel Blimp fuddy-duddies and sticky-fingered, vulgar parvenus.

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   She brought an end to the amazingly ridiculous situation Britain was in-cradle to grave socialism, toadying to the unions and government interference and ownership, all of which made the tattered sweater the uniform of the British working man.

She had a somewhat hectoring manner in debates, and was notoriously impatient with what she considered pusillanimity from senior colleagues, sometimes calling cabinet members "blancmanges," or "suet puddings," or even "spineless, boneless, men" (not necessarily inaccurately). Naturally less known was her exquisite courtesy and unaffected and egalitarian kindness to subordinates and strangers. It annoyed feminists that she was such a traditionalist, and weak men that she was a strong woman. But she triumphed by perseverance and courage; to the end, though a stirring speaker, she was nervous before a speech. She was a strong woman, but not at all a mannish one.

Because she was the first British female party leader, and the first in any important Atlantic country, and such a formidable character, Margaret Thatcher’s personality encroached upon her public record as the principal source of voter opinion about her. She is rivalled only by Churchill, Disraeli, Walpole, Pitt (the Elder), Wellington and Palmerston as the greatest personality among the 53 people who have been the British prime minister, but she has even fewer rivals as the greatest of them.

When she came to office in 1979, it was because only she had dared challenge the twice defeated former prime minister Edward Heath for the Conservative leadership, and because she dared to propose a sharp break from the bipartisan consensus for softleft, high-tax, social democratic government. Britain was under daily audit from the IMF; currency controls prevented anyone from taking more than a few hundred pounds out of the country; and in the "winter of discontent" preceding the 1979 election, the garbage collectors, undertakers, transport workers and electric utility unions had all been on strike. The national newspapers never knew from one day to the next if they could publish the next day over the whims of the shop stewards; the railway and coal workers’ union leaders had shown their ability to bring the government to heel.

Thatcher cut personal income taxes, forced democracy on unions, and broke those that imposed illegal closed shops and secondary boycotts. British Airways went from horrifying losses as a stateowned concern to huge profits and general recognition as the world’s finest airline, once in private hands. British Steel followed a parallel path. Millions of slovenly tenants in tumble-down council houses became proud home-owners. Investment skyrocketed and London surged back to world financial leadership as Thatcher broke up the little log-rolling, back-scratching association of accepting houses (merchant banks) at the feet of the governor of the Bank of England.

When Argentina seized the Falkland Islands, Thatcher took great risks in sending two of the world’s largest liners (the Queen Elizabeth 2 and the Canberra), crammed with soldiers, into a war zone, and sent practically the entire Royal Navy to take the islands back. (As an unintended bonus, she also restored democracy to Argentina.)

When her polls were low and traditional elements of her government and caucus were wobbling badly, she sacked a handful of ministers despite a slender parliamentary majority, and told her own party conference: "U-turn if you want; the lady’s not for turning." She was instrumental in assuring the installation of intermediate-range missiles in Western Europe in response to the Soviet Union’s deployment of similar weapons, ignoring huge protests. She replied to calls for a nuclear-free Europe with her declared preference for a "war-free Europe," and carried British opinion with her. With Ronald Reagan and Helmut Kohl, and notwithstanding the wafflings of the French and opportunistic appeasers of the Kremlin such as Pierre Trudeau, she secured the intermediate missile agreement and the definitive winddown of the Cold War.

No one who heard Margaret Thatcher’s spontaneous 1984 address to the Conservative Party conference at Brighton a few hours after the IRA brought much of her hotel down to rubble (almost killing her, and murdering several of her MPs), in which she foreswore any compromise with terrorists, will ever forget it.

As the privatization of state-owned industries proceeded, and unemployment temporarily rose to one million, then two, and finally three-million (before sharply declining), the London County Council, dominated by Marxists, was almost screaming for her blood. Mrs. Thatcher replied by abolishing the municipal government, put one of the greatest cities in the world under direct rule from the Home Office, sold the London government headquarters, County Hall, the largest building in the country, to Japanese developers to be turned into an aquarium, and London enjoyed better municipal administration.

She warned that one currency for all Europe, with a shared credit rating between all participating countries, would not work. She warned that fixed exchange rates would not work; that surrendering powers from Westminster to Brussels and Strasbourg wouldn’t work; that importing to Britain European industrial relations, tax rates and union-dominated labour markets wouldn’t work, and that subsuming British foreign policy, especially relations with the United States, into a European foreign policy wouldn’t work either. In all of this, and in most other policy matters, she has been proved correct.

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    Vast improvement in the British standard of living was kicked off by her. It has been derailed recently by undoing of some of her reforms demonstrating, once again, that the free market shares the wealth while socialism shares the poverty.

When Margaret Thatcher spoke at my company’s annual dinner in Toronto in 1988, I introduced her as "one of the great leaders who has arisen in a thousand years of British history." This was nothing but the truth, and I can add that she is also a convivial companion and a loyal friend, as gracious out of office as in; that rarest of statesmen, a world historic figure who is also the salt of the earth.

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   I often wonder what Winston Churchill would have thought of her.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

   Do not think about, write about or deal with  human behavior without determining the effects of incentives.

    Socialism makes many people dependent on the government and then uses that fact to argue for importance of government.

5 Jan 2012 National Post  TERENCE CORCORAN

In all the year-end reviews and forecasts, the real trend in world affairs has gone unrecognized. All the predictable suspects made appearances during the annual naval-gazing (sic–navel) season, a ritual conducted by media and experts who, this year, each more or less missed the point.

1. Time magazine declared Occupy Wall Street and the Arab Spring public protests as the defining theme of 2011 and beyond. The Protester, said Time, “became the defining trope of our times. And the protester once again became a maker of history.” While protesters are making history in the Arab world, placement of the Occupy movement’s union-backed anti-wall Street crusade on the same plane as the Arab Spring uprising against murderous tyrants is certainly one of the great intellectual grotesqueries of our times.

Another 2011 highlight that dominated the parade of year-enders, the European crisis and the threat to the continued existence of the euro, also fails to capture the real change now rolling through global history. The United States’ economic stagnation and looming fiscal crisis, while momentous, are in themselves merely spokes in a bigger wheel.

None of these events, or others such as the rise of China, the turmoil in Iran and the coming crisis in North Korea, capture the dominant force around the world today. The real upheaval taking place last year and set to dominate through 2012 is the continuing decline in economic policy-making based on an economic theory that came to be known as bazookanomics.

It came to be known as bazookanomics because that’s what I came to call it in a brief column last month. The major development of 2011 that will continue through 2012 and for years to come is, in short, the collapse of bazookanomics — an economic school that has influence far beyond economics and reaches deep into politics.

The basis for the concept emerged more than three years ago, when then U.S. treasury secretary Hank Paulson used the phrase “bazooka” to describe the policy power that the United States government had when it came to dealing with the fallout from the U.S. housing crisis. “If you have a bazooka in your pocket and people know it,” he said, “you probably won’t have to use it.”

At the time, Mr. Paulson was attempting to deflect attention from the looming collapse of Washington’s federal housing agencies. His point, apparently, was that if the markets know that Washington has the power to bail out Fannie Mae and Freddie Mac, that extreme power would never have to be used. He was wrong. The bazooka was hauled out as the U.S. government took over the failing institutions, spending billions more since then to cover their government-created subprime housing fiasco.

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     Spending hundreds of billions to bail out government-controlled agencies which were doing what government agencies should never do, interfere in the free-market. In this case, it was the housing market by giving mortgages to people who had no chance of paying them.

Thus the era of bazookanomics was nominally born in 2008, although as we shall see it did not start with Mr. Paulson. Bazookanomics theory has been applied across the planet. Unprecedented quantitative easing by Ben Bernanke at the the U.S. Federal Reserve. Massive borrowing and spending by governments all over the world to “stimulate” the world economy. Official interest rates at near zero to encourage people to borrow more and spend their way out of a global recession.

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     The key to progress is intelligence, hard work, productivity, prudent management and a host of other things which governments can never do.

In Europe last year, bazookanomics became a media rage, triggered in part by U.K. Prime Minister David Cameron, who last October hailed one of Brussels’ plans to bail out Greece. “The point of having the big firewall is that you need to avoid any contagion in other countries, people questioning other countries’ debts because of what’s happened in Greece, so the bigger the bazooka, the better,” he said.
Various institutions, from the European Central Bank to the International Monetary Fund, became bastions of bazooka policy making. For weeks, news and economic reports in Europe were filled with references to bazookas. Through the year, as the world embraced bazookanomics, economists became masters of military metaphor. Governments needed a full “arsenal” of policies. They talked of the U.S. Federal Reserve still having a supply of “bullets” and “ammunition” to fight off recession and create jobs.

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    Real enterprise doesn’t ever concern itself with producing jobs, it concerns itself with producing valuable products and services so it can make a profit.

It is all coming to an end, as it has been for decades. Bazookanomics, as practised over the last few years, for all its seeming novelty, is based on the very old idea that government policy, central banks and government spending are the primary sources of economic growth and prosperity. If we had more government, we would have a better and more prosperous economy.

Bazookanomics harks back to the idea of “the commanding heights” of policy-making, as imagined by Lenin and as portrayed by Daniel Yergin and Joseph Stanislaw in their 1998 book, The Commanding Heights. Their book documented the explosive rise of market forces and free-market ideas to overthrow government economic management, from the extremes of Communist regimes to the excessive state controls in other nations, from Europe to Canada. The beliefs behind the idea that governments can effectively manipulate and direct economic activity — from Marx to Keynes — crumbled through the last decades of the 20th century.

Government did not disappear, wrote Yergin and Stanislaw. “Yet the scope of government, the range of duties it takes on in the economy, has been decidedly receding. The world over, governments have come to plan less, to own less and to regulate less, allowing instead the frontiers of the market to expand.”

That was the view in 1998. The rise of bazookanomics in recent years should be seen as an attempt to reinstall the structures of the failed power systems. The idea, never dead, was to again displace markets and return government and politicians to the commanding heights of the economy. But as this year’s events are destined to show, it is all coming to an end.

The world economic turmoil today is not a function of capitalism and the failure of markets, nor was it caused by capitalism or even Wall Street. Whatever the excesses of Wall Street, they are nothing compared to the excesses of statist intervention in the economy and the failure of government.

What we are seeing in Europe today, in the United States and in Canada — especially in some provinces such as Ontario — is the slow unravelling of bazookanomics and the beginning of a return to policy that is a bit more grounded in sound economics and markets, and a little less dependent on crazy military analogies and metaphors.

But more than just bazookanomics is unravelling. The left, for all its bravura calls for the end of capitalism, is in retreat, defensive, constantly clamouring to protect its declining authority and authenticity. The Occupy Movement is a manifestation of this defensiveness.

Look at Europe. Talk of bazookanomic solutions and ¤1-trillion bailouts still exist, but the essential continental shift is to roll back government spending and end decades of extravagant fiscal and social policies — the beginning of a long process of statist reversals that will take years.

In Canada, Ottawa and the provinces are all gearing up for pullbacks in government spending that could prove to be greater than the cutbacks in the 1990s. The Ontario government is heading for a crisis that may see an early election and a change in government. Federally and locally, showdowns loom over public-sector wages and pensions.

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    As predicted here, the public will tolerate little longer the special privileges of those favored by governments.

Globally, other major initiatives that had emerged out of the old commanding heights/ bazookanomics paradigm appear to be failing. As control regimes go, no hypothetical model compares with the United Nations Framework Convention on Climate Change plan to establish an economic system in which governments and the UN impose an iron grip on national carbon emissions, and thereby control all economic activity. Lenin could not have conceived such a masterpiece, and it now looks like it is also beyond the pale for most of the world’s nations and people.

These are just trends, part of larger and broader winds of change, not instant events that will immediately transform the world economy.

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Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

    Do not think about, write about or deal with  human behavior without determining the effects of incentives.

     Even if green energy were needed, subsidizing it would be a really bad idea. Government interference in the market rarely leads to anything positive. It seems clear that green energy is unneeded–being desperately needed was one of its selling points in the quest for unlimited government subsidies.

Abundance: How Capitalism beat Caliphatism

Ralph Benko
Happy New Year! Consider Keynes’s last words: “I should have drunk more champagne.” To avert similar rue when our own lives end let us pop an extra cork to celebrate a world undeniably confronting a tsunami of … affordable energy.

Daniel Yergin, in his latest and arguably most promethean work, The Quest: Energy, Security, and the Remaking of the Modern World, infuses a rich ingathering of information and analysis with the narrative power of a McMurtry, the human interest of an O. Henry, all shaken, not stirred, with a frisson of Ian Fleming.

Prosperity is emerging. How did the sourpuss Malthusians in the “Limits to Growth” league allow the heretical: abundance? Clearly someone from the Club of Rome slipped up — badly — and is destined to be burned at the stake. Probably with a fossil fuel.

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    Malthus, long ago, held that mankind was headed for disaster. The Club of Rome, made up of mainly self-styled “progressive” leaders–hold that the world is running out of everything–including carbon-based energy. The Club of Rome is made up of people so pretentious they are called the “illuminati”—the rest of us, presumably, being the diminati.

“What are the prospects for the future?” Yergin asks. “[U]sing a database that includes 70,000 oil fields and 4.7 million individual wells, combined with existing production and 350 new projects… [t]he conclusion is that the world is clearly not running out of oil. Far from it. The estimates for the world’s existing stock keep growing.”

Hydraulic fracturing and horizontal drilling turn North Dakota, an earlier adopter, into America’s fourth largest oil producing state, raising oil at a cost of around just $50 a barrel. Its economic growth is generating, to quote the doughtily dour New York Times, “too many unfilled jobs” — many going begging at $100,000 a pop.

As for gas Yergin observes:

“Over the next few years, the output of shale gas continued to increase. Some now started to call it the ‘shale gale.’ … As a result of the shale revolution, North America’s natural gas base, now estimated at 3,000 trillion cubic feet, could provide for current levels of consumption for over a hundred years—plus.”

Something so vast is occurring as to effect a dramatic transformation of, well, everything. Such ‘sociotectonic’ events can be hard to credit. They are too colossal. But Yergin assembles the pieces and provides us mere mortals with a clear view.

Not to fear. Environmentalists are rising to the challenge posed by the threat of unwonted prosperity! The New York Times, again, prominently, has issued many fatwas against hydraulic fracturing, many by Ian Urbina. Urbina’s rigor and objectivity have been challenged by former U.S. Department of Labor chief economist (now Hudson Institute scholar) Diana Furchtgott-Roth.

Yergin does not shy from reporting the environmental concerns but does not seem unduly anxious: “Critics warn that fraccing may damage drinking water aquifers. The industry argues that this is highly unlikely, as the fraccing takes place a mile or more below drinking water aquifers and is separated from them by thick layers of impermeable rock. Moreover, the industry has a great deal of experience with fraccing. More than a million wells have been fracced in the United States since the first frac job six decades ago.”

The impact of abundant energy on our investment decisions is significant. Yergin: “The lead times may be long owing to the scale and complexity of the vast system that supplies energy, but if this is to be an era of energy transition, then the $6 billion (that has to be trillion) global energy market is ‘contestable.’ … A transition on this scale, if it does happen, has great significance for emissions, for the wider economy, for geopolitics, and for the position of nations.”

The first implications are about wealth and poverty. The second, at least as compelling, are political. Yergin quietly instructs his readers as to the real driver in the war, now winding down behind a victorious America, between al Qaeda and America.

The evildoers behind 9/11 were by no means operating at random. They had a grandiose geopolitical goal. Al Qaeda aspired to the establishment of a caliphate, centrally ruling a united Moslem world, using oil to fund its empire… and as a weapon against the West.

Bush administration poll-tested slogans notwithstanding, in the first decade of the third millennium America was not engaged in a “war on terror.” That’s like saying that we were at “war on bullets.” Terror was a tactic. America was at war with ambitious empire-builders eager to rival and supplant it … at least in the Middle East.

“In his 1996 statement, ‘Declaration of War Against the Americans Occupying the Land of the Two Holy Places,’ Osama bin Laden argued against attacking oil infrastructure in the Middle East, which, he said, embodied ‘great Islamic wealth’ that would be needed for the ‘soon-to-be established Islamic state.’ The attacks that did take place were aimed at foreign interests.

“Then a new jihadi work appeared in 2004 that called for a change in strategy. Titled ‘The Laws of Targeting Petroleum-Related Interests and a Review of the Laws Pertaining to the Economic Jihad,’ it proclaimed the oil industry a legitimate target so long as certain ‘rules’ were followed. Long-term oil production capability should not be damaged. That needed to be preserved for the Islamic caliphate. But it advocated conducting operations that would drive up the price of oil, thus hurting Western countries.”

“Several months later Bin Laden, embracing this new doctrine, urged attacks on oil targets as part of an economic jihad against the United States. … He called for terror attacks that would drive oil to $100 a barrel with the aim of bankrupting the United States.”

Bin Laden is dead. Long before he died he had become irrelevant. Oil aplenty becomes, in ways that cannot be ignored, a mere commodity, like iron, rather than a strategic weapon. Did we win the war on Al Qaeda with bullets, bombs and drones? Or … did we win it, strategically, in the laboratory of free market capitalism?

“George P. Mitchell, a Houston-based oil and gas producer, could see the problem [of limited gas supply] coming. His company was going to run short of natural gas, which would put it in a very difficult position. … But he did have a strong hunch, piqued by a geology report that he had read. That was in the early 1980s. Three decades later, Mitchell’s relentless commitment to do something about the problem would transform the North American natural gas market and shake expectations for the global gas market. Indeed, the stubborn conviction of this one man would change America’s energy prospects and force recalculations around the world. The son of a Greek goat-herder who had somehow ended up in Galveston, Texas, Mitchell had grown up dirt poor.”

Shades of an Ayn Rand novel! World transformation — the balance of world power, the quality of the life of the ordinary citizen — was determined not by a refined bureaucrat but by a smart roughneck with shrewd insight and tenacity. Mitchell Energy got itself acquired (for $3.5 billion!) by another independent, Devon Energy, whose CEO, Larry Nichols, recognized that Mitchell’s increasing output signaled that it had “cracked the code” on how to unleash the imprisoned lightning of energy formerly trapped in shale.

“’At that time,’ added Nichols, ‘absolutely no one believed that shale drilling worked, other than Mitchell and us.’” The narrative that Yergin weaves leaves at least this reader with the conviction that it was the forces of human ingenuity and passion, under a regime of dignity and liberty, that prevailed over a ruthless aspiring Caliphatism as it had over Communism and Fascism.

Happy New Year, dear world, and let us toast Daniel Yergin with champagne for The Quest — a celebration of human ingenuity, passion, dignity and liberty. Without imputing such a sentiment to Yergin himself … by unleashing such forces surely the fall even of the last vestige of the Club of Rome, Obamunism, is not far off.

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     If an interventionist argument is based on a false premise, in this case diminishing energy supply, once the premise is falsified, the argument collapses. In this case, the argument was the necessity for “green” energy based on declining energy supply. Green energy subsidies will continue, but not for long. Even politicians eventually get the message. Off this bandwagon and onto another different, but equally illogical, crusade.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

        Do not think about, write about or deal with  human behavior without determining the effects of incentives.

     As mentioned here many times, the evil of Man-Made Global Warming is unleashed by modeling-predictions–A too-warm future will be transformative–give us your money and we’ll prevent it.

     The renewable energy sector has always been–No bread yesterday–no bread today–lots of bread tomorrow. Just give us those subsidies and watch for the next breakthrough which will be–wait for it–transformative.

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  1945. Oak Ridge National Laboratory nuclear physicists Weinberg and Soodak predict that nuclear breeders will be man’s ultimate energy source; a decade later, the chairman of the US Atomic Energy Commission predict it would be “too cheap to meter”

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  So cheap that once the capital cost was paid–the electricity would be free.

    1973. “Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.” — Richard Nixon

    1978. “Through modeling of supply and demand for over 200 US utilities it was projected that, by the year 2000, almost 60% of U.S. cars could be electrified, and that only 17% of the recharging power would come from petroleum”

    1979. An influential Harvard Business School study projects that by 2000, the US could satisfy 20% of its energy needs through solar

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     Prestigious institutions are no better at predictions than a generator of random guesses.

    1980. Physicist Bent Sorenson predicts that 49% of America’s energy could come from renewable sources by the year 2005

    1994. Hypercar Center established, whose lightweight material and design would yield 200 mpg cars with a 95% decline in pollution

    1994. InterTechnology Corporation predicts that solar energy would supply 36% of America’s industrial process heat by 2000

    1995. Energy consultant and physicist Alfred Cavallo projects that wind could have a capacity factor of 60%, which when combined with compressed air storage, would rise to 70 – 95%

    1999. US Department of Energy hopes to sequester 1 billion tonnes of carbon per year by 2025

    2000. Fuel cell companies announce 250-kilowatt production plants that can fit into a conference room and produce energy at 10 cents per kilowatt hour, with the goal of 6 cents by 2003

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     The fuel cell miracle was just around the corner for several decades–apparently it has receded into the far future.

    2008. “Today I challenge our nation to commit to producing 100% of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable and transformative.” Al Gore

    2009. Gene scientist Craig Venter announces plans to develop next-generation biofuels from algae in a partnership with Exxon Mobil

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    We’re always on the verge of a breakthrough and it’s always short-sighted not to provide the subsidies which will trigger these breakthroughs. Decades of subsidies without breakthroughs have demonstrated the TRUTH of this. (yes Maude–sarcasm).

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies