David Bier

Continuing with excerpts from great books on environmental and energy issues (see last week’s posts here), below is an excerpt from Mark Pennington’s brilliant new book Robust Political Economy. “Robust” political institutions are, according to Pennington, those “institutions that perform best given that people 1) have limited knowledge and  2) are prone to self-interested behavior.” He argues the case that market institutions are better suited to deal with these realities than governments. In this passage, he applies these two criteria to environmental protection.

Robust Political Economy was released in 2011

Classical liberalism does not question the view that environmental problems arise when private actors are unaccountable for their actions. What it does question is the supposition that political intervention, whether of the ‘command and control’ or ‘price-based’ variety, is the best way of ‘internalising’ the relevant externalities. There are two dimensions to this account which reflect the focus on the conditions required for a robust political economy of institutions and decisions.

The first line of analysis draws on the Hayekian understanding of the knowledge problem. Seen from this perspective, neo-classical approaches to environmental policy repeat the socialist calculation error by assuming that the knowledge necessary to correct for ‘market failures’ is somehow ‘given’ to policy-makers. In an environmental context the assumption is that trade-offs between environmental and other objectives are known and fixed.

Viewed through the Hayekian lens both command and control and price-based policy mechanisms are variations of central planning and may be inappropriate because the primary environmental problem is typically not one of giving people the right incentives to act on the basis of known environmental values, but of discovering what the relevant values are. Knowledge of these values is fundamentally dispersed throughout society and evolves in light of the changing ideas of individuals and organisations as they interact with each other and the natural world.

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This week’s excerpts have shown that 1) natural resources are not as limited as experts have believed (Daniel Yergin). 2) Natural resource consumption leads to more, not less resources (Mark Mills/Peter Huber). 3) Natural resources aren’t “natural”–they are the result of human ingenuity (Robert Bradley). 4) Non-renewable, finite, depletable energy sources made economic growth sustainable (Matt Ridley). Today’s excerpt from brilliant resource economist Julian Simon’s The Ultimate Resource 2 adds to these points, particular to Robert Bradley’s point. Simon argues that the ultimate resource isn’t energy–it’s mankind.

When I began to work on population studies, I aimed to help the world contain its “exploding” population, which I believed to be one of the two main threats to humankind (war being the other)….

One spring day about 1969 I visited the U.S. AID office on the outskirts of Washington, D.C., to discuss a project intended to lower fertility in less-developed countries. I arrived early for my appointment, so I strolled outside in the warm sunshine. Below the building’s plaza I noticed a road sign that said “Iwo Jima Memorial.”  There came to me the memory of reading a eulogy delivered by a Jewish chaplain over the dead on the battlefield at Iwo Jima, saying something like, “How many who would have been a Mozart or a Michelangelo or an Einstein have we buried here?”

And then I thought, Have I gone crazy? What business do I have trying to help arrange it that fewer human beings will be born, each one of whom might be a Mozart or a Michelangelo or an Einstein – or simply a joy to his or her family and community, and a person who will enjoy life?

I still believe that helping people fulfill their desires for the number of children they want is a wonderful human service. But to persuade them or coerce them to have fewer children than they would like to have—that is something entirely different….

Enabling a potential human being to come into life and to enjoy life is a good thing, just as protecting a living person’s life from being ended is a good thing. Of course a death is not the same as an averted life, in large part because others feel differently about the two. Yet I find no logic implicit in the thinking of those who are horrified at the starvation of a comparatively few people in a faraway country… but who are positively gleeful with the thought that 1 million or 10 million times that many lives will never be lived that might be lived.

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The first three excerpts this week argued that the quantity of natural resources are 1) not as limited as experts have believed (Daniel Yergin), 2) not as important as our technological and political ability to access them (Peter Huber/Mark Mills), and 3) not “natural,” in that their usefulness is not an  inherent feature, but rather an artificial human innovation (Robert Bradley).  This excerpt from Matt Ridley’s brilliant 2010 book The Rational Optimist: How Prosperity Evolves explains how non-renewable, finite energy sources paradoxically made economic growth sustainable. With inanimate objects doing the work instead of slaves, we can, as he says, all “live the life of a Sun King.” 

 In 1807, as Parliament in London was preparing to pass at last William Wilberforce’s bill to abolish the slave trade, the largest factory complex in the world had just opened at Ancoats in Manchester. Powered by steam and lit by gas, both generated by coal, Murrays’ Mills drew curious visitors from all over the country and beyond to marvel at their modern machinery. There is a connection between these two events. The Lancashire cotton industry was rapidly converting from water power to coal. The world would follow suit and by the late twentieth century, 85 percent of all energy used by humankind would come from fossil fuels. It was fossil fuels that eventually made slavery–along with animal power, and wood, wind and water–uneconomic. Wilberforce’s ambition would have been harder to obtain without fossil fuels. ‘History supports this truth,” writes the economist Don Boudreaux. ‘Capitalism exterminated slavery.’

The story of energy is simple. Once upon a time all work was done by people for themselves using their own muscles. Then there came a time when some people got other people to do the work for them, and the result was pyramids and leisure for a few, drudgery and exhaustion for the many. Then there was a gradual progression from one source of energy to another: human to animal to wind to fossil fuel. In each case, the amount of work one man could do for another was amplified by the animal or the machine. The Roman empire was built largely on human muscle power, in the shape of slaves. It was Spartacus and his friends who built the roads and houses, who tilled the ground and trampled the grapes. There were horses, forges and sailing ships as well, but the chief source of watts in Rome was people.

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Yesterday’s excerpt from Mark Mills and Peter Huber’s book The Bottomless Well showed how people consume energy to discover and create more energy through technological advances.  Today’s excerpt from Robert Bradley’s 2009 book Capitalism at Work: Business, Government, and Energy makes a similar point, that there are no such thing as “natural” resources.  As he writes, “Resources without man are not resources.”

His name is not found in economics textbooks or histories of economic thought. Where it does appear, his Germanic surname is often misspelled. His contribution is virtually unknown in the world’s vast mineral-resource industries today. Government policies owe little or nothing to him. Yet Erich Zimmermann (1888–1961) developed a new theory to explain why fixity and depletion were the wrong way to view minerals in an economic and business sense.

Zimmermann’s 1933 World Resources and Industries began a line of analysis that would explain a paradox of economic life—the growth of supposedly “depletable” supply, whether measured as current production or known reserves. …. Economists from Jevons forward focused on a conception of known resource quantities that, by definition, depleted as they were mined and consumed. Future production costs would rise as mining progressed from superior to inferior deposits. Resource prices were destined to increase in the face of continuing demand and, certainly, demand growth. The increasing scarcity of mineral resources might be gradual or rapid, but the direction was not in doubt, even allowing for improved exploration and extraction technology.

Zimmermann rejected this outside-in view that saw resources as a knowable, fixed quantity. Such a perspective was for the natural sciences, not economics. Instead, he started from the inside out: “the appraising mind of the economic decision-maker.” Resources, defined as “the environment in the service of man,” exist only from “human wants and abilities.” Resources without man are not resources. The interaction between man and environment is central.

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Yesterday’s excerpt from Daniel Yergin’s new book The Quest showed how even preeminent scientists have fallen for poor predictions about future energy supplies. Today’s excerpt explains why. In their myth-crushing book The Bottomless Well: The twilight of fuel, the virtue of waste, and why we will never run out of energy, Peter Huber and Mark Mills argue that the quantity of raw fuel matters less to energy security than our ability (both technological and political) to extract the fuel. In this passage, they make the counter-intuitive point (one of many in this book) that energy consumption, rather than limit our supply of energy, actually increases it. 

Though he was prepared to go quite a bit deeper when he turned on his steam-powered drill in Crawford County, Pennsylvania, in 1859, Colonel Edwin Drake struck oil at 69 feet. The first “deep water” oil wells stood in 100 feet of water in 1954. Today, they reach through 10,000 feet of water, 20,000 feet of vertical rock, and another 30,000 feet of horizontal rock.

Yet over the long term, the price of oil has held remarkably steady. Ten-mile oil costs less than 69-feet oil did, and about the same as one-mile oil did two decades ago. Production costs in the hostile waters of the Statfjord oil fields of the North Sea are not very dfiferent from the costs at the historic Spindletop fields of southeast Texas a century ago. There have been price spikes and sags, but they have been tied to political and regulatory instabilities, not discovery and extraction costs. This record is all the more remarkable when one considers that the amount of oil extracted has risen year after year. Cumulative production from U.S. wells. alone has surpassed a hundred billion barrels.

The historical trends defy all intuition. It is easy enough to thank human ingenuity for the relatively steady price of a finite and dwindling resource and leave it at that. But there is a second part to this story: it is energy itself that begets more energy. Electrically powered robots pursue new supplies of oil at the bottom of the ocean. Electricity purifies and dopes the silicon that becomes the photovoltaic cell that generates more electricity. Lasers enrich uranium that generates more electricity that powers more lasers. Power pursues the energy that produces the power.

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Below is an interesting excerpt from Daniel Yergin’s new book The Quest: Energy, Security, and the remaking the modern worldan epic 700-page journey through worldwide energy history. The passage describes how even the preeminent scientists from ages past have fallen for phony fears about energy.

The fear of running out of energy has troubled people for a long time. One of the nineteenth century’s greatest scientists, William Thomson–better known as Lord Kelvin–warned in 1881, in his presidential address to the British Association for the Advancement of Science in Edinburgh, that Britain’s base was precarious and that disaster was impending. His fear was not about oil, but about coal, which had generated the “Age of Steam,” fueled Britain’s industrial preeminence, and made the words of “Rule, Britannia!” a reality in world power. Kelvin somberly warned that Britain’s days of greatness might be numbered because “the subterranean coal-stores of the world” were “becoming exhausted surely, and not slowly” and the day was drawing close when “so little of it is left.” The only hope he could offer was “that windmills or wind-motors in some form will again be in the ascendant.”

Three quarters of a century after Kelvin’s address, the end of the “Fossil Fuel Age” was predicted by another formidable figure, Admiral Hyman Rickover, the “father of the nuclear navy” and, as much as any single person, the father of the nuclear power industry, and described once as “the greatest engineer of all time” by President Jimmy Carter.

“Today, coal, oil and natural gas supply 93 percent of the world’s energy,” Rickover declared in 1957. That was, he said, a “startling reversal” from just a century earlier, in 1850, when “fossil fuels supplied 5 percent of the world’s energy, and men and animals 94 percent.” This harnessing of energy was what made possible a standard of living far higher than that of the mid-nineteenth century. But Rickover’s central point was that fossil fuels would run out sometime after 2000–and most likely before 2050.

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Now that Republicans feel that they have won a minor victory over Obama on the debt deal, they might be more likely to make concessions on non-debt/spending related issues like the confirmation of Commerce Secretary nominee John Bryson.  It is more important than ever that fans of the free-market pressure the Senate to oppose the nomination of this rent-seeking, radical environmentalist.  In a Kansas City Star op-ed published this morning, I show why his corporatist past is reason enough to block Bryson’s nomination.

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Recently in Reuters, Peter Goldmark  vilified U.S. airlines for hiring lobbyists to fight EU emissions regulations.  He argued that airlines should willingly accept the new rules because they’re “modest” and compliance is “flexible.”

This is nonsense. Bowing to government threats and regulations is an open-door for more.  To wit, the U.S. airline industry “compromised” with the European Union and agreed to monitor greenhouse gas emissions on international flights.  Now the EU is forcing the industry to compromise further: Starting in January 2012, all airlines that operate flights into and out of European airports must participate in the EU Emissions Trading Scheme, a cap-and-trade energy-rationing policy. This immodest regulation will jeopardize business by raising the cost of international travel. It’s also likely a violation of international law. The airlines can and should fight back.

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Post image for Washington Post: Light Bulb Ban Is “Impressive”

Few laws epitomize the belief that government should micromanage the daily affairs of Americans more completely than Congress’ ban on incandescent light bulbs.  It’s an intrusion into the most mundane aspect of our lives.  It violates the rights of both consumers and producers.   It forces Americans to buy a hazardous, mercury-laden alternative.  It sets a precedent under which almost anything in our lives can be controlled by bureaucrats.  Given one word for such an outrageous policy, what would you choose?

“Impressive,” says the Washington Post in an editorial released Wednesday.  “[It’s] an easy way to save energy,” the article continues.  “All Congress has done is set a national standard for how much power it takes to produce a certain amount of light. And there’s good reason to demand improved efficiency; about 90 percent of the energy that traditional incandescent bulbs use is given off as heat, not light.”

Consumers do demand efficiency, which is why light bulbs have improved so dramatically since the days of Edison.  The belief that government can simply mandate improved efficiency, however, is just fanciful.  Consumers know what is best for them, and they weigh their options accordingly.  No consumer thinks, “How much electricity can I waste?”  As long as consumers pay their own bills, they have incentives to save energy.

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