Fatal Conceit of Government Interventions: Creating Conditions for Instability

In his most recent book, Antifragile, Nassim Taleb points out that government interventions to reduce risks can make systems more prone to failure, even collapse.

In his mind, increased complexity of a system means that it is more necessary for it to encounter shocks that allow it create adjusting mechanisms so that the system can survive. As such, systems fare better if they embrace disorder rather than have an outside force try to impose order on them.

2012 Was the Best Year Ever: Channelling Julian Simon

Any good economist should never be pessimistic too long. For evidence that things usually improve over time, it is helpful to consider the work of Julian Simon whose magisterial work, The Ultimate Resource, shows how free-enterprise capitalism can channel human efforts & lead to continual improvement of the human condition.

It seems that the Londom-based Spectator magazine has picked up the optimism bug (“Why 2012 was the best year ever“):

“It may not feel like it, but 2012 has been the greatest year in the history of the world. That sounds like an extravagant claim, but it is borne out by evidence. Never has there been less hunger, less disease or more prosperity. The West remains in the economic doldrums, but most developing countries are charging ahead, and people are being lifted out of poverty at the fastest rate ever recorded. The death toll inflicted by war and natural disasters is also mercifully low. We are living in a golden age.”

Ironically, these positive outcomes are under continuous assault from political forces that act on the premise that they wish to do “good” for other people. Each new regulation or tax imposed for redistribution to expand the welfare state undermines the capacity of individual initiatives to serve the interests of others through voluntary exchange.

So-called progressive (“social democrats”) see productivity as an instrumental tool that allows wealth redistribution to expand government intervention in the name of “fairness” or to achieve some subjective notion of “social justice” that pleases their constituencies. However, they tend to impose regulatory overreach that throw sand into the gears of the economy, supports unionization that may hamper productivity gains, & place higher tax burdens on innovators. Social democrats also tend to promote a fantasy that governments can create risk-free life by imposing regulations on an expanding range of human activities & do so without any attendant long-term costs.

If there was a better understanding of Julian Simon’s insights, there might be room for more optimism for the future.

Bubble Trouble…Pessimism for the New Year (With Apologies)

Perhaps the focus on the interpretation of doom in the Mayan calendar was misplaced & that the apocalypse was about the economy rather than the end of the world.

Don’t blame me for the pessimism herein as I am not the architect of the policies that have wrought such perilous conditions. Being the messenger of bad tidings is never a pleasant task….

As it is, the US economy (as well as many other industrialized & emerging economies!) is in the midst of a debt-fueled bubble that gives an illusion of prosperity whereby more wealth is being consumed than is actually being produced. The inevitable bursting of this bubble is likely to be followed by a long & very painful economic “correction” that could stretch to decades, much like what happened in Japan after its “bubble economy” imploded.

When I was younger, most of my most stimulating debates were with Marxist economists. I was always optimistic then, inasmuch as I was well enough informed about their models to know why it would fail. In most instances, this was a one-sided debate in my favor since I knew more about what their terms of reference than they knew about mine. This was a simple matter that I read much of what they read while they were woefully ignorant of what I read.

Yet now I feel a bit of despair as the forces aligned against the basic individual freedoms that underpin economic growth are more formidable not in their intellectual strength but in their slippery nature. While Marxists operated along a predictable logic defined by their models, “progressives” (social democrats) are a slippery amorphous group that treat economies as geese that lay golden eggs that they redistribute according to populist whims rather than principles.

It is my impression that the US economy is in a condition rather like a soldier struck by a bullet on the battlefield. As it has passed through the body, the serious damage may not be immediately clear.

“Military Keynesianism” & Faith-Based Economics Lead to Excessive Government Spending

Both major political parties in the USA advocate some sort of “military Keynesianism” that is linked to “faith-based” economic theory. In the end, a belief in mythological spending multipliers is used to denounce cuts in defense spending or to justify increases.

Similarly, officials of local government officials insist that preferred public works projects, e.g., expensive sports stadiums for professional teams, add super-charged boost to local economies.

Idiocy of Democratic Populism at Work

The White House has stated that it will respond to any & all online petitions that attract at least 25,000 signatures.

One petition exceeded the threshold: to have the US government build a Death Star.

This foolish application of democracy would allow (or require) public officials to pursue costly but unnecessary policy measures. It could also be a pretext for cherry-picking to undertake those that had scant support among the citizenry but were desired by politicians or bureaucrats.

Costs & Uncertainties from Subsidized Renewable Energy Sources

Most environmentalists hail the introduction of renewable energy sources citing claims that besides being “cleaner” & that they can contribute to economic growth & job creation. Such assertions tend to ignore economic realities associated with the impact of subsidies & the costs of using renewables.

One problem arises from blending erratic sources of electricity generation (e.g,, most renewables) with those conventional sources (e.g., fossil fuels) that can be continuously available.

A new study from the OECD Nuclear Energy Agency looks at the costs of introducing erratic renewables (like solar & wind) to an electrical grid system based on reliable sources of electricity (e.g., coal, gas & nuclear), aka, dispatchable technologies.

The study considers 6 technologies (nuclear, coal, gas, onshore wind, offshore wind & solar)where dispatchable technologies have system costs of less than $3 per MWh. System costs for renewables are up to $40 per MWh for onshore wind, $45 per MWh for offshore wind and $80 per MWh for solar.

Actual costs for renewables depend upon the country, technology & penetration levels such that system costs are higher when there is greater penetration of renewables.

For their part, erratic renewable sources tend to reduce revenues for the more reliable sources. As such, subsidies for renewables undermine the use of dispatchable technologies & make it unlikely for them to be replaced when they reach their end of life such that there may be less security of electricity supply.

On the Verticality of the “Phillips Curve”….

Original & fruitful insights from my brilliant young friend, Adrian Ravier:

“Don Bellante & Roger W. Garrison (1988) compared 2 alternative approaches
to monetary dynamics: those based on a vertical long-run Phillips Curve & those
derived from analysis of Hayekian triangles. The conclusion the authors reached is
that the only factor differentiating the two models is the “process” whereby the
initial cause is converted into the final “neutral” effect. This article refutes that
conclusion. To do so it suffices to demonstrate that the long-term effect of
monetary policy is never neutral. While it is true that after the boom-bust cycle the
economy returns to the natural rate of unemployment, the crucial point is that the
‘natural rate’ at the end of the cycle is quite different from the one evident at the
start. This requires an ‘Austrian’ Phillips Curve with a positive slope.”

Is Climate Consensus is About Finding New Extremism/Alarmism…?

Blaming humans for what is going on with the climate & environment provides a justification to expand government powers so that politicians & bureaucrats can gain control over more financial & other resources.

First, there was global warming, supposedly induced by man’s relentless release of CO2 into atmosphere leading to a “greenhouse” effect. But that lost favor & credibility, Over past 16 years, despite massive increase in CO2 output, warming has stalled.

Worse news was that the retreat of glaciers in Himalayas seems to have halted & that melting of polar ice sheets may be exaggerated.


Second, “climate change” became the vogue rogue. It turns out that simple logic overwhelmed this notion since even a schoolchild understands that climate is a variable, i.e., it must change.

Now, there is “extreme weather” or “climate weirding”. Alas, evidence suggests that there has been a d “drought” of severe hurricanes to make landfall in Atlantic region & that this also seems to be true from a global perspective.

Perhaps man-induced climate extremes are not the “new normal”, after all…?

On Government

‎”Not only does the action of Governments not deter men from crimes; on the contrary, it increases crime by always disturbing & lowering the moral standard of society. Nor can this be otherwise, since always & everywhere a Government, by its very nature, must put in the place of the highest, eternal, religious law (not written in books but in the hearts of men, & binding on every one) its own unjust, man-made laws, the object of which is neither justice nor the common good of all but various considerations of home & foreign expediency.”
~ Leo Tolstoy ~
(HT: Bob Higgs)