Leon County, Florida, where I live, is selling carbon credits for methane gas it is burning from the county landfill, going part-way into turning our garbage into cash.  Here’s the story (facts come from the local paper, the Tallahassee Democrat, October 19, page 3A).

Because of complaints of nearby residents of odors coming from the landfill, the county has installed a system of underground pipes to collect methane gas, which is then routed to a flare and burned off.  It appears that because the county is destroying the methane it can claim carbon credits, which can then be sold, which has the potential to raise about $50,000 a year or so for the county.

First off, I will confess to not understanding the science here, because when methane burns it produces carbon dioxide, a greenhouse gas.  So, as an economist with not much of a science background, I don’t understand how turning methane into carbon dioxide reduces greenhouse gasses or helps the environment.

The science is not really relevant here, however, because the reason the methane is being burned is to reduce odors from the landfill.  The purchase of these carbon credits will have zero effect on emissions of any kind, because the methane would be burned regardless of whether the county could sell carbon credits for its activity.

In this case anyway, the idea that someone can buy these carbon credits and then claim to be helping the environment is a complete sham.  There will be no environmental impact of any kind on the part of the seller.  If there is any environmental impact at all, it will be that the buyer, having purchased the credits, will emit more greenhouse gasses than had the credit not been available.  The sale cannot reduce the emissions of greenhouse gasses, but could increase them.

Is this kind of sham transaction where the campaign against global warming has led us?

Peter Klein’s post about the bizarro world in which the SEC prefers not to define insider trading too carefully, lest that definition cramp the government’s prosecutorial style, reminds me of the similarly vague definition of price fixing for purposes of enforcing the antitrust laws. The best acccount I have seen of this matter comes from R. W. Grant’s Tom Smith and His Incredible Bread Machine:

“The rule of law, in complex times,
Has proved itself deficient.
We much prefer the rule of men!
It’s vastly more efficient.
Now, let me state the present rules,”
The lawyer then went on,
“These very simple guidelines
You can rely upon”
You’re gouging on your prices if
You charge more than the rest.
But it’s unfair competition
If you think you can charge less.

“A second point that we would make
To help avoid confusion:
Don’t try to charge the same amount:
That would be collusion!
You must compete. But not too much
For if you do, you see,
Then the market would be yours
And that’s monopoly!”

Funny, yes, but if you think this description is substantively a joke, then you obviously have not spent much time reading antitrust decisions. As nearly as I can tell, a violation of the antitrust laws occurs whenever the prosecutor says it has occurred. Before your indictment, you’ve no way to know whether you are in violation.

In a recent op-ed for the Wall Street Journal, Rush Limbaugh defends his record (“I am not a racist”) and further points out the double standard allowing left-liberals off the hook for statements that are clearly racist.

Limbaugh’s defense highlights several problems for libertarians and conservatives:

First, playing defense 24/7 is no way to move forward. It places libertarians and conservatives in the untenable position of answering “when did you stop being a racist?” Repeated denials inspire the race hustlers to keep asking the same question. To Rush Limbaugh: You wanted to purchase a football team that played both offense and defense. There is a lesson here.

Second, the Left dominance of higher education really does matter. Conservatives and classic liberals are in a state of denial about the insidious influence K-16 education has on the professions that shape public opinion: schools of journalism, education, law, social work are monoliths of the Left. Add the power of left-wing accreditation bodies and you have “the sound of one hand clapping”—the left hand, of course.

Above all, there is the problem of ignorance and miseducation of our youth. Yes, surveys may show that graduates retain some of the values they had prior to entering college. Yet they are not educated well enough to refute left-wing attacks.

Let me give you an example: Since 1995, I have advised College Republicans and Campus Libertarians. The knowledge base of libertarian and conservative students has seriously eroded. If I ask “why are you a libertarian? Why are you a conservative?” The answer is superficial: “because I am not a liberal.”

These students may retain a vague belief in individual freedom, nondiscrimination, limited government and meritocracy but they fail to argue effectively against the Left. Why? Because they have never been exposed to information subverting the smug assumption that Leftists have always have been “the angels of history.” Conservatives and libertarians are (and always have been) the villains, according to this fairy tale.

That brings me to my book Race and Liberty in America: The Essential Reader (2009). This reader debunks the crazy notion that belief in individual freedom, capitalism, and colorblind law = racism. The book highlights how Frederick Douglass, Branch Rickey, Zora Neale Hurston, Clarence Thomas and others consistently championed the bedrock belief that all discrimination is wrong—and they embraced a philosophy of limited government. They experienced first-hand how the State acts as sponsor of discrimination.

Back to the football analogy. Here is the offense: those “angels of history” on the Left—labor unions, Woodrow Wilson, FDR, and LBJ—committed some of the worst racist actions in our history. The Left ignores (or “contextualizes”) Wilson’s segregation of the federal government, LBJ’s declaration that an anti-lynching bill was worse than lynching itself, or FDR’s defense of quotas to keep Jews from overwhelming Harvard (where he sat on the Board of Trustees). FDR also wrote that interracial “mingling” (marriage) produced “horrific results.” As president, FDR blocked Jewish refugees from Nazi Germany and interned Japanese Americans during World War II. Not surprising.

It is time for so-called liberals to give up the race hustle and learn their history. In so doing, they may discover some heroes of the classic liberal sort—neither Left nor Right—but committed to racial freedom and equality.

I spoke to the local Campaign for Liberty group last night and wanted to thank everyone who made it an excellent event. It was everything a speaker could want: a large and enthusiastic crowd (they said they counted 72 people, I think), great conversation, and excellent questions peppered with healthy skepticism. My long-run optimism is, perhaps, a bit schizophrenic. We’ve made a mess of things recently, and I don’t think we’re making very good policy right now. At the same time, however, there are a lot of ideas on the table that weren’t seriously considered even a few years ago. I had a fantastic time, I enjoyed meeting people I had previously only met via email or blog comments, and I learned a lot. It’s hard not to be at least a little optimistic when that many people are willing to give up a Monday evening to talk about economics and public policy. Here’s a list of reading recommendations and links to articles, podcasts, and videos that you might find interesting; I assembled it for a “Think Globally, Act Locally” panel at Rhodes a few weeks ago and it’s sort of a Beta version of an economics education clearinghouse I hope to put together at some point.

Cross-Posted at the Mises Blog.

On Sunday, leading Obama officials criticized Wall Street, complaining about high bonuses, blaming business for high unemployment and seemingly protesting that financial institutions have both taken on too much risk and yet have not lent out enough money. The administration is not accepting much blame on its own for the unemployment and economic slump. Meanwhile, even as Goldman Sachs’s profits hit record highs, a Goldman Sachs executive has been named the top enforcer in the Securities and Exchange Commission. The company was Obama’s biggest campaign contributor and is notoriously among the most politically connected businesses in America.

A similar dynamic was seen in the FDR administration—blaming big business for all of America’s problems even while courting the most egregious players in finance and industry to be close to the regime. Can the president really be so hypocritical, confident that most of his supporters will pretend not to notice? Yes, he can.

Unintentionally funny line yesterday from state radio:

[Law professor Steve Thel] says the SEC’s been under pressure for years to clarify the definition of insider training, but the commission has been reluctant. Regulators worry if the rule is defined too tightly, it’ll be harder to enforce.

To understand insider-trading regulations, read Henry Manne, early and often.

Charlatans posing as representatives of the U.S. Chamber of Commerce issued a press release, sent out emails, and held a press conference at the Washington, D.C. National Press Club today, announcing the Chamber’s new “Free Enterprise Climate Policy” pushing for “strong climate legislation.”

One mystery is how Reuters and other news agencies could have been taken in by a statement (also posted on a fake webpage, here) peppered with such fractured logic and head-scratchers as:

The Chamber believes that if we do not help to prepare a strong climate change bill for the President, we will face a new foreclosure crisis, due once again to the shortsightedness of a few, and their quest for immediate lamb at the expense of long-term wool.

Presumably it’s because the media—and teachers, students, and the general public—have been trained to accept without question endlessly repeated but unsubstantiated proclamations, such as:

Climatologists tell us that if we don’t enact dramatic reductions in carbon emissions today, within 5 years we could begin facing the propagating feedback loops of runaway climate change. That would mean a disruption of food and water supplies worldwide, with the result of mass migrations, famines, and death on a scale never witnessed before.

The release fails, however, to disclose the predicted disruptions to a continuation of current historically high life expectancy rates and global food production that enacting Al Gore-enriching “cap and trade” legislation and the China-enriching Copenhagen treaty would result in.

Instead of facts that might actually feed informed decision-making—including temperature data from the government’s own National Space Science and Technology Center showing that global temperatures peaked with 1998’s el Nino and have been falling ever since; the squelched internal EPA report skeptical of claims about global warming, including whether carbon dioxide must be strictly regulated by the federal government; and evidence that polar bear populations are rising—anti-human “environmentalists” can only resort to ever-more bold campaigns of disinformation and outright lies to further their one-world-government, Copenhagen treaty agenda.

As the historical record shows, the Malthusian activists’ solution—more control of the world’s resources by governments—has resulted in far greater environmental degradation than the “business” interests they villify. Alternatively, when individuals have been free, they have, time and again, devised innovative solutions that no central planner could ever imagine.

Yet lies continue to sell, and facts continue to be buried and apparently largely unread in musty tomes as the Journal of American Physicians and Surgeons, such as this easily-accessible and readable article, “Environmental Effects of Increased Atmospheric Carbon Dioxide” —a virtual goldmine of data, detailing everything from the correlation between solar activity and global temperatures, to actual data on severe storms in the 20th century, sea levels, and CO2 levels, to analyses of the IPCC computer models underlying the hypothesis of anthropomorphic global warming, to the increase in U.S. forests in the past 50 years, the relative costs and benefits of alternative energy forms, and much more. As the scientist authors point out:

Across the globe, billions of people in poorer nations are struggling to improve their lives. These people need abundant low-cost energy, which is the currency of technological progress.

In newly developing countries, that energy must come largely from the less technologically complicated hydrocarbon sources. It is a moral imperative that this energy be available. Otherwise, the efforts of these peoples will be in vain, and they will slip backwards into lives of poverty, suffering, and early death.

Energy is the foundation of wealth. Inexpensive energy allows people to do wonderful things. For example, there is concern that it may become difficult to grow sufficient food on the available land. …

Energy provides … an even better food insurance plan. Energy-intensive hydroponic greenhouses are 2,000 times more productive per unit land area than are modern American farming methods. Therefore, if energy is abundant and inexpensive, there is no practical limit to world food production.

Fresh water is also believed to be in short supply. With plentiful inexpensive energy, sea water desalination can provide essentially unlimited supplies of fresh water.

During the past 200 years, human ingenuity in the use of energy has produced many technological miracles. These advances have markedly increased the quality, quantity, and length of human life. …

Were this bright future to be prevented by world energy rationing, the result would be tragic indeed. In addition to human loss, the Earth’s environment would be a major victim of such a mistake.

The Copenhagen treaty—which today’s merry pranksters hope to foist upon their duped audience—would directly result in such world energy rationing, making victims of the environment, and especially the world’s poor. So why, if the Truth will set us free, are we so eager to instead be enslaved by lies?

*****
See also Re-Thinking Green: Alternatives to Environmental Bureaucracy, edited by Carl Close and Robert Higgs.

Since the early 1980s, I have been lecturing on the growth of government to a wide variety of audiences. In academic seminars and workshops, professors typically ask questions about my explanatory framework, my evidence, alternative explanations, possible counterexamples, and so forth. But when I speak to a friendly lay audience, the first question is typically something along the lines of, “What can we do to turn this thing around?” Academic people, who are accustomed to discussing all sorts of political and economic developments, many of which are none too savory, usually have the ability to distance themselves from any revulsion they may feel about the matters under discussion and to concentrate on how one might best explain the events in question. In social science, “value freedom” is upheld as a standard for the analyst. Market-friendly nonacademic people, in contrast, are often surprised, and appalled, to discover how much the government has grown and many of the means by which political actors have enlarged it, and their immediate orientation is toward action to reverse what they perceive to be a pernicious development. Thus, they bring normative and programmatic concerns directly to the fore. Like Lenin, they demand to know, “What is to be done?”

Because I am often introduced as an authority on government growth, the lay audiences seem shocked and disappointed when I answer the query about how we can stop further government growth by saying that I don’t know or, worse, by saying that I don’t think we ― which is to say, those of us in the room and all other likeminded people ― can do anything significant to deflect the trend toward larger, more tyrannical government.

I often receive similar reactions when I post commentaries on the Internet. Thus, I recently posted a short essay called “Partisan Politics ― A Fool’s Game for the Masses,” and in response, one man wrote: “Quit whining and figure out something better if you’re so damn smart.” Another wrote: “Okay, Higgs. So what can one do to protect one’s person and family and aid in the country’s survival?” I commonly hear from people who find my description or analysis beside the point unless I have “an answer” or “a solution” to the problem under discussion. Higgs, they conclude, is “not constructive,” and therefore he does not deserve anyone’s time and attention.

Although I would be the last to assert that I have a claim on anyone’s time or attention, I believe that the solution-demanding response to my commentaries (or anyone else’s) betrays a confusion between diagnostics and therapeutics in political economy. The former focuses on finding the causes of a condition or development, the latter on prescribing measures by which the condition can be lessened or eliminated. This distinction is common in the medical profession, where some practitioners specialize in diagnosis and others in various kinds of therapy. In political economy, however, the two activities are often combined. In professional economics journals, countless articles have been published in which the author first lays out his “model,” sometimes presents empirical “tests” of some of its implications, and finally draws “policy conclusions” ― that is, unsolicited advice to government functionaries as to how they should employ their powers.

Lay people and professionals alike, however, need to appreciate two critical points. First, in social and economic affairs, one man’s problem may be another man’s solution. The growth of government belongs to this category. Many people are pleased when the government grows, whereas others are outraged. Still others, of course, have no concern one way or the other, so long as their personal ox is not being gored deeply. In short, the normative evaluation of a socioeconomic condition or development may vary greatly among the people involved in it.

Second, even if everyone agrees that a certain condition constitutes a problem, it still may have no generally acceptable solution. Because of the diversity of beliefs, values, and interests in the populace, whatever is done to create a “public good” ― that is, a condition that, if established at all, applies equally to everyone ― will displease some people. For example, everyone may value “national security” in the abstract, but if in its pursuit some people want the government to go to war against country X, whereas others want the government to steer clear of war with country X, then some people are bound to be dissatisfied, no matter what the government does. Issues of this kind have no generally acceptable solution, owing to uncertainties about the “production function” for certain public goods. One might imagine, of course, that one side persuades the other to change its beliefs, values, or preferences, but unless unanimous agreement is achieved ― an extremely unlikely eventuality ― a certain number of problems whose solutions are contentious will necessarily always remain.

Since the Great Depression, the American public has generally approved of an active, interventionist federal government. In a perceived crisis, most people want the government to “do something.” Of course, most politicians and government functionaries, for perfectly understandable self-serving reasons, are quite pleased to respond to such public demands for action ― after all, taking such action promises to butter their bread more thickly. Franklin D. Roosevelt enthusiastically supported an approach whereby the government would “take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” Likewise, more recently, despite the great confusion that prevailed about the current recession’s causes and about the best means of moderating or reversing it, Barack Obama, soon after taking office, declared, “The time for talk is over. The time for action is now.” In both instances the president was presuming that successful therapy can be administered without a sound diagnosis. This presumption is foolish, however, if one’s interest lies not in mollifying a bewildered electorate, but in implementing a genuine remedy for the perceived problem.

Furthermore, in dealing with a “problem” such as the relentless growth of government, we must recognize that unlike the automobile mechanic who undertakes to repair a sputtering engine, we are attempting to alter the workings of a socio-economic process that has hundreds of millions of moving parts, each one with a mind of its own! It is hubristic ― a Hayekian “fatal conceit” ― to suppose that anyone can control this process in fine detail. The “man of system,” Adam Smith sagely observed, “is apt to be very wise in his own conceit.”

He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.

I am not a “man of system” in the Smithian sense. For me to propose a “magic bullet” to stop the growth of government, as an oncologist might prescribe a certain drug to cure a particular type of cancer, would be ridiculous. Just as one may know a great deal about the origin and development of a particular type of tumor without knowing how to cure it, one may know a great deal about the growth of government without knowing how to stop it. Indeed, curing a cancer is a much simpler task.

Yet, one thing we do know: Many Americans now believe many things about their government that are false, and they expect much from the government that the rulers cannot provide. The public at large embraces myths about what the government can do, what it actually does, and how it goes about doing it. Only people enamored of such myths can support, for example, a gigantically expensive health-care “reform” at a time when the present value of the government’s promised future Social Security and Medicare benefits alone amounts to several times the current GDP. (I am disregarding here the interested parties who expect to reap short-run pillage from an intrinsically doomed system.) Until more people come to a more realistic, fact-based understanding of the government and the economy, little hope exists of tearing them away from their quasi-religious attachment to a government they view with misplaced reverence and unrealistic hopes. Lacking a true religious faith yet craving one, many Americans have turned to the state as a substitute god, endowed with the divine omnipotence required to shower the public with something for nothing in every department – free health care, free retirement security, free protection from hazardous consumer products and workplace accidents, free protection from the Islamic maniacs the U.S. government stirs up with its misadventures in the Muslim world, and so forth. If you take the government to be Santa Claus, you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies. This prevailing ideology constitutes probably the most critical obstacle to reductions in the government’s size, scope, and power. Getting rid of this ideology will be diabolically difficult, if possible at all.

Analysts of the political economy, such as yours truly, may have some capacity to open people’s eyes with regard to the government’s true nature and its actual operation. Such diagnostic work is a full-time job, however, so consumers of this analysis should not be surprised if a diagnostician cannot prescribe a sure-fire cure whenever he identifies, describes, or analyzes a problem. Moreover, consumers of opinion and analysis in political economy would be well served by developing a healthy skepticism toward all those who propose a simple cure for the growth of government ― flat tax, term limits, constitutional amendment, abolition of the Fed, you name it. The doctor with a panacea just might be a quack.

With so much press coverage of the Nobel Peace Prize, the Nobel Prize in economics has not been discussed much.  I am an economist, but I’m not really complaining.  The other prizes haven’t received much press coverage either, and most people don’t have that much interest in economics anyway.  (That’s not to say they’re not interested in the economy; they are just not interested in economics.)

The Prize went to Oliver Williamson and Elinor Ostrom for their analysis of the institutions of governance — as opposed to government.  Williamson has focused his work on the organization of firms, whereas Ostrom’s work has been focused on governing common resources, such as fisheries, oil fields, and irrigation systems.  Both Williamson and Ostrom show how individuals can devise solutions to resource allocation problems without having government impose them.

Ostrom’s work has significant implications for public policy because she looks at cases where most economists would argue that government solutions are needed to prevent an inefficient use of resources.  She shows that not only are individuals able to work collectively to efficiently allocate resources, but that they do a better job of governance when they devise and enforce mechanisms for use of collective resources than when they have governance structures imposed on them.

Both Williamson and Ostrom take an institutional approach to understanding resource allocation, which means focusing on the arrangements people devise and use in their economic interactions.  This contrasts with what might be referred to as a technological approach to economics (Williamson has used that term) where an economy is modeled as a system of equations that can be solved to find equilibrium outcomes.

From a public policy standpoint a technological approach to economics tends to lead economists to view the economy as if it is that system of equations, to look for ways that the mathematical structure of the model might be modified to yield better results, and then to imagine that there is a way to change the real-world economy in the same way.  It is a short step to then say that the government can impose the same policies in the real world as the economist can impose on the mathematical model.

The institutional approach recognizes that there are potential solutions to economic problems that nobody may have thought of yet, and that any inefficiency is also an opportunity for entrepreneurial individuals to devise a better way of doing things.  In a market economy the entrepreneurs benefit, but so does everybody else.  If the government protects and enforces property rights, Williamson and Ostrom show that the creativity of individuals will produce a superior allocation of economic resources by allowing market mechanisms to work rather than by imposing rules from above.  I will again emphasize the importance of Ostrom’s work, because she has shown this in cases where there is typically a presumption that a government-imposed solution is necessary.

The institutional approach taken by Williamson and Ostrom is much more market-friendly, and freedom-friendly, than the technological approach to economic analysis, which is one of the reasons I am delighted that their work has been recognized this way.  They are not the first Nobel Laureates who have emphasized institutions.  James Buchanan, Douglass North, and Ronald Coase also fit this description, but when real-world policy issues turn on whether we should rely more on markets or government planning, it is nice to see the Nobel Committee recognize the importance of this type of work.

While academic economics is probably of limited interest to most policymakers and elected officials, John Maynard Keynes famously said, “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.  … I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”  If so, the recognition by the Nobel Committee of Williamson’s and Ostrom’s work is a step in the right direction for freedom.