Energy crisis: Has The "Invisble hand" failed Us?

Great Debates
21

[QUOTE=Frylock]
And when you’ve got 10 people and nine apples, a few different things could happen.

The 10 compete and the 9 with the best combination of luck and foresight get an apple and the tenth dies. The 9 recall the event as “that time the invisible hand worked everything out.”

Or, the 10 compete as above, and the nine with the apples are foresighted and empathetic enough to give a bit of their apple to the tenth, the tenth survives to be able to buy the 9’s stuff later on. They all later remember this as “that time the invisible hand worked everything out”–because turns out they all actually read Adam Smith and know that he thinks this kind of thing is part of how the “invisible hand” works.

Well anyway, I ramble. My point is, yes, the “invisible hand” “works everything out” but we can have an effect on whether it works things out “the hard way” or “the easy way.” It’s not like the invisible hand is the hand of some transcendently just and immovable God. The invisible hand is us.

-Kris
[/QUOTE]

By 1776, modern agricultural techniques made famine rare in England. But earlier in that century there was a significant famine in France. It’s a bit hard for me to believe that Smith really thought the invisible hand would provide for all. In the long run, certainly.

22

[QUOTE=An Arky]
The Invisible Hand is going fap fap fap fap while watching his favorite porn, high prices and inelastic demand double-teaming everyday folks.
[/QUOTE]

Perhaps, but what’s the solution, then?

23

[QUOTE=Lemur866]
The main insight of Adam Smith is that it doesn’t matter that the apple grower doesn’t provide us with apples out of the (possibly nonexistant) goodness of his heart. He provides us with apples because he wants to get paid. More people around the world today are fed because of the greed of capitalist farmers than because of the altruism of philanthropists. If we had to rely on philanthropy for our daily bread we would all soon be starving. When we rely on the greed of others to provide us our daily bread we paradoxically find that we’re swimming in bread.
[/QUOTE]

It also explains why so many poppies are grown in Afghanistan. And why companies dumped their waste into the river.
The purpose of government in a capitalist system that isn’t pure is not to direct the economy but to deal with the cases where self interest of a capitalist does not lead even indirectly to the maximum common good, and to cover the situation where even when it does it involves human suffering. Mexican drug cartels are setting up marijuana fields not far from me - hope you are fine with this example of capitalism at work.

24

I was asking: will the market provide us withthe information we need to adapt to higher oil prices? I think it will.
As for rationing: has government run rationing ever worked?

25

[QUOTE=Sam Stone]
The Irish potato famine was not a failure of capitalism. Ireland was largely controlled by Britain, and a lot of Irish property was held by absentee British royalty and neglected. When the Irish people complained, the British promised to take care of the problem, and never did. Then the British government announced a ‘laissez-faire’ policy, but continued to export grain out of Ireland while the people starved. Until that point, the government had put relief works in place, which displaced other solutions, then stopped them when a new administration was elected. During the famine, grain was still exported to Britain, and Britain refused to open the Irish ports to imports of food until the problem was severe - then they started a public works program and imported food they selected, but which wasn’t easy to consume.

It was anything but a free market.
[/QUOTE]
Although I agree that this is not strictly speaking “a failure of capitalism”, the above (assuming that you’re talking of the Irish Famine of 1845-49) is misleading in its lack of detail. First of all, the failure of the potato crop on which the Irish peasantry had long become dependent due to the easy and density of cultivation was due to invasion of the heterokont Phytophthora infestans, which was prolific that year due to favorable (for it) climate conditions. Although Ireland had continued to export grains primarily wheat (then called “corn”), oats, and barley, other grains were imported during the Crisis, particularly the then cheap “Indian corn” (i.e. maize), the lack if gristmills made whole grains difficult to process into consumable medium. Furthermore, in the context of a general European crop failure in 1845, grain prices were higher than normal, making grain too expensive for the destitute Irish sharecroppers, most of whom paid rent a fraction of in potatoes raised, to afford. (The typical Irish died at the time was boiled potatoes and buttermilk or cheese; one of the major problem relief efforts had was teaching the Irish to cook any eat grain meal.) Displacement of population by many landlords, the unsanitary conditions in poorhouses, and the lack of civic infrastructure led to epidemics of typhus and cholera which killed not only the Irish but many people who arrived to assist them.

The meagerness of government relief efforts ultimately resulting in their failure is true, but in fairness the greatest extent of the problem was not clear until 1846, and by 1847 the extent of epidemics, displacements, and the lack of prepared crops would have overwhelmed any conceivable effort. The roots of the Great Famine (which was preceded by significant crop failures and famines at roughly twenty year intervals) are many, including dependency upon a somewhat vulnerable single crop, the development of a grain export economy upon which the economy of Ireland was almost exclusively dependent, lack of infrastructure for transportation and sanitation, and domination of the Irish Catholic majority and Irish real estate by the Protestant minority that occurred prior to Emancipation. This all stems back before the Acts of Union to Cromwell’s brutal campaign of domination of Ireland. In short, this was bound to happen (and indeed, the Famine of 1740-1 is widely thought to be on roughly the same scale, albeit less well recorded) due to a confluence of indifference by the governing Crown and unavoidable periodic crop failures.

Voyager already made the point explicitly, but it apparently needs to be reinforced: Adam Smith’s “invisible hand” doesn’t give a flying fark whether people starve or not, and it has no governance over crop failures or other natural, unavoidable catastrophes, nor does it implicitly endorse the sort of long-range economic and social planning that would be required to prevent such a failure from becoming an epidemic. Smith argued that an economic system is most responsive and thus behaves in an optimal fashion when individuals are free to buy and sell goods and services at what the overall market allows. In this case, the Irish peasant-farmers had essentially no influence on “the market”, living, as they did, hand-to-mouth and mostly not participating in the fiscal system at all except by proxy to their landlords, so the market, in turn, does not serve them. In reality, even the most hardcore Chicago School economists recognize that the supply market lags demand to some degree, which can produce temporary and harmful imbalance, and more it is influenced by external factors or investor perceptions the more volatile it is. The “invisible hand” can be said to have failed only if economic value does not ultimately increase with market activity. If 10% of the population is destitute but the other 90% prospers, one could make the argument that the “invisible hand” has done its job of improving the economy as a whole.

On the other hand, the most extreme forms of central planning have led to the worst crop failures and famines in the 20th century, i.e. the failures in the Ukraine (partially due to malice and pseudoscientific agricultural methods, but mostly bullish incompetence) and the hideous failure of the Chinese Great Leap Forward, so fully centralized planning can hardly be considered a successful strategy.

Stranger

26

[QUOTE=Voyager]
Mexican drug cartels are setting up marijuana fields not far from me - hope you are fine with this example of capitalism at work.
[/QUOTE]

Actually, one could argue that’s the result of government intervention into the free market by making pot illegal in the first place! :slight_smile:

27

[QUOTE=Voyager]
You should read an interesting book called, IIRC “The Little Ice Age.” It is about climate changes in Europe and their impact - none human induced, by the way. The warming around 1,000 CE was the reason the Vikings could inhabit Greenland. When the weather turned colder, there were famines and people starved. Thugs with guns had nothing to do with it.
[/QUOTE]

Actually, I have read books on the subject and know a bit about the subject. And thugs with swords DID have quite a bit to do with much of the famine that took place during that period…though, granted the climate had a lot to do with it to. I’m not sure what point you are trying to make…Europe (or the rest of the world) wasn’t in any way, shape or form capitalistic at that period, which was the point I was making. This is what you quoted from me after all:

Well, I would also add that capitalism has made the world rich enough to indulge in the notion that it is no longer acceptable for people to starve, and that democracy has put the power of the state in the hands of citizens so that they can broadly make their wishes reality.

I saw a rather startling statistic the other day as well (no idea how true it is) that American’s donated (privately) something like $350 billion dollars last year…which is a staggering amount of money (more than the GDP of some nations). Assuming this is true it begs the question: How could we do that? Well…because of the wealth our system and society generate, that’s how.

I never thought of you as a socialist voyager. Not even close…and FWIW coming from me. :slight_smile:

Yes, I deny this human cost. I think our system, a combination of social democracy and capitalism has done the most for the most people in human history for alleviating that ‘human cost’…not just in this country but world wide. Lemur866 pretty much hit the high points of what I was going to say in response to this…in short, starvation today doesn’t come because there is a shortage of food, or even because of the cost of food…it comes because of thugs with guns and the lack of will by the first world to do the really dirty job of going in, cleaning things up and teaching these folks how to fish while also giving them a fish. Instead, the easy thing to do is to toss a fish their way and hope the fish actually gets to those who need it while knowing…KNOWING!..that there is no way in hell the thugs with the guns are going to either not gobble the fish themselves or simply let the fish rot on the docks. But it’s not capitalism itself that is at fault for that.

Everything has a ‘human cost’…everything is a risk vs reward or cost vs benefit analysis. Certainly capitalism has human costs…and certainly I care about them. That’s why are system is so flexible after all…and why we have a SOCIAL democracy to mute the sharp edges of capitalism. Capitalism coupled with democracy has done more to benefit the majority of human kind than any other system in human history.

-XT

28

[QUOTE=ralph124c]
I was asking: will the market provide us withthe information we need to adapt to higher oil prices? I think it will.
As for rationing: has government run rationing ever worked?
[/QUOTE]

Sure it will, given time and the troubles people will have who don’t have the luxury of buying a new car or significantly reducing their driving. And rationing won’t work. But would could have worked was some foresight. Maximizing immediate profits clearly led to overproduction of SUVs. The increase in consumption helped cause the increase in prices, which hit even people who didn’t buy SUVs.

At this point we have nothing to do but deal with it until the change in price forces conservation and makes it profitable to get alternative sources on line.

The issue here is whether a somewhat guided invisible hand could have done better.

29

[QUOTE=xtisme]
Actually, I have read books on the subject and know a bit about the subject. And thugs with swords DID have quite a bit to do with much of the famine that took place during that period…though, granted the climate had a lot to do with it to. I’m not sure what point you are trying to make…Europe (or the rest of the world) wasn’t in any way, shape or form capitalistic at that period, which was the point I was making. This is what you quoted from me after all:

[/quote]

But, in England at least, people stopped starving before capitalism. Thugs with swords were operating in good times and bad, but since even the most radical of capitalists don’t object to the role of government in keeping order, (nor does any system) I don’t think it is a relevant factor.

And, as you acknowledge, I’m not disputing the effectiveness of capitalism in building wealth. As Frylock said, the prevalence of food in a society does not guarantee that every person in that society has some. We do have enough money to be able to afford taxes that allows government to feed the hungry. The question is whether we’ll do that, or wait for the invisible hand to do it.

True, and people were generous 65 years ago also - but people were still hungry at times. It appears even with this generosity soup kitchens run out.

And this social democracy is exactly what I’ve been advocating! Unless you have the invisible hand responsible for everything - including communism - the need for social democracy comes from the failure of pure capitalism to minimize the human cost. It does better at reducing this cost than socialism, communism or feudalism, for sure, but saying this does not mean you are denying the human cost.

Which brings us back to the OP. The Chinese are subsidizing gas prices, which is inevitably going to lead to more consumption and more subsidization until the entire system breaks down. Letting prices rise is far smarter. However, we can and did forecast that something like this was going to happen. To reduce the impact, we should have nudged the market to find better solutions years ago, and not have to wait until they come on line with $140 / bbl oil.

30

[QUOTE=Voyager]
But, in England at least, people stopped starving before capitalism. Thugs with swords were operating in good times and bad, but since even the most radical of capitalists don’t object to the role of government in keeping order, (nor does any system) I don’t think it is a relevant factor.
[/QUOTE]

They did? When exactly did people stop starving in England according to your own historical view? And I note…‘England’ is a rather small area to draw a circle about and point to. Still, I think I could dig up several times folks starved between the little ice age and the advent of capitalism in England…hell, I’m fairly sure I could dig up some historical references to people starving in England AFTER the advent of capitalism, especially if we broaden that to the UK which seems more reasonable.

We DO feed the hungry, by and large, here in the US. In the EU as well. In Japan, South Korea, Canada and Australia. Which hungry are you referring to that aren’t getting fed? The hungry of Africa? The hungry of central or south America? North Korea?

It’s the wealth generated that enables, for the first time in history, the ability to feed the most people. Do you deny that our system does the most good for the greatest percentage of people living under it? Who starves in the US or those other places?

Ah…you mean during the Great Depression then? You feel this was a failure of capitalism?

BTW, grim as it was, do you have a cite for massive starvation in the US during that time?

Hm…well, you are sort of saying something along the lines of (to paraphrase) ‘capitalism is the worst system known to man…except all the others’. Everything has a human cost…and no one I know of advocates pure, unfettered capitalism. Certainly not I. Where society sets the bar between the extremes of capitalism and socialism is determined BY society, as it should be. Here in the US we set the bar where the majority of us are comfortable with…just like those in Europe do likewise (as well as in the other countries operating under a similar system). The nice thing about our system is that the bar isn’t fixed…it is flexible, it’s changable with the fluid nature of our society. We are seeing what is perhaps the beginning of such a shift here in the US I think as the bar is adjusted to the changing needs and desires of our society…in this case it’s the invisible hand of the people on the rudder of our government that is making the shift, just as it’s the invisible hand of the people that are shifting the rudder of our economy due to the pressures of something as simple as a (rather modest if you think about it) jump in the price of gasoline at the pump.

For all the talk and scare tactics by the eco types about Global Warming and environmental climate change for the past half decade (at least), it’s this simple event that is going to have the most ACTUAL effect on those topics. Oh, they have played their part to…but ironically the part they have played is not through government fiat but by preparing public sentiment and educating the public FOR that invisible hand to shift the tiller and change our path. However, it’s the change in market conditions (in the form of higher energy costs which cascade to higher costs elsewhere) that’s ACTUALLY making that shift happen. Environmentalists might have talked about this issue until the end of the decade, but what is getting SUV’s off the road is simply the price of gas at the pump.

-XT

31
  1. We don’t have an energy crisis. We have suddenly expensive petroleum.
  2. The ‘invisible hand’ of the market works within the set of existing choices that people have. If I live in an area with good public transportation, I can respond to the high price of gasoline by either paying more for gas, traveling less, or doing more of my trips on public transit. If I don’t, then I only have the first two choices.
  3. The ‘invisible hand’ isn’t going to cough up a good public transportation system, because not enough of the payoffs are in the farebox. The payoffs are in fewer cars on the road, which translates into a bunch of other things (e.g. increased human and economic capacity of areas served by transit; time saved by motorists), more economic development, hence more tax revenues, around fixed transit such as subways and streetcars, and improved quality of life.
  4. Our ultimate crisis isn’t energy but climate change. As I’ve noted before, solutions to the climate change problem generally address energy issues as well; solutions to scarce energy don’t always take the climate crisis into consideration. Like it or not, the climate problem is the one we must solve, or pay a heavy cost.
  5. Good public transportation networks generate way less carbon per person-mile traveled than automobile trips do. And using public transit instead of automobile means less petroleum consumption. Demand reduction for gasoline = slower increase in gasoline prices. It’s all good - but it requires the initial public investment in the transit systems.
32

[QUOTE=Leaper]
Perhaps, but what’s the solution, then?
[/QUOTE]

I think that the use of fossil fuels for energy is NOT a viable long term solution, and that we need to work on the decreasing the demand, for economic, political and environmental reasons. The hand here will have to be visible, and the market-worshippers can suck it.

33

[QUOTE=Voyager]
Mexican drug cartels are setting up marijuana fields not far from me - hope you are fine with this example of capitalism at work.
[/QUOTE]

A Mexican drug cartel setting up marijuana fields is a problem. RJ Reynolds setting up tobacco fields isn’t a problem. Coors setting up barley fields isn’t a problem. Starbucks setting up coffee fields isn’t a problem.

The problem isn’t the people grow marijuana and opium poppies, the problem is that we’ve made marijuana and opiates illegal. If we had a free market for marijuana instead of a black market there would be no room for guys with guns.

And of course, the notion that capitalism in it’s purest form must allow pollution is nonsense. Pollution is a classic example of the tragedy of the commons. Since the atmosphere and the hydrosphere is obviously a commons the cost for any actor to dump waste products into the commons is lower than the benefit they gain individually. And so if we declare that anyone is free to dump whatever they like into the air and water, we shouldn’t be suprised to find that lots of people do so.

Since commons are publicly owned, we are forced willy-nilly to regulate the use of the commons by some method. One method would be to sell off the commons to the private sector. One method would be to ration access to the commons. One method would be to forbid all use of the commons. And so on. But it doesn’t violate laissez-faire capitalist ideology to note that a polluter’s right to emit smoke ends at his property line. You can emit toxic fumes on YOUR side of the property line, but it’s worth your ass if those toxic fumes end up on MY side of the property line. But since toxic fumes have way of drifting around capriciously, this means that you are effectively prohibited from emitting toxic fumes.

And anyway, what does this have to do with today’s food crisis? What new government program do we need to enact today to prevent Americans and Frenchmen from starving to death due to higher corn prices?

If people were really going to starve to death due to higher corn prices, then we’d have a problem. But that’s not happening. And what’s going to happen next year when farmers respond to higher food prices? Any idea on whether we’ll see increased food production in an attempt by farmers to capture those higher prices? Remember, it’s not like the “food crisis” was caused by massive crop failures, or millions of new mouths to feed.

34

[QUOTE=Voyager]
Mexican drug cartels are setting up marijuana fields not far from me - hope you are fine with this example of capitalism at work.
[/QUOTE]

I live just down the road from that place the cops raided last week. In fact, I had been riding my mt bike up on those trails the day before.

Anyway, as has been pointed out, this is not a problem with capitalism-- it’s a problem with what we’ve defined as legal and illegal.

35

Why all the talk of starvation? the biggest health problem for the American poor is OBESITY, not starvation! :smack:

36

[QUOTE=An Arky]
I think that the use of fossil fuels for energy is NOT a viable long term solution, and that we need to work on the decreasing the demand, for economic, political and environmental reasons. The hand here will have to be visible
[/QUOTE]

Nonsense. The invisible hand (1. Fossil fuel prices go up. 2. Consumers reduce their fossil fuel consumption and seek alternatives. 3. Producers put more development efforts into alternatives. 4. Profit!) is working out so far – certainly better than the last few decades of “government policy”.

37

Exactly. Those people who think government works better than the market in setting energy policy should check their premises by writing down all the government energy policies in the past which have worked out to their satisfaction.

Every President since Nixon has announced a major ‘energy policy’ which involved making the country completely energy independent and transitioning away from fossil fuels. It never happened. Carter promised 2.5 million homes would have solar power by 1985. It didn’t happen. The current incoherent policy, as usual, turned into a payoff for special interests rather than the good of the nation, resulting in big subsidies to agri-business and skyrocketing food prices as production was diverted to heavily subsidized ethanol crops - which turn out to be worse than the problem they are trying to solve.

Government energy policy has resulted in a chaotic business environment where people are afraid to invest in large infrastructure pieces because the risks are so high regarding the changing regulatory environment. The U.S. has a shortage of refinery capacity, because it’s become far too difficult to get a refinery approved, and the risks of the project being stopped by regulatory oversight and lawsuits are so high that capital is afraid of it.

Government energy policy has led to varying gas formulations in many states, which has made the refinery infrastructure brittle and prevents states from picking up excess capacity from others.

Government energy policy in California led to the state being swindled by Enron because the previous governor made a foolish bet on future energy prices.

And if you look at other infrastructure, government has let hundreds of bridges in the U.S. degrade to the point where they are becoming unsafe. Government passenger rail has lost billions of dollars.

In the meantime, the market has been efficiently responding to price signals. It responded to them in the 80’s and 90’s when the price of gas collapsed, by giving people larger, more powerful vehicles. Now it’s responding to them by giving people small, fuel efficient cars, new battery technologies, and hybrids.

Speaking of hybrids… This is an example of why the market is so much better than government. Hybrid technology caught the government by surprise. A recently as five years ago, ‘everyone knew’ that the future of autos was hydrogen fuel cells. The government invested billions in it. Before that, ‘everyone knew’ that the future of autos was pure electric. The California government even passed a law mandating the technology and demanding that 10% of all cars on the road be electric only.

But the market didn’t try to guess. Hundreds of companies fought with each other with competing technologies. Innovators tried different things. There have been turbine cars, and flywheel cars, and all-electric cars, and propane cars, and all sorts of others. Over time, the best designs thrived and the poor ones failed. Maybe hydrogen will make a comeback, but today we seem to be converging on plug-in hybrids as an excellent, lower cost, easier to build alternative.

Choosing government planning over the market is like choosing God over evolution, except that God is a few hundred corrupt old men with no training in biology, organized into committees to force compromise.

The market has its flaws, but the government has far more. When your ‘energy policy’ is dictated by 485 people in Washington, it’s bound to be an incoherent mess and have more to do with divvying up potential revenue between the states than what’s best for the country. Huge decisions are made in back-room deals as senators horse-trade favors. Infrastructure decisions and funding are determined by people with no education or experience in the industry.

It always baffles me when people take the default position that governments are better at allocating resources and choosing technologies than is the free market, when the experience we have is that it’s flatly untrue.

38

[QUOTE=xtisme]

We DO feed the hungry, by and large, here in the US. In the EU as well. In Japan, South Korea, Canada and Australia. Which hungry are you referring to that aren’t getting fed? The hungry of Africa? The hungry of central or south America? North Korea?

[/quote]

Of course we do. That’s because we don’t live in a world where the invisible hand rules.

What do you mean by failure? Capitalism doesn’t say that the economy will be humming along 100% of the time, so depressions and the like are inevitable. With our current state of economic understanding, governments can intervene to damp down these swings. Do you consider the Fed’s setting of interest rates a failure of capitalism?
My whole point has been that capitalism inevitably involves things like the business cycle. The WPA and other “socialistic” enterprises in fact helped to protect capitalism by reducing the impact of these swings on people. A fair number of intellectuals at the time backed socialism and worse because they considered capitalism to fail. They might have won if those politicians who were for a purer capitalism blocked aid to the people.

[/quote]

Now that’s very reasonable, and shows how you’ve bought into our modified social capitalistic system. You’d be a radical leftist from the perspective of a Hoover Republican.

Let’s take energy. There are three types of solutions to the cost of energy problem.

  1. The government decides on a solution and mandates it. This is almost certainly going to be an non-optimal solution, since no one is smart enough to come up with the best, and will lead to disaster.

  2. The market will find a solution. But, the market only begins to operate when the problem becomes too obvious to ignore. This is where we are now. Lots of people are suffering from high gas prices, the economy is a mess,.and there is general chaos. It will eventually sort itself out.

  3. The government creates conditions for the market to operate a bit faster than in case two. Say we raised the gas tax significantly a few years ago. The same market conditions would be in operation, but the money would go to us instead of OPEC. We could use some of the money to help low income consumers, perhaps, and some to help push interesting solutions, through things like tax credits.

Gas at $4.50 a gallon is annoying but not critical. I’m worried that waiting until even mainstream Republicans accept climate change might be too late. The flexibility you speak of is important, but some institutions crack instead of bend. That’s fine, so long as it isn’t the entire world.

As far as the invisible hand goes, I doubt Smith meant the government. That’s kind of like a determinism vs free will argument - the invisible hand both controls the market and the things that regulate the market. Then regulators are part of the invisible hand. Fine with me, but I doubt PJ will buy it.

39

You are ABSOLUTELY RIGHT: those 485 corrupt old men in washington have given us the federal ethanol project: a monumental ecological and energy-wasting catastrophe!

40

[QUOTE=Steve MB]
Nonsense. The invisible hand (1. Fossil fuel prices go up. 2. Consumers reduce their fossil fuel consumption and seek alternatives. 3. Producers put more development efforts into alternatives. 4. Profit!) is working out so far – certainly better than the last few decades of “government policy”.
[/QUOTE]

Nope…the invisible hand will be more inclined to profit-taking from dwindling supplies of fossil fuels than the riskier, but potentially rewarding action of pursuing alternatives, and consumers won’t be cooperative enough quickly enough in curtailing their consumption. We don’t need to wait for The Holy Market or consumers to be arsed to do it. The market is not the solution to everything; it’s just being used as an excuse for not doing the right thing. I’m not decrying capitalism as a whole, just saying that the market isn’t always right.