Random Reflections: 3/9

This post on my favorite blog takes a stab at the gloomy pessimism of the current environmental debate. A point Boudreaux hints at, but doesn't really emphasize, is that there is often confusion over what constitutes a "resource". Nobody cares if we run out of light bulbs; we care if we run out of sources of artificial light. One point about resources that many economists like to make is that we will never run out of resources like energy, not that we will never run out of "resources" like oil. Either we find more efficient methods of production, such as better oil extraction, or we find completely new ways to get the same resource, such as solar power. What matters is the light, not the light bulb, and since we have the profit incentive to spur innovation, resources aren't an issue.

There's not much I can add to this excellent post by Scott Lincicome. It’s a bit long, so I'll summarize:

• Cotton producers have gotten the Federal Government to give them big subsidies so that they can compete on world markets
• These subsidies violate WTO rules, so the US Government pays Brazilian cotton manufacturers $140 million a year to prevent the Brazilian government from imposing retaliatory tariffs
• This means that American consumers face higher cotton prices because of the subsidies AND pay Brazilian farmers $140 million a year to prevent damaging tariffs that wouldn't be a threat if the subsidies didn't exist in the first place
• The House, even most of the "fiscally conservative" Republic party, voted against ending these payments and have made no attempt to reform these ridiculous subsidies

A well-written article on government "investment". I think that the crucial takeaway is the reminder that public investment often comes at the expense of private investment, not in addition to private investment. This is obviously bad, since in the private sector investors care whether or not their investments are socially useful (i.e., make a profit), while in the public sector the politicians and bureaucrats who are responsible for investing care about maintaining their position. Since their positions are most effectively held by catering to special-interest groups and not by investing wisely, they act accordingly.

This phenomenon is costly and unfortunate, but can easily be explained. The bureaucrats who work in the FDA don't receive benefits from saving lives by allowing treatments to enter the market, but they do face punishment if a patient is harmed by a device that was allowed to go to market without extensive testing. This causes them to ignore the unseen costs of dollars and lives that are wasted because life-saving treatments were delayed before they went to market, only taking into account the lives and dollars that are cost by allowing a product to go to market too early. This biased cost-benefit calculation results in medical products and procedures being unnecessarily delayed.

Also worth reading: David Henderson's take on how unions affect the lower class

Boycott BP?

If Facebook is any indicator, there is a strong movement in this country to boycott BP in retaliation for the Deepwater Horizon oil spill. A Facebook group called "Boycott BP" has over 700,000 members. In my opinion, boycotting BP is the wrong approach. I'm as angry and upset as everyone else over the oil spill, but punishing BP won't make the oil go away. What will make the oil go away is allowing BP to continue cleaning it up. If BP were to go out of business (which I'm assuming is the goal of the Boycott BP movement), then the burden of cleaning the Gulf would fall solely on taxpayers.

This is bad for several reasons. First, and most obviously, we'd have to pay for it. BP caused this disaster, and they should be responsible for cleaning it up. If they are run out of business, they can't. I have to buy gas for my car either way, so if buying BP gas makes it less likely that I'll have to pay for cleaning the Gulf, then I'll do that. Secondly, a government cleanup would be less efficient than a BP managed one. BP currently has access to the best of their own engineers and the best of the government's. If BP goes away, then all of the BP engineers go away. Unless there are no BP engineers contributing anything of worth at the moment (which seems unlikely), this would be a bad thing for the gulf coast. A government run cleanup would also be less efficient because of the incentive distortion. Right now, BP is the one running the cleanup AND the one paying for it. If the government were running it, then it would be government agents running the cleanup and taxpayers paying for it. Simple economic theory tells us that when actors are shielded from the costs of their actions (in this case, the cost of running the cleanup inefficiently), they will not perform at the socially optimal level.

In conclusion, while boycotting BP is unlikely to have much effect at all, it is my belief that it can only have a negative effect. I'm assuming that the goal of the boycott is to force BP out of business, which I've shown is bad for both the gulf coast region and for taxpayers. As far as the implied benefit by removing a reckless company from the market, the best way to ensure another oil spill doesn't happen is to make government regulation more effective and efficient. BP is unlikely to survive another catastrophe like this, and they know it. As long as government oversight is improved, BP is no more of a threat to our environment than any other oil company.