Wednesday, November 29, 2006

Steve Bracks' green stupidity

Brookes News has a great summary of the kind of ignorant yet harmful nonsense that Steve Bracks and the Victorian ALP believe in. I wish the recent elections would have appointed a different party that doesn't believe in massive governmental control of resources and energy. Such important and vital markets will surely be harmed in the clumsy hands of bureaucrats and politicians.
Here's the article in full:

Victoria’s Steve Bracks seems to have an insatiable appetite for green garbage as revealed by his ridiculous statement that “Victoria’s ecological footprint is huge by international standards. If everyone in the world lived like Victorians, we would require four planets”. What this idiot is saying is that the economic point of view on this matter is irrelevant and that natural resources are strictly limited and non-renewable. But as recently pointed out

...natural resources are literally infinite and “resource depletion” is just a green fiction. In 1970s the Commodities Research Unit in London estimated that the quantity of key metals in the top mile of the earth’s crust were about a million times greater then known reserves. It has also been estimated that there is “100 million years supply of sulfur, borax and potassium chloride; more than one million years’ supply of molybdenum, uranium, tin, cobalt...” (Professor Wilfred Beckerman Two Cheers for the Affluent Society: A Spirited Defense of Economic Growth, Saint Martin’s Press New York, 1975).

The first thing that should be noted — and rarely is — is that economic growth is a resource generating process. A I wrote elsewhere:

Up to the present day history is replete with examples of the market process finding new resources and substitutes when they have been most needed from the substitution of coal for charcoal in 18th century England, of kerosene for whale oil and gas for kerosene, of steam for wind, animal and waterpower, of electricity for steam and gas, of aluminium for cast iron pots and pans, of transistors for valves and of optic fibres for copper cables of nuclear power for coal and hydropower. The list is never-ending and growing exponentially. (Lefty journo Tim Colebatch screws up on Australia’s resources boom and exchange rates).

What the likes of Bracks miss is that it is always in the interest of entrepreneurs to maximise the present value of their land and capital assets. The present value of any of these assets is the sum of discounted future rents. The market tendency will be for these rents to become equal to the rate of interest. (In fact, capitalisation becomes an argument for the privatisation of state owned lands). Therefore the green argument that Bracks is mindlessly parroting rests on the assertion that capitalists would recklessly destroy the capital value of their operations if it weren’t for the efforts of far-seeing politicians like himself.

So what Bracks is really arguing for — though in all probability he does not realise it — is state control of all natural resources. But the market does not require the very visible bungling hands of politicians, bureaucrats and green ideologues to achieve a beneficial allocation of natural resources. Incompetent entrepreneurs who lack the necessary foresight and mismanage their resources are soon displaced by entrepreneurs with superior knowledge and forecasting ability. (Alas, if only the same thing could be said of incompetent politicians, inept bureaucrats and stupid journalists).

It is through time preference that the balance between present and future consumption is struck. Time preference is simply consumers’ preference for present consumption over future consumption. The less consumers spend on current consumption the more of their income is allocated to investment in future goods and thus to a greater conservation of natural resources. Although it is possible that resources like coal and oil could be the exception to this rule if there is a significant increase in demand for their use in new activities. It must not be forgotten, however, that a reduction in time preference, i.e., a switch from current consumption to future consumption, will lower interest rates and so raise the value of the land. This creates the obvious incentive to conserve the resource and maximise there present value.

Not only do market prices act directly to conserve natural resources, as against political considerations, through the process of capitalisation, they also expand the supply of resources by discovering and exploiting new reserves and by substituting new materials for old resources. The higher demand for the final products (consumer goods) increases the value of the resources that go into their production. These higher prices stimulate conservation and investment in exploration, new technologies and potential substitutes.

From this we can easily conclude that in a free market consumer prices determine the costs of production, including capitalisation. As Thomas Perronet Thompson’s paper The True Theory of Rent 1826, made this clear when he said that it

… is the rise in the price of produce … that enables and causes inferior land to be brought into cultivation; and not the cultivation of inferior land that causes the rise of rent. (The True Theory of Rent, 1826).

So in a free market costs reflect prices, not the other way round.

Despite vicious green propaganda to the contrary the market has — as we have already seen — created an abundance of resources. However, for this to have come about the prime mover in the market process, the entrepreneur, had to be free to explore and experiment. (This is one of the reasons socialist regimes eventually collapse). It is entrepreneurship that makes the market’s dynamic discovery process so successful and not the ramblings of dim-witted politicians. Regardless of what the brilliant Mr Bracks thinks conservation laws are not needed in a free market. Where such laws are implemented they have a number of undesirable effects. They restrict the use of depleting resources, i.e., they force a greater inventory in the stock of depletable resources and also force owners to excessively invest in replaceable resources.

If, for example, the government imposed a ‘conservation tax’ on oil the effect would be to slow down — depending on the size of the tax — oil consumption and redirect savings into finding a substitute, perhaps shale oil. But this would be a waste of resources: a malinvestment. Extending investment to the conservation of any natural resource to the point where the return is lower than the opportunity cost of the investment is truly wasteful, not that most politicians or journalist could comprehend this fact.

Such laws also extend the conservation of resources beyond the point where they become obsolete, a possibility with an oil ‘conservation tax’. In fact, economic growth and living standards would have been greatly retarded if past warnings of the imminent exhaustion of natural resources had been acted on by politicians. Moreover, what is not generally realised is that most of Australia’s conservation laws are actually preservation laws. The rationale for these phoney conservation laws is that these resources have to be preserved for future generations. But this is an absurd proposition. If these laws were permanently enforced then no generation would ever benefit from their ‘conservation’ because each generation would be followed by a future generation and so on.

When it comes to economic reasoning and genuine conservation the obtuse Steve Bracks and his equally slow-witted colleagues are at a complete loss. Unfortunately the Liberal Party of Victoria isn’t any better than Bracks’ ignorant and destructive team.