Thursday, April 30, 2009

Oil Supply: Is War the Answer?

I recently read a fictional scenario in which two countries were engaged in a war over disputed territory... which had oil under it. This border had been disputed for years, and in the latest round of border skirmishes, one had seized the oil territory from the other. This region was a major exporter to the US up until this point, and as a result of the conflict, the price of oil had risen 30% or so. It was part of a survey, and was followed up with a lot of questions about my opinion as to whether the US should send troops, why, the aftermath of a conflict, etc. It got me thinking.

My first thought is this: oil prices are rising? Oh noes. Big fucking deal. Yeah, it cuts into our standard of living... but violence for raising or maintaining a standard of living has another name when done at the individual level: theft. Its their dispute, the dispute is probably the result of an incorrectly drawn colonial border (and colonial borders cannot but be incorrectly drawn), and so probably the two sides need to figure out where exactly it should be, if anywhere. Such matters are often decided via warfare, unfortunately, and the US sending troops is not going to help them with that question, in the long run.

But what about the oil? Wouldn't the world be better off if this oil were available? And when an oil rich region is in a state of perpetual conflict, wouldn't it be better if someone brought an end to that conflict, making this resource available for extraction? I'm going to analyze the probable effects of leaving the conflict alone.

First, the higher prices remain at that level in the short term, and no signals are sent that the supply from this region is going to resume at any point in the near future. This higher price does curtail consumption, potentially impacting the standards of living of everybody dependent on oil, but it also stimulates production. First off, the potential profits of resuming production in the war torn region can tempt both governments to working out some arrangement by which production can resume. If not, they miss an opportunity, which is taken by others.

These others include other oil producing regions that are inhabited by people that do not engage in warfare every decade or so. In the short term, they reap greater profits due to the higher price. In the long term, these profits make available and/or attract additional capital into oil production. The result: the war torn region no longer has as great an opportunity for profits in oil production. Peace is rewarded; war is penalized; the market is the mechanism by which this occurs.... naturally.

Additionally, in that same long term period, it isn't oil that is needed specifically, but energy generally. The higher price of oil results in profits not only for oil producers, but for energy producers of all sorts. This would stimulate investment in non-oil energy sources, such as coal, solar, biomass, hydroelectric and wind, and possibly things most of us haven't even imagined yet.

Thus, the end result of non-intervention:

1. More oil produced in peaceful regions.
2. Less oil revenues available to the belligerents in question, and thus reduced capacity for violence.
3. More energy from non-oil sources.

All of this, not from expensive government programs, but from our government refraining from action. Thus, we have a #4:

4. Less loss of life for US soldiers, lower taxes, lower public debt, a better national reputation, etc.

Honestly, I count only positives in this scenario, and absolutely no negatives, not in the "common good" sense, at any rate. There are certainly people who lose out in this scenario, and I can even accept a demand that the attacking side reimburse those among our fellow citizens who had property destroyed in the conflict (oil rigs, wells, etc.).

Thursday, April 23, 2009

Applied Liberty Theory: The Morality of Land Property

This is just the most recent post in a thread I've been participating in at the forums on It began with a discussion about "Scandinavian Socialism" and how, in many respects, they actually have a freer market than we do here in the United States. (The consensus seems to be that they allow considerably greater freedom... but also have very, very high taxes.) But there was one person who pointed this out, declaring that "social democracy" isn't anticapitalistic, but just a different approach to the same free market principle. Others attacked him, basically painting him red.

I decided to point out that many of the results a statist "liberal" (in the American sense) decries is potentially not the result of natural market functions, but rather various programs designed to redistribute wealth from producers to various representatives of the State, including an inflationary currency, tax fueled subsidies and politically favored contracting, a public debt which funnels tax dollars to those who are able to finance the government... and I even threw in a bit about unjust land distribution, which threw off one of the readers. I expanded on the other three, and dimissed that fourth bit, and, well, you can see the remainder below.


(except the economic rent part, which I just threw in to see if anyone bit).

See, you threw that in and you cloud the whole perspective of what you're trying to say.

Actually, it doesn't really cloud it at all, except to the extent that the idea it rests upon an idea alien to most libertarians (actually, people in general) and even threatening to absolute believers in property rights... when misunderstood, that is. But when it comes to the concerns of more lefty-types (who are more concerned with ends than means), it is another area in which the failure to adopt the princples of liberty results in the very situation egalitarian statists decry.

So far as I can see, Libertarians accept the "homestead" model of property in land. If someone is already using it, and another's activities negatively impacts that use, that is a violation. However, if another's use does not impact that homesteaded prior use, it is not a violation. Thus, in a rural setting, the fact that a farmer has corn in the field does not preclude a hunter from shooting deer in it (so long as he doesn't damage the stalks). The fact that a vinter has grapes in the vineyard does not preclude a man walking through the rows to get to the other side. The fact that a man has a little ribbon of land he paved over and calls a "private road" does not preclude the chicken from crossing it... assuming the chicken does not disrupt the flow of traffic on his way to the other side.

However, property in land in this country does NOT operate under this model. Our land "property" is establishhed not by homesteading, but rather from the extension of the State's claim to absolute dominion. This is the case whether you have a king parceling it out to his most trusted vassals in exchange for service, or a republican executive parceling it out to the highest bidder, regardless of whether that highest bidder actually intends to occupy it... or even to land which is parceled out on the basis on a "homestead act"; even if it is an attempt to most closely approximate a natural right to land, it stil rests upon the principle that the source of claims is not the right of the individual, but rather the dominion of the State. The State's claim rests not on homesteading, but on conquest.

The result is that you have a society that has those who, by virtue of their service to the state (or more likely their compensation of others who served at some point in the distant past), collect economic rent from those who have not. It is difficult to see, since the distribution of land "titles" in our society is a wide continuum, defying anything like "class analysis". Additionally the common use of the word "rent" refers not to a division of wealth tied to land, but rather to any payment for temporary use of any kind of property... confusing the issue in the mind of the layman. But is is real, and a means by which those more favored by the state collect wealth they did not produce from those who did... another fashion in which the State messes with the distribution of wealth for its own benefit, contributing to precisely the conditions that the statist "liberal" seeks to solve via the power of the state.

Thursday, April 16, 2009

Consumer Time Preference Part Two

Last week I described the nature of consumer time preference in terms of a primitive economy. Today I shall discuss how consumer time preference is regulated in a more fully developed economy.

The key feature of a highly developed economy is the specialization of labor: nobody does everything himself, but rather does one thing very well, in exchange for everyone else doing their one thing very well. A well developed financial sector allows the division of one more economic function: waiting.

For that's what a saver does on behalf of a borrower: he waits, so the borrower doesn't have to. He can forgo leisure and consumption now for the sake of a better tomorrow, without knowing the exact details of how that future comes about. All he needs to know is how much another will pay him for the use of his savings today, and whether that potential borrower is trustworthy.

A civilization which has a higher time preference will have more borrowers than savers. This will result in a high interest rate, rewarding the few people who have a lower time preference, and ensuring that the extra resources made available by savers go only to the most potentially productive borrowers, limiting the impact of that overall high time preference upon the overall standard of living.

A civilization with a lower time preference will tend to have more savers than borrowers, resulting in a lower interest rate. The more effective the entrepreneurs that arise in that society, the higher the interest rate will be... but if the opportunities for innovation are more limited, the interest rate will fall, telling savers that it may be time to spend. Their time preference being low, they are more likely to spend that money on things like education... thus potentially increasing future innovations.

Thus, an unregulated interest rate does precisely what needs to be done: it shapes consumer time preference, rewarding those with lower time preference when overall time preference is high, and signaling when its time for people to take the cause of progress into their own hands.

Thursday, April 09, 2009

"Consumer Time Preference"

The three words above sound like some forebodingly complex economic term... but what it means is really quite simple. An individuals "time preference" simply refers to how patient one is, whether one is willing to wait through hard work to reach a better result, or whether one is impatient and demands pleasure and leisure NOW, and damn the future. The later is an attitude many commentators decry about Americans in general. In economic jargon, the level of "consumer time preference" in America is very high.

What does this means? Imagine some kind of small community, living on a temperete island with about a hundred people, cut off from the world. Their future prospects are very dependent upon the level of "consumer time preference" found within the community. If they spend spring and summer just taking what food is available from the local environment, eating and wasting it all, saving nothing for later, when winter comes, there will be no food (or at least, not any food that doesn't come without extreme hardship). They will starve to death. If, however, they work a little harder, consume a little less, storing up preserved foods, when winter comes, they will have more and better to eat.

Even if the island is tropical, their future prospects are still dependent upon time preference. If they work to create a store of goods to draw upon, tools and structures to make living easier and more pleasant, in exchange for hard work earlier, they will have a more pleasant life later. If all they do is lounge about on the beach, eating what comes their way, they'll just have to suffer through the gaps in the food supply, and won't have good shelter against the occasional tropical storm. Time preference is important.

What is true of the small, aboriginal community (which can only advance beyond the aboriginal state by thinking beyond a single year), is also true of a civilized, industrial community. If people are willing to wait for the larger, more efficient factory, their future quality of life will be better, with consumer goods made more efficiently (and thus consumers paying lower prices and able to buy more of everything). If they're not, prices remain high.

It's worse is if a generation arises which has a lower aggregate consumer time preference than the previous one. Such a generation might neglect the maintenance of the large factory (prefering to be lazy and just let things fall apart than maintaining a high standard of quality) and actually reverse the community's standard of living. An industrial community has much farther to fall than an aboriginal one: they can spend considerable time consuming their capital structure before their standard of living falls as a result. An aboriginal community that neglects its minimal capital structure feels hardship rather quickly, a much swifter correction.

(A good way to imagine this at a very low level is to envision how one keeps his house. A clean, organized house is both more pleasant, and easier to navigate. Its easier to find things. It's less likely to have actual sanitation issues. It is evidence of a low time preference: the inhabitants are willing to spend their time now so they might enjoy the benefits of a clean house in the future. A high time preference person would rather goof around now and deal with the consequences later, even if it means he spends more time overall looking for things. Anyone who sees the way I keep my living space can see that, personally, I am a very high time preference kind of guy.)

Is consumer time preference something that can be shaped? Can a community which displays a low time preference be made to change for the better? Or is it purely random, or even static? Can it be measured? If it can be changed, I would imagine the method would involve some sort of encouragement or reward for those who have low time preferences (and thus are building the community up), perhaps some sort of penalty for those whose high time preference potentially erodes the community.

This is long enough for one entry, so I'll continue next week, with the shape of an institution that does, in fact, reward low time preference and offer a measure of a community's overall time preference.

Thursday, April 02, 2009

The Ascetic Virtue

I'm not really sure how to introduce this one, so I'll just jump right into it.

People who are accustomed to being well served by the system, will generally think there is nothing wrong with it. Systems of longer term stability will generally be the ones that allow thinkers to profit from their ability, and will thus tend to be well regarded by intellectuals. The people at the margin, those who are on the line between struggling to survive and outright disenfranchisement, will tend to be those least equipped to criticize the system in a productive fashion. However, a society which embraces asceticism as a form of virtue will have respected intellectuals on the economic margin, as well.

A society that serves and is served well by its intellectuals may tend to ignore potentially alarming trends at the margin. An increase in the number of potentially disaffected people may be ignored until it is too late, resulting in revolution. However, a society with a respected class of ascetic intellectuals will have a source of information about the condition of people on the margin, and, more importantly, potential ideas as to how the situation comes about, and thus be more likely to periodically reform in response to developing injustices, thus pushing the margin out, creating a more inclusive society.

Thus, a society which has asceticism as a core value will tend to have greater long term stability than one that does not, providing a potential socio-evolutionary explanation for why asceticism seems to crop up so often in successful systems of thought.

(The name of this post is a shout-out to fellow players of Sid Meyer's Alpha Centauri.)