A random sampling of the stupid.

Wednesday, August 20, 2008

The idiocy of John Stossel

Most people would say they are in favor of energy independence, because any type of independence sounds good. John Stossel isn't:

Most every politician and pundit says "energy independence" is a great idea. Presidents have promised it for 35 years. Wouldn't it be wonderful if we were self-sufficient, protected from high prices, supply disruptions and political machinations?

The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.

The US could never be completely protected from supply shocks, but if we could produce enough energy to supply ourselves, then we could outlast an energy embargo indefinitely. Maybe that's overkill, but it's true. While I see Stossel's point that energy independence might not be a good use of resources, he makes much more blatant claims about it being actively harmful:

To be for "energy independence" is to be against trade. But trade makes us as safe. Crop destruction from this summer's floods in the Midwest should remind us of the folly of depending only on ourselves. Achieving "energy independence" would expose us to unnecessary risks -- such as storms that knock out oil refineries or droughts that create corn -- and ethanol -- shortages.

This is confusing several things. Stossel makes the logical leap that in order to create energy independence, the US would have to ban energy imports, and then generalizes that to imports in general, bringing us back to his main point: free markets always best, any government intervention bad*.

Achieving "energy independence" would expose us to unnecessary risks -- such as storms that knock out oil refineries or droughts that create corn -- and ethanol -- shortages.

No, that would be energy protectionism, where we forbade import of energy of any kind. That's not the same thing.

The plan to create energy independence would be to invest in domestic supply. Taxing imports would certainly help, but since it would make gas more expensive it's not on anybody's to-do list. One of the merits to the argument is that if the US is running low on energy, this should spur the market to invest in new sources which are now profitable. So the US would produce more energy, but no government intervention needed. Any intervention would be using resources less optimally than they could be. TANSTAAFL (which, at least how I pronounce it, rhymes with "John Stossel").

One of the major drawbacks to this argument is that the free market won't take certain things into account: climate change, long-term political instability. Oil prices may have gone way up over saber rattling between Bush and Ahmadenijad this year, but we hated them and they hated us just as much in 2000, when oil was dirt cheap. And given that the time scales involved in either researching new technologies, or bringing new oil fields online, are at least 10 years.

Similarly, global climate change was anticipated decades ago by many who were called kooks. Even now, there's not likely to be significant change for another few decades. But changing now will be a lot easier than changing in 2040, because it can be done more gradually, and less damage will have been done in the interim.

The market typically doesn't think decades in the future.

Although Stossel is right that McCains $300 million prize for an electric car battery is stupid, because market incentives are strong enough to make the prize superfluous.

There's other stuff in the article about whether we're transferring wealth to the Middle East by buying oil. Stossel correctly points out we buy mostly from Canada and Mexico, but because our demand pushes up prices globally, we are transferring wealth to the Middle East indirectly. Also, since we get something for the purchase, are we really transferring wealth? Economics 101 would say no, but econ 101 assumes people are rational, have perfect information, and make perfect choices. So I could argue the point, but it's possible.

Error rating: 3. Article is really an average of 6s and 0s.


*The fact the people equate "free markets" with "lack of government regulation" baffles me, but people always seem to think that.

Monday, August 11, 2008

No good deed goes unpunished, or TANSTAAFL

BusinessWeek has an article about California's public pension funds, and how following a socially conscious agenda allegedly has cost them money:

Eight years ago, then-state treasurer Philip Angelides launched his "Double Bottom Line" initiative, espousing a philosophy of profits and social reform. ... The strategy has been a drag on the returns of the funds, which overall have still trumped the S&P 500-stock index over the past five years. CalPERS, the largest pension fund in the U.S., left $400 million on the table by screening out investments in China, Colombia, and other countries. CalSTRS revealed that its cigarette ban cost it $1 billion in lost gains. With California home prices down nearly 40% in the past year and commercial properties off 15% , the funds' real estate bet could fizzle.

The first thing to notice is that the funds still outperformed the S&P 500. So relative to a completely passive investment strategy, the funds did perfectly fine.

What the article really says is that the funds changed strategies in 2000, and underperformed the returns they would've had if they hadn't changed strategies. Alright, fair enough. The slave trade was an extremely lucrative business back in the day, and if pension funds existed at the time, they likely would have invested in the slave trade.

It may be more moral for a poor person to make money immorally than a rich person, but to a point. Stealing a loaf of bread to feed your family is one thing, investing in companies which treat their employees like slaves is another. Now, I'm not saying that investing in tobacco companies or companies with questionable (at best) labor practices is the same as buying and selling slaves, but the principle is the same. You're making money off of other people's suffering. That's wrong, no matter who you are, or how much you need/want the money.

The article closes with a quote: Says Joel Kotkin, a fellow at Chapman University: "What you're seeing is good intentions going bad."

No, what you're seeing is the cost of good intentions. Nothing comes free, including being a good person.

Error Rating: 6. Really, BusinessWeek should be able to recognize that helping others often means hurting yourself.