Sunday, February 18, 2007

Hugo Chavez: Collectivist Throwback

CARACAS, Venezuela, Feb. 16 — Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls.
Venezuela’s collectivist dictator Hugo Chavez is surprised by the fact that there are shortages in Venezuela. Despite the fact that the science of economics has been explaining it for over two hundred years, he didn’t know that inflation of the money supply serves to make prices rise. Again, despite the centuries-long teachings of economics, he didn’t know that when the rise in prices is prohibited, the effect of inflation is to increase the quantities of goods that people want to buy, but not the quantities available for sale, and thus results in precisely the situation that is described as a shortage, i.e., people attempting to buy more of a good than is available for sale.

Chavez doesn’t know, and probably doesn’t want to know, that if he wants to end the shortages, all he has to do is abolish the price controls. The rise in prices will serve to reduce the quantities of the various goods demanded to a point within the limit of the supplies available. He doesn’t know and probably doesn’t want to know that if he then wants the rise in prices to stop, all he need do is stop the inflation of the Venezuelan money supply.

Finally, Chavez doesn’t know, and undoubtedly doesn’t want to know, that if he would then want prices actually to fall, and for goods to become more and more affordable by more and more of his countrymen, what he would need to do is make a 180-degree turn in the rest of his policies. What this means is that he would have to replace his policy of socialization/nationalization with privatization, and his policy of ever increasing regulation and controls with economic freedom. These are the polices that would provide the incentives and opportunity to rapidly increase production and thus make goods more and more abundant and thus lower-and-lower-priced and ever more affordable.

But all of this is way too much to expect. Because this is, after all, the same Hugo Chavez who apparently slept through the collapse of the Soviet Union and of socialism almost everywhere in the world but Cuba and North Korea, where it’s still maintained by dictatorship in the face of starvation. As such, he’s a man who gives new meaning to the expression “out of it”—he’s so far out of it, so incredibly ignorant, that one may wonder what century he’s in and what planet he’s on.

What stops the antics of this collectivist throwback from being laughable is the fact that many people are suffering from them and soon will probably suffer a lot more. Large numbers of Venezuelans may even be killed before this buffoon leaves office.

This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Friday, February 09, 2007

The Environmentalist Noose Is Tightening

Forty-Five nations joined France in calling for a new environmental body to slow global warming and protect the planet, a body that potentially could have policing powers to punish violators.—AP, Feb. 5, 2007
AP reports that the French effort was “led by French President Jacques Chirac,” after the release of the report on global warming prepared by the United Nations Intergovernmental Panel on Climate Change. The meaning of this “effort” is that Chirac is attempting to make an international crime out of attempts to increase production and raise living standards, to the extent that those attempts entail an increase in the discharge of greenhouse gases.

This, incidentally, is the same Jacques Chirac who recently announced that he did not consider it particularly dangerous for Iran to have a nuclear bomb or two. (
New York Times, Feb. 1, 2007). Nuclear bombs in the hands of lunatics are not a problem for M. Chirac. Sane people, pursuing their material self-interest by means of increasing production—that’s a problem for M. Chirac. That’s what he considers dangerous and needing to be stopped.

I am not surprised by this attempt to criminalize productive activity. In fact, I predicted it in Capitalism. I wrote,
[I]t should be realized that the belief in the need for global limits on carbon dioxide and other chemical emissions and thus in the need for international allocation of permissible emissions implies that every country is an international aggressor to the degree that it is economically successful (and thus, of course, that the United States is the world’s leading aggressor). For the consequence of its success is held to be either to push the volume of allegedly dangerous emissions beyond the safe global limit or to impinge upon the ability of other countries to produce, whose populations have more urgent needs. Thus, in casting the production of wealth in the light of a danger to mankind, by virtue of its alleged effects on the environment, and thereby implying the need for global limits on production, the ecology movement attempts to validate the thoroughly vicious proposition, lying at the very core of socialism, that one man’s gain is another’s loss. (p. 101)
In a note referenced at the end of this paragraph, I added,
If the influence of the ecology movement continues to grow, then it is perfectly conceivable that in years to come, the very intention of a country to increase its production could serve as a cause of war, perhaps precipitating the dispatch of a U.N. security force to stop it. Even the mere advocacy of economic freedom within the borders of a country would logically—from the depraved perspective of the ecology movement—be regarded as a threat to mankind. It is, therefore, essential that the United States absolutely refuse to sanction in any way any form of international limitations on “pollution”—that is, on production. (p. 118)

I regret having to say that I can’t take very much satisfaction from having had this foresight. It’s like being marched to a concentration camp and saying, “I tried to tell everyone this is where we’d all end up.”

The momentum of environmentalism is becoming increasingly powerful and it looks like its agenda of limits and rollbacks on greenhouse-gas emissions is going to be imposed, probably after the election of the next president. I think our situation is comparable to that of Germany in 1932. Horrendous changes are coming.

I’ve written an essay of almost 4,000 words in reply to the UN panel’s report and the inferences being drawn from it. It’s a stand against the tide, consisting both of important new material and material drawn from Capitalism. But instead of publishing it as a post on blogs, as I originally planned to do, I’ve employed an agent to try to place two fifteen-hundred-word segments of it in major mainstream publications.

Those segments can’t appear here until they appear in whatever publications accept them, or have been rejected by all of the places to which they’ve been submitted. If one or both of them is accepted, then I’ll have reached an audience of several hundred thousand readers rather than just a few hundred. Unfortunately, the odds of one or both of them actually being accepted are slim. My subjective estimate is that the odds are probably less than my chances of my winning a lottery, and that’s allowing for the fact that I don’t buy lottery tickets.

In any event, here’s the material I took, with some adaptation, from Capitalism. I offer it for the benefit of those who haven’t read it before and as a refresher for those who have.

What Depends on Industrial Civilization and Man-Made Power

As the result of industrial civilization, not only do billions more people survive, but in the advanced countries they do so on a level far exceeding that of kings and emperors in all previous ages—on a level that just a few generations ago would have been regarded as possible only in a world of science fiction. With the turn of a key, the push of a pedal, and the touch of a steering wheel, they drive along highways in wondrous machines at seventy miles an hour. With the flick of a switch, they light a room in the middle of darkness. With the touch of a button, they watch events taking place ten thousand miles away. With the touch of a few other buttons, they talk to other people across town or across the world. They even fly through the air at six hundred miles per hour, forty thousand feet up, watching movies and sipping martinis in air-conditioned comfort as they do so. In the United States, most people can have all this, and spacious homes or apartments, carpeted and fully furnished, with indoor plumbing, central heating, air conditioning, refrigerators, freezers, and gas or electric stoves, and also personal libraries of hundreds of books, compact disks, and DVDs; they can have all this, as well as long life and good health—as the result of working forty hours a week.

The achievement of this marvelous state of affairs has been made possible by the use of ever improved machinery and equipment, which has been the focal point of scientific and technological progress. The use of this ever improved machinery and equipment is what has enabled human beings to accomplish ever greater results with the application of less and less muscular exertion.

Now inseparably connected with the use of ever improved machinery and equipment has been the increasing use of man-made power, which is the distinguishing characteristic of industrial civilization and of the Industrial Revolution, which marked its beginning. To the relatively feeble muscles of draft animals and the still more feeble muscles of human beings, and to the relatively small amounts of useable power available from nature in the form of wind and falling water, industrial civilization has added man-made power. It did so first in the form of steam generated from the combustion of coal, and later in the form of internal combustion based on petroleum, and electric power based on the burning of any fossil fuel or on atomic energy.

This man-made power, and the energy released by its use, is an equally essential basis of all of the economic improvements achieved over the last two hundred years. It is what enables us to use the improved machines and equipment and is indispensable to our ability to produce the improved machines and equipment in the first place. Its application is what enables us human beings to accomplish with our arms and hands, in merely pushing the buttons and pulling the levers of machines, the amazing productive results we do accomplish. To the feeble powers of our arms and hands is added the enormously greater power released by energy in the form of steam, internal combustion, electricity, or radiation. In this way, energy use, the productivity of labor, and the standard of living are inseparably connected, with the two last entirely dependent on the first.

Thus, it is not surprising, for example, that the United States enjoys the world’s highest standard of living. This is a direct result of the fact that the United States has the world’s highest energy consumption per capita. The United States, more than any other country, is the country where intelligent human beings have arranged for motor-driven machinery to accomplish results for them. All further substantial increases in the productivity of labor and standard of living, both here in the United States and across the world, will be equally dependent on man-made power and the growing use of energy it makes possible. Our ability to accomplish more and more with the same limited muscular powers of our limbs will depend entirely on our ability to augment them further and further with the aid of still more such energy. (pp. 77- 78.)

A Free-Market Response to Global Warming

Even if global warming is a fact, the free citizens of an industrial civilization will have no great difficulty in coping with it—that is, of course, if their ability to use energy and to produce is not crippled by the environmental movement and by government controls otherwise inspired. The seeming difficulties of coping with global warming, or any other large-scale change, arise only when the problem is viewed from the perspective of government central planners.

It would be too great a problem for government bureaucrats to handle (as is the production even of an adequate supply of wheat or nails, as the experience of the whole socialist world has so eloquently shown). But it would certainly not be too great a problem for tens and hundreds of millions of free, thinking individuals living under capitalism to solve. It would be solved by means of each individual being free to decide how best to cope with the particular aspects of global warming that affected him.

Individuals would decide, on the basis of profit-and loss calculations, what changes they needed to make in their businesses and in their personal lives, in order best to adjust to the situation. They would decide where it was now relatively more desirable to own land, locate farms and businesses, and live and work, and where it was relatively less desirable, and what new comparative advantages each location had for the production of which goods. Factories, stores, and houses all need replacement sooner or later. In the face of a change in the relative desirability of different locations, the pattern of replacement would be different. Perhaps some replacements would have to be made sooner than otherwise. To be sure, some land values would fall and others would rise. Whatever happened individuals would respond in a way that minimized their losses and maximized their possible gains. The essential thing they would require is the freedom to serve their self-interests by buying land and moving their businesses to the areas rendered relatively more attractive, and the freedom to seek employment and buy or rent housing in those areas.

Given this freedom, the totality of the problem would be overcome. This is because, under capitalism, the actions of the individuals, and the thinking and planning behind those actions, are coordinated and harmonized by the price system (as many former central planners of Eastern Europe and the former Soviet Union have come to learn). As a result, the problem would be solved in exactly the same way that tens and hundreds of millions of free individuals have solved greater problems than global warming, such as redesigning the economic system to deal with the replacement of the horse by the automobile, the settlement of the American West, and the release of the far greater part of the labor of the economic system from agriculture to industry. (pp. 88-89)
This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.