Tuesday, January 13, 2015

Everything Has Changed


On Seeking Alpha Elias Hinckley has posted a fascinating piece about falling oil prices.  Hinckley suggests that global warming-related regulation and technological innovation may be setting a deadline for the use of oil. After the deadline we will use other sources, hopefully because they will be cheaper and more efficient and not because the totalitarians at the UN mandate it.  If the Saudis think that within fifty years we will be using different sources of energy, they may have decided to behave as ordinary monopolists rather than as holders of a depleting asset that is not depreciating in price. Until now, because they may have been anticipating future profits, the Saudis have not been following the economist's prescription for monopolists: marginal revenue should equal marginal costs if a monopolist is to maximize profit. Today, the oil price has hit forty-five dollars a barrel.  That is sixty percent below the price during the summer. 

This past October Lockheed Martin announced that it has found a way to build a nuclear fusion power plant.  Physicists may be skeptical, but let's say this or some other technology develops sufficiently to supplant oil. There is no reason to think that that is impossible, for the Saudis are acting as though that may be the case.  Of course, other explanations are possible for the Saudis' aggressive refusal to restrict production in the face of falling oil prices. For instance, the Saudis may want to retaliate against Iran or to help the US by putting Putin in his place. Also, they may want to blow high-cost producers like the North Dakota shale frackers out of the fracking well.  If I knew the true reason, I would be in the oil market now, but I pulled out of all of my oil-related holdings, including midstream MLPS, which have not suffered so much yet.

If, however, the Saudis are, as Hinckley suggests, anticipating an end to the age of oil, and if they are now behaving as monopolist profit maximizers rather than holders of an appreciating asset,  then their plan will be to equate the present value of the marginal costs of production from now until the anticipated end of the oil age to the present value of the  marginal revenue. The marginal cost of the Saudi's oil production is much lower than the current price.  According to a recent Business Insider article,

Saudi Arabia produces oil at less than $10 per barrel in extraction and investment costs. The oil price was in this region as recently as the late 1990s. A late 1990s dollar is worth more than a 2010 dollar due to inflation, but in terms of the costs involved, there's no impossibility to $20 oil. That might not be likely (and very few people are predicting it), but there's no iron law stopping oil prices from falling much, much further.

The reaction of the stock market has been curious. In a classic example of the social construction of reality, investors and the knuckleheads of the American media have been saying that lower oil prices will hurt the economy because of the harm to the oil industry's profit, because of the reduction in output in the fracking fields, and because of the deflationary effects of falling oil prices.  I am an advocate of fracking, but seeing a fifty percent decline in the viability of eight percent of the economy that improves the welfare of the remaining ninety-two percent  by more than four percent seems to me to be a net gain, and one that will push demand in many sectors of the economy higher.  This bodes well, not ill, for the economy, and presumably for the stock market, except for the oil-related parts. 

If the declining oil prices are a precursor to the invention of lower-cost energy sources, we may yet see curing of the harm that American voters and their politicians have done to the economy for the past 125 years. 




Sunday, December 21, 2014

Barack Obama: Friend to Mass Murder

My left-wing colleagues at Brooklyn College frequently point out that the US support in the 1970s for Augusto Pinochet and Milton Friedman's visits to Chile were a blot on our and Friedman's records. The reason, they say, is that Pinochet murdered 3,000 Chileans and was a suppressive dictator. In contrast, the Castro regime has murdered more than 100,000 Cubans, thirty-three times the death count of Pinochet's regime, and Castro's has been far more suppressive. One example is the forced labor of homosexuals in UMAP camps. Wikipedia writes this:
Cuban gays were expelled or took the opportunity to leave Cuba during the 1980 Mariel boatlift. From the early stages of the massive exodus, the government described homosexuals as part of the 'scum' that needed to be discarded so the socialist society could be purified. Some homosexuals were given the ultimatum of either imprisonment (or extended terms for those already imprisoned) or leaving the country, although Fidel Castro publicly denied that anyone was being forced to leave.[
Barack Obama, American "progressives," and the Democratic Party have a long history of apologizing for mass murderers like Fidel Castro, who makes their bogy Pinochet look like Mary Poppins. The history of "progressives' " apologies for mass murder goes back to the the New York Times's lies, written by Walter Duranty, about the forced starvation of 10 million kulaks in Ukraine in the early 1930s; the late 1930s' Molotov-Ribbentrop pact, when the far left defended Hitler (from 1937 to 1939); and the ongoing lies, including a 1972 puff piece by John Kenneth Galbraith in the Sunday Times Magazine, extolling one of the great human butchers of all time, Mao Tse Tung.
Barack Obama is an apologist for human butchery. His symbolic extension of friendship to Castro's mass murder regime makes me ashamed of this country, and I am embarrassed that enough Americans were ignorant enough to vote for Obama to elect him. Leftists who object to Nixon's supporting Pinochet, but delight in murder-apologist Obama's warming to Cuba, are conscienceless psychopaths who have long lied about the rivers of blood that their socialist ideas have flooded.

Saturday, December 20, 2014

The Federal Government Is a Bust

The premise of the American Constitution is federalism, the division of powers between the states and the federal government.  In The Federalist Papers Hamilton and Madison claimed that the powers of the federal government would be enumerated in the Constitution.  The Tenth Amendment, which Madison wrote reluctantly because he believed that it was unnecessary, limits the federal government's powers to those specifically enumerated.  It says:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

From nearly the beginning of Washington's administration, Hamilton reversed many of the claims that he had made in the Federalist Papers and that seem to be written into the Constitution.  He claimed that the federal government could establish a national bank, a power not mentioned in either the Federalist Papers or the Constitution, because of the elastic or necessary and proper clause in section eight,

The Congress shall have Power ... To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Hamilton waited to make his arguments in favor of an expansive federal government until after the Constitutional Conventions had ratified it. His expansive interpretation of the federal government's powers was, in contrast to the stories he told in the Federalist Papers, not unlike the Hegelian view of the state developed decades later and which totalitarian parties advocated  since the French revolution. Adolph Hitler's F├╝hrerprinzip, his claim that his will was law, wasn't different from Hamilton's Rousseauean claim that he can interpret the national will, a claim subsequently made by the US Supreme Court.

At the time the Constitution was ratified, the American population was under four million. In making his claim that a large country would tend to reduce faction, Madison could not possibly have envisioned a nation on the scale of today's United States.  The mean population of each state is today more than fifty percent larger than the entire population of the United States when, in 1787, Madison wrote the Federalist Number Ten.

Mancur Olson has shown that Madison was wrong:  Large populations are not good at resisting faction or special interest lobbying, and such lobbies are not countervailing because there are often no counterlobbies.  For instance, where was the counterlobby when Wall Street insisted on massive subsidies to cover its derivative losses?  Where is the counterlobby to the food industry, to the pharmaceutical industry, to the health care industry,  or to the real estate industry? The accumulation of special interest subsidies has gone furthest in states like New York, where Wall Street and real estate interests have been dominant since the days of Hamilton and Astor, but they have been even more successful in extracting rents at the federal level.

America is no longer the freest, nor is it the most affluent nation.  Even if one removes the oil-subsidized countries like Qatar and Norway, the lists of nations with the highest GDP per capita and the most freedom are  comprised of mostly small states:

Countries with the Most Economic Freedom (Fraser Institute)

Country                                                               Population (millions)

1. Hong Kong                                                                7.2     
2. Singapore                                                                  5.5
3. New Zealand                                                            4.5
4. Switzerland                                                               8.2
5. Mauritius                                                                  1.3
6. United Arab Emirates                                             9.6
7. Canada                                                                    35.7
8. Australia                                                                  23.7
9. Jordan                                                                        6.7
10. Chile                                                                       18.0
10. Finland                                                                     5.5
12. United Kingdom                                                    64.1
12. United States                                                       319.3

Countries with the Highest 2013 GDP Per Capita




These are the freedom and GDP rankings of the top-ten countries in terms of population
                                                     Freedom                       GDP per Capita
                                                                                        (Purchasing Power Parity)
China                                                115                                 11.91
India                                                 110                                    5.41
United States                                    12                                  53.04
Indonesia                                           80                                    9.56
Brazil                                                103                                   15.04
Pakistan                                           124                                     4.60
Nigeria,                                            125                                     5.60
Bangladesh,                                    119                                     2.95
Russia                                                 98                                   24.11
 Japan                                                 23                                    36.4

In other words, free countries, with the exception of the United States, are small.  As well, rich countries, including the United States, are free or oil exporting.  Big countries are neither free nor rich. With the exception of the United States, free and rich countries are small.  Hence, the United States is an exception in that it is big but rich and free.  Of course, not all small countries are rich or free, but size does not encourage these outcomes.

The United States may be exceptional because of its federalist traditions.  Sadly, as federalism has given way to increasing centralization, the United States has fallen in terms of its relative wealth and relative freedom.

The Whig mentality, which holds that scale is important to economic success, is wrong.  It is likely that scale leads to political power, for the most powerful countries, the US, China, and Russia, are among the large ones.  Lincoln was the savior of American power, not of American freedom nor of American wealth.  (The relationship between Lincoln and the freeing of slaves is overstated; he did not wage war to free the slaves.)

Political power, contrary to the paranoid fantasies of both left and right, does not translate into wealth. Hamilton's, the Whigs', and the modern-day Democrats and Republicans, all of whom have favored large scale, have been dead wrong.  The rejection of federalism in favor of more corrupt centralization is a fundamental error.  The US would be better off without the federal government than with the federal government's current level of power.


Sunday, December 7, 2014

My Cousin Mordecai Lawner's Death

My cousin Mordecai Lawner died five days ago, and I attended his memorial service this afternoon.  He had been an acting instructor at the Neighborhood Playhouse, Carnegie Mellon University and the High School of Performing Arts for many years, and his students included hundreds of professional actors.  Jeff Goldblum sent a memorial oration from LA via video, which my cousins played as part of the memorial service. Goldblum said that when Morty taught at Carnegie Mellon he introduced Goldblum to acting and had then been his lifelong mentor.  Morty appeared with George C. Scott in Death of a Salesman and played Woody Allen’s father in Annie Hall: http://youtu.be/G7L5FKh3EMM .  He was a wonderful guy and a veteran. 

He once talked me out of a show biz career. I  asked him whether I should consider becoming a producer, and he told me to read Elia Kazan’s autobiography.  By the time I had gotten half through it, I gave up the idea.  The Variety and Newsmax articles are here and here.