Business & Economics — VOICES for REASON

To me, the most interesting part of a recent New York Times feature describing corruption in the relationship between certain oil companies and the Minerals and Management Service is a passing reference to what the Gulf Coast was like before deepwater drilling.

For years, fading interest in the Gulf of Mexico had punished the local economy and left Louisiana to mourn its “Dead Sea.” Now, rising oil prices and new technology were setting off the deep-water version of a gold rush.

We have heard endless stories about how the oil spill has “ruined” the Gulf–the same Gulf the administration is now admitting it is already safe to eat from. But while the dangers of drilling accidents have been overblown, the fundamentally productive, life-giving nature of oil drilling has been largely evaded. We should remember that it was oil drilling that brought the “Dead Sea” to life.

Image: Wikimedia Commons

In case anyone believed that the reckless lending and borrowing of the housing boom would never happen again, read this story: “The Return of the $1,000 down mortgage.” Once again, borrowers are putting essentially zero money into the house they buy, encouraging them to buy houses they can’t afford and to walk away if the value of their houses decline.

If you are wondering how the government is letting this happen, you’ve got it backwards; as was the case leading up to the financial crisis, the government is making it happen through its many manipulating tentacles:

This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

The pilot program is called “Affordable Advantage,” and it has now been adopted by three states — Massachusetts, Wisconsin and Idaho. (Other states, such as Pennsylvania, California and Colorado, have similar state programs.)…Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job.

The idea that it is the government’s job to “promote homeownership” or create “stimulus” is the root cause of the financial crisis. This idea was carried out by the Federal Reserve, Fannie Mae, and Freddie Mac. Until that idea dies and these entities lose their power to manipulate the economy, the financial carnage will just continue.

Image Source: Wikimedia Commons

In their latest Forbes.com column, Don Watkins and Yaron Brook look at Washington’s longstanding policy of encouraging homeownership — and argue that it is un-American. They write:

For nearly a century it has been the policy of the U.S. government to increase American homeownership. Its efforts include (but aren’t limited to) bouts of easy money from the Fed, the mortgage-interest deduction, the exclusion of capital gains on primary residence sales, direct and indirect subsidies from the Department of Housing and Urban Development, and artificial liquidity pumped into the mortgage market via government sponsored entities Fannie and Freddie.

Policymakers assure us that the next generation of government housing programs will be “carefully designed” (bring on the next five-year plan, Comrade!). But the real question is why the government should be doing anything to promote homeownership.

Read the whole thing.

image: sxc.hu/alexkalina

As an advocate of laissez-faire capitalism and a champion of America’s abundant oil use, it is rare that I get taken to task for being too tame in my defense of oil and in my expose of oil’s anti-industrial opponents.

But a superb letter to the editor in Tuesday’s Wall Street Journal by Paul Gilmour does just that. Responding to my point in my op-ed last week that oil spill hysteria ignores that “large amounts of oil enter the ocean every year through naturally occurring oil seeps,” he writes:

the situation is even more idiotic than the one Mr. Epstein describes.

Most of the oil in the Santa Barbara Channel and on nearby beaches comes from natural leakage of buried reservoirs, not man-made spills. Europeans who visited the area in the 16th century reported the sea was covered by a “sheen of oil, visible for as far as the eye could see,” and that local Indians waterproofed baskets and canoes with tar collected on beaches. It is estimated that, yearly, these seeps release the equivalent of one third of the oil spilled by Exxon Valdez.

Seeps of oil are common in coastal California, having given rise to such place-names as Oil Creek, Oildale, Brea (Spanish “tar”) and Coal Oil Point. By far the best known is the La Brea Tar Pits, located in downtown Los Angeles.

Wouldn’t it be nice if reporters actually told us this stuff, instead of only reporting things that reaffirm to them that oil is an “addiction”?

President Obama’s latest radio address celebrated the 75^th anniversary of Social Security and promised to protect it against “privatization.”

Seventy-five years ago today, in the midst of the Great Depression, Franklin Roosevelt signed Social Security into law, laying a cornerstone in the foundation of America’s middle class, and assuring generations of America’s seniors that after a lifetime of hard work, they’d have a chance to retire with dignity.  We have an obligation to keep that promise; to safeguard Social Security for our seniors, people with disabilities, and all Americans–today, tomorrow, and forever.

Actually, we have an obligation to retire Social Security as soon as possible. As I wrote in “Don’t Save Social Security,”

Under Social Security, lower- and middle-class individuals are forced to pay a significant portion of their gross income–approximately 12 percent–for the alleged purpose of securing their retirement. That money is not saved or invested, but transferred directly to the program’s current beneficiaries–with the “promise” that when current taxpayers get old, the income of future taxpayers will be transferred to them. Since this scheme creates no wealth, any benefits one person receives in excess of his payments necessarily come at the expense of others.

Under Social Security, every aspect of the government’s “promise” to provide financial security is at the mercy of political whim…

If Social Security did not exist–if the individual were free to use that 12 percent of his income as he chose–his ability to better his future would be incomparably greater. He could save for his retirement with a diversified, long-term, productive investment in stocks or bonds. Or he could reasonably choose not to devote all 12 percent to retirement. He might plan to work far past the age of 65. He might plan to live more comfortably when he is young and more modestly in old age. He might choose to invest in his own productivity through additional education or starting a business.

…

We should be debating, not how to save Social Security, but how to end it–how to phase it out so as to best protect both the rights of those who have paid into it, and those who are forced to pay for it today. This will be a painful task. But it will make possible a world in which Americans enjoy far greater freedom to secure their own futures.

To be clear, ending Social Security would not mean a George W. Bush-style “privatization” in which the government lets us invest our money in a few government-approved ways. It would mean individual ownership, as private property, of all the money Social Security now seizes. Period.

Image: Wikimedia Commons

In today’s Wall Street Journal, I have an op-ed piece entitled “Obama Follows Nixon on Oil Spill.” It explains how Richard Nixon’s anti-oil, anti-development response to the Santa Barbara oil spill of 1969 helped bring about an energy crisis–and how President Obama’s policies are ominously similar. Read it here.

In general, I have found that studying the history of oil is essential for understanding the present world. For example:

• How did so much of the world’s oil end up in the hands of dictators even though it was discovered by citizens of free countries?
• How is the history of oil connected to the history of terrorism?
• What policies led to the greatest amount of production and innovation, and what caused the least?

I cover these and many more questions in my course “The Triumph and Tragedy of the Oil Industry.” Listen to it online or download in MP3 here.

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I am thrilled to announce that ARC’s Yaron Brook and I will now be regular columnists at Forbes.com. The co-authored column will appear twice a month and will focus mainly on issues related to business and economic freedom. The first installment addresses a debate that’s been raging over whether President Obama is anti-business. Our answer: Of course he is–but so is the rest of today’s political establishment.

Quick excerpt:

While Republicans often express admiration for Ayn Rand, the one thing they refuse to rein in is today’s massive regulatory-welfare state. To the extent they oppose Obama, it’s not on the grounds that businessmen have a right to function free from government coercion, but on the grounds that the amount of coercion Obama advocates goes a little too far.

The article’s title: “The U.S. Anti-Business Epidemic”

Finally, Yaron and I would like to thank the fine people at Forbes.com for this opportunity. We’re both excited to be writing for the Forbes audience.

image: Wikimedia Commons

If someone were to propose today that the United States implement a “new,” “exciting” economic idea called “socialism,” in which government central planners effectively owned and controlled the entire economy, we would surely point out that such a system has already been tried and implemented, with disastrous results.

We should do the same with the supposedly “new,” “exciting” economic idea known as the “green energy economy”–in which government central planners mandate that practical energy sources (coal, oil, natural gas, nuclear) be replaced by solar panels, windmills, dung piles, and corn fields. (Thomas Friedman’s latest column is a typical endorsement of such policies.)

There is nothing new and exciting about the “green energy economy.” There is a place overseas that has already provided stark evidence of what it means to pursue a “green energy economy,” and it’s not pretty. That place is called Europe, and it’s a testament to what happens when you force unproven, inefficient energy down people’s throat. A recent post at the free-market energy blog Master Resource explains:

Renewable energy has proved an expensive and unreliable source of energy everywhere it has been tried on a significant scale…Italy, Spain and Germany are cutting back on their taxpayer/ratepayer-funded generosity toward politically correct energies….In all, Europeans have tested the theory of a “clean energy revolution” to destruction.

For the gory details, read the whole article here.

Image: Wikimedia Commons

Investor’s Business Daily has published an essay from ARI’s executive director Yaron Brook on  Atlas Shrugged. The piece begins:

In the years leading up to 2008—09′s financial meltdown, government control over mortgages, interest rates and America’s banking system was at an all-time high.

And yet when crisis struck, free enterprise took the blame.

The cure, therefore, was to give government even wider powers. Washington can now bail out any company, fire CEOs, override contracts and print billions of dollars to “stimulate” the economy — all in the name of the public interest. The result? Our deficits and debt continue to mount, and there’s a real possibility of a future like Greece’s.

This is the state of our world today. It’s remarkably similar to the state of the world in Ayn Rand’s “Atlas Shrugged,” a mystery story about a future America whose economy is disintegrating and whose government is accumulating power faster than anyone thought possible. This parallel is a big reason a record 500,000 people bought “Atlas Shrugged” last year.

So what can we learn from a book that foresaw in 1957 what few believed possible in 2007? We can learn a lesson the heroes of the novel learn: the cause of the government’s greater, destructive control of business. And we can learn how to oppose it.

Read the whole thing.

My colleague Alex Epstein has published a new commentary at Forbes.com, “Three Myths About Oil.” Noting that the average American consumes three gallons of oil a day, Alex observes that nevertheless,

… oil’s detractors call it an addiction, downplaying its enormous benefits as fleeting pleasures that will necessarily bring long-term pain and destruction. An oil-based economy will inevitably collapse, they say, because oil is finite and will run out, because foreign oil causes terrorism, because oil, as a fossil fuel, will bring about climate catastrophe. Let’s examine these myths about oil.

Read the whole thing.