Category — Political capitalism

Today, the House Energy and Commerce Subcommittee on Energy and Environment will hold a hearing on the Blowout Prevention Act of 2010. A draft of the legislation and other pertinent documents are available on the Subcommittee’s Web site.

Although the draft legislation and hearing documents address serious problems brought to light by the Committee’s ongoing investigations, the Blowout Prevention Act would throw the baby out with the bath water.

To restate the obvious, although oil spills are bad, oil is good. Without oil, there would be no modern commerce and no mechanized agriculture. Life for most people would be “nasty, brutish, and short,” and many of us would not even be alive. Another obvious point — British Petroleum (BP) is to blame for the worst environmental disaster in U.S. history, not the oil industry as a collective entity.

Yet the draft legislation that Chairmen Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) will promote at today’s hearing could shut down all offshore drilling in the United States.

The draft text says the federal government “shall not issue a permit to drill for a high-risk well unless the applicant for such permit demonstrates . . . and the appropriate federal official determines that . . . the applicant has an oil spill response plan that ensures that the applicant has the capacity to promptly stop a blowout in the event the blowout preventer and other well control measures fail.”

Sounds innocent enough. However, the bill defines as “high-risk” any “offshore oil or gas exploration or production well,” not just ultra-deepwater rigs. In addition, at both the June 17 Oversight and Investigations Subcommittee hearing and the June 15 Energy and Environment Subcommittee hearing, Chairmen Waxman, Markey, and Bart Stupak (D-Mich.) emphasized that none of  the major oil companies, individually or in combination, could have stopped the spill after the blowout preventer failed:

• “BP failed miserably when confronted with a real leak, and ExxonMobil and the other companies would do no better.” — Chairman Waxman, June 15
• “It could be said that BP is the one bad apple in the bunch. But unfortunately, they appear to have plenty of company. Exxon and the other oil companies are just as unprepared to respond to a major oil spill in the Gulf as BP.” – Chairman Stupak, June 15
• “Yet when you’re asked can you stop the massive quantities of oil that are now ruining the beaches and marshland, killing the wildlife, and devasting the economy, you [BP, ExxonMobil, Chevron, Shell, ConocoPhillips] say no. You say you’re not well equipped to deal with it, and these catastrophic impacts are simply unavoidable.” — Chairman Markey (hearing transcript, pp. 220-221), June 15

The implication is obvious: The federal government ”shall not” issue any more permits for offshore drilling, because nobody knows how to “promptly stop a blowout in the event that the blowout preventer and other well control measures fail.” Rep. G.K. Butterfield (D-N.C.) put it this way: “BP ignored a very simple rule. If you can’t plug the hole, don’t drill the well.” But, as the BP disaster shows, some holes cannot be plugged, at least not in time to prevent gigantic spills. Logically, the bill implies that no permits to drill should be granted and that existing permits should be revoked.

How might Chairmen Waxman, Markey, and Stupak reply to this criticism? [Read more →]

Over the past few weeks, with more dents accumulating in the armor of warmism, a new battle line is taking shape: ” The U.S. economy is ill, energy is important, green jobs will save us, promote green jobs, give us your money.”  Or something like that.

In fact, the shock troops of the green job army are now promoting the phrase “global weirding” to replacing global warming.  There is also terminological retreat on the green jobs side. You see green tech is not actually going to do much positive for the economy, you should think of it rather as a form of “insurance,” against global weirding, I suppose.

As we limp into our second year of crony capitalism under Barack Obama, with small businesses loath to risk their funds in what is increasingly a rigged crapshoot, and the importance of having friends in Washington all the more vital, government-backed green jobs appear to many as the only way out.

Indeed, as the skirmish lines have formed up the green jobs proponents have tried to imbue the subject with the same kind of political insulation that AGW theory previously enjoyed.  Criticizing money spent on green jobs is tantamount to rooting for America to fail.  Don’t believe me, here’s Tom Friedman of the New York Times, chief cheerleader for government-backed (coerced?) green technology promotion quoting Joe Romm approvingly: “China is going to eat our lunch and take our jobs on clean energy — an industry that we largely invented — and they are going to do it with a managed economy we don’t have and don’t want,” And then there’s Tom Friedman’s approach to international economic competition: “Mr. Wen, I just have one thing to say to you: We are going all in on clean tech. I’m going home and I’m going to get through the U.S. Senate a cap-and-trade bill, a carbon price, a carbon tax, whatever it is that will trigger massive scale investment in clean tech in America. And please take this message back to China: We will bury you. We are going to bury you in clean tech.”

This will be the first trade war in history over insurance. [Read more →]

“Politically oriented capitalism, whatever particular form it takes, involves the granting by the state of privileged opportunities for profit. Such openings are available only to those with connections or to those who can pay for influence.” 

-          Scott, James. Comparative Political Corruption. Englewood Cliffs, NJ: Prentice-Hall, 1972, p. 52.

Joe Romm at Climate Progress (Center for American Progress) is holding out hope against hope that a climate bill–just about any climate bill–will be passable in 2010. He regurgitates a Boston Globe piece under the headline, Graham, Kerry, Lieberman meet with Rahm Emanuel — and then Chamber of Commerce, whose VP of Gov’t Affairs said, “generally we were in synch”!

This brings up the question: why is the Chamber of Commerce negotiating with the enemies of true (consumer-driven) economic recovery?

This incident reminded me of a section from my book Capitalism at Work (chapter 6, pp. 172–74) that deals with the Chamber of Commerce in a historical sense. (There is a Ken Lay surprise–read on.)

A collection of speeches given in 1966/67 by the president of the U.S. Chamber of Commerce was published by McGraw-Hill as The Business of Business: Private Enterprise and Public Affairs. M. A. “Mike” Wright, chairman of Humble Oil & Refining Company (now ExxonMobil), urged his fellow executives to be more proactive in public and government affairs to improve the business environment and better society. “Virtually every business decision today is affected by public laws, regulations, and policies,” he stated, yet industry leaders were often “indifferent” or “negative” rather than “creative” and “positive” toward lawmaking. [Read more →]

This post by Richard Schlesinger of EnergyBizInsider is reproduced with permission. The problem of rent-seeking by corporations (political capitalism) has been explored previously at MasterResource.

Although the electric industry has endorsed the concept of cap-and-trade as the least onerous approach to carbon regulation, at least one major company endorses it with unalloyed enthusiasm. Exelon not only supports the idea, it stated in a second-quarter conference call to analysts, which it posted to its Web site, that it expects to see a “$1.1 billion and growing annual upside to Exelon revenues from implementation of Waxman-Markey.” Is that number real or simply wishful thinking? Does Exelon know something that’s escaped the rest of us?

Actually, if one makes a couple of assumptions, the potential earnings boost is very real. Here’s how it works. Exelon’s 17 nuclear plants, the largest nuclear fleet in the country, generated just over a record 132 million megawatts-hours of power in 2007. That’s fact. Assumption number one: The Senate follows the House and passes an unchanged version of the Waxman-Markey bill.

At the start of the program, about 85 percent of the permits would be given away. Over time, the percentage of free permits would decline. About 15 percent of the permits would be auctioned off to begin with, and that percentage would increase over time. What concerns us is the value of these permits, because that value translates into increased costs for generation. Which brings us to assumption number two: The EPA estimates that during the early years of the program, a permit to emit one ton of CO2 would cost approximately $15. [Read more →]

“I see no force in modern society which can cope with the power of capital handled by talent, and I cannot doubt that the greatest force will control the other forces.”

- William Graham Sumner. “Economics and Politics” [1905]. In Earth-Hunger and Other Essays. 1913. Edited by Albert Galloway Keller. Reprint. New Brunswick, NJ: Transaction, 1980, p. 329.

“It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.”

      – Ludwig von Mises, Human Action (4th Edition), p. 337.

Jim Rogers (Duke Energy), Aubrey McClendon (Chesapeake Energy), John Rowe (Exelon), T. Boone Pickens, Matt Simmons…  The list goes on of the political capitalists (aka “rent seekers”) who, in the tradition of Ken Lay and Enron, are politicizing the energy market for momentary advantage–but all in the name of saving the planet.

Try to name some counterweights, some prominent free-market capitalists.  I can think of one in the energy sector who does not want the publicity (Charles Koch, Koch Industries) and one in banking (John Allison, BB&T). Any others of note (please add a comment if so)? They are few and far between.

Rent-seeking political capitalists are hardly new. The New Deal featured a variety of business leaders wanting special government favors at the expense of taxpayers, consumers, and/or competitors. And in the decades before FDR’s power grab, leading voices from the public utility industries championed entry-and-rate regulation by government, fearing market “raiders” more than mandated rate maximums (this story comes later in the series).

Energy Favors

The history of the U.S. energy industry is replete with examples of government intervention originating within the industry. As documented in Oil, Gas, and Government: The U.S. Experience (1996), there is government intervention sponsored by “Big Oil” and many more instances of intervention stemming from “little oil”–or nonintegrated independents who were particularly vulnerable to shifts in the marketplace.

Mom-and-pops with good political connections or working through trade associations could and did wield the political ax against bigger competitors and/or unorganized consumers, I found in my study.

One of the most interesting examples of the industry at political work concerns the first state motor fuel tax, passed in Oregon in 1919 at, you guessed it, $0.01 cents per gallon.

Was this tax the work of a far sighted reformer? Or was it a confluence of private and public interests creating a demand for and supply of government favor?  It was the latter.

Specifically, “Big Oil” was behind the Oregon gas tax. The major oil companies via their trade association calculated that the demand for gasoline and thus the price of gasoline would rise more from tax-financed new road construction than demand for the same would fall from the tax.

Oregon’s beginning led to road taxes in all 48 states within a decade to fund road construction.

Problem was that gas tax revenue started to be diverted to other uses to the chagrin of the American Petroleum Institute (API). “Phantom roads” became an issue. Government intervention giveth and taketh away.

Here is the story of the first motor fuel tax reproduced from Oil, Gas, and Government (pp. 1375–76). [Read more →]

Editor note: This piece is reproduced from the website www.politicalcaptitalism.org with the permission of the author. This post, the first in a series, is germane to the current debate over climate/energy legislation that is backed by a number of large U.S. corporations (Enron then; GE, Duke, DuPont, etc. now).

Political capitalism is a private-property, market-oriented system that is compromised by business-sponsored government intervention. It is a socioeconomic system in which many or most regulations, subsidies, and tax-code provisions result from the lobbying efforts of directly affected businesses and their allies.

Today in the United States, there is greater political transparency and competition between political elites than was evident in the business-dominated past (the 19th and most of the 20th centuries). Interventions routinely result from non-business special interests representing education, the environment, labor, minorities, religion, retirees, science, and taxpayers, among others. Still, business interests—unified or in opposition—are arguably the most important of the elites that compete for special government favor in American politics today.

There are two avenues to business success under a private-property, profit-and-loss system. When using the economic means, or free-market means, businessmen provide goods or services in an open market and rely on voluntary consumer patronage. When using the political means, businessmen obtain a governmental restriction or favor that provides the margin of success beyond what consumer preference alone would give. Market entrepreneurship is the way of capitalism; political entrepreneurship, or rent-seeking as it is known in the economics literature, is the way of political capitalism.

Business interests welcome competition for the things they buy (to minimize costs) far more than for things they sell. They may profess support for free enterprise in general but not in their particular area. There, competition is disparaged as “unbridled,” “cut-throat,” “excessive,” or “unfair,” and calls are made to constrain the free market.

Historian Gabriel Kolko has defined political capitalism as “the utilization of political outlets to attain conditions of stability, predictability, and security—to attain rationalization—in the economy.” [Read more →]

“Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing.”

David Schoenbrod and Richard Stewart, “The Cap-and-Trade Bait and Switch“, Wall Street Journal, August 24, 2009.

The Environmental Left is pushing hard to provoke a civil war between natural gas industry (its “friend”) against the coal (and oil) industry. John Podesta (Center for American Progress) and Tim Wirth (UN Foundation) have cooked up a menu of bribes (taxes, a.k.a. “incentives,” “credits,” “allowances,” and “expand”) as follows:

Electricity

• Establish incentives to retire aging, inefficient, dirty coal-fired power plants, and replace them with renewable and low-carbon electricity.

• Create a renewables integration credit to offset specific costs associated with producing high levels of renewable energy and to reward those who go beyond the renewable electricity standard.

• Establish a dedicated incentive for development and deployment of “dispatchable” renewable energy to build markets for electricity storage technology.

• Require that the carbon price and other costs are included when determining the dispatch order for moving electricity onto the grid in order to prioritize natural gas and other clean electricity.

• Expand carbon capture-and-storage provisions to include other permanent storage technologies in addition to geologic sequestration. Ensure that carbon capture and storage research and deployment efforts include retrofitting existing coal- and gas-fired power plants.

Transportation

• Expand the market for natural gas as a heavy-duty transportation fuel by increasing incentives for gas-powered buses and heavy trucks.

• Create incentives for communities to develop mass transit systems that employ buses fueled by natural gas.

Decision-makers in the gas production, transmission, and distribution businesses should reject this Trojan Horse. Obama energy policy spanks natural gas, the predominant swing fuel in electric generation, by forcing renewables and conservation (conservationism) in the market. And fair warning: the more natural gas gains in market share relative to oil and coal, the less friendly the environmentalist movement will be. (Take note of the hydraulic fracturing debate between environmentalists and the oil and gas production sector.)

Don’t Take ObamaBait

Low natural gas prices have created a desperate industry, but the answer is not quick-fix politics that create political dependence and hurt the general economy. The modus operandi of ‘Mr. Natural Gas’ Ken Lay back in Enron’s heyday, and Boone Pickens today, should be rejected–as should political (“rent seeking”) capitalism as a philosophy. [Read more →]

“I expect all the bad consequences from the chambers of Commerce and manufacturers establishing in different parts of this country, which your Grace seems to foresee…. The regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the Public.”

- Adam Smith, 1785 letter. In The Correspondence of Adam Smith. (1)

The American Clean Energy and Security Act of 2009 (H.R. 2454, aka Waxman–Markey) was narrowly adopted by the House of Representatives on June 26. As has become standard practice, few legislators were familiar with the final 1,428-page bill, given all the horse-trading hours before the final vote.

Waxman–Markey was a low point in the political process, but what made passage possible was worse: highly organized support from some quarters of the electric utility industry and a lack of protestation from much of the rest.

Some industry parties believe that their lobbyists successfully watered down an extremely disruptive legislative draft to the point that the final was merely distasteful. But compared to killing the bill, which could have been done had the industry been so minded, getting “a seat at the table” resulted in passage.

I remember when ”getting a seat” in legislative negotiations included infiltrating and defeating bad proposals. Today, it means ensuring your company gets a piece of the political pork. Such “rent-seeking” substitutes political capitalism for principled free-market capitalism and leaves virtually all of us poorer.

There are a variety of sections buried in the 1,428-page Waxman–Markey climate bill that clearly benefit a select few electric utilities. My post tomorrow will discuss which vendors and electric utilities are best positioned to greatly benefit by these legislative requirements should they become law.

The Winners (at our Expense)

A new study by the Energy Information Administration (EIA), Energy Market and Economic Impacts of H.R. 2454, reveals several very interesting, perhaps unintended, consequences that Waxman–Markey will have on the electric power industry. [Read more →]

A calm has descended over the federal government’s initiatives in energy amid the furor over health insurance legislation. The respite is welcome, but the sturm und drang of clashing interests will resume in earnest after Congress’s summer recess. There is too much money on the table–our money–for the favor-seekers to ignore.

A Banana Republic?

Increasingly, it is clear that the initial cap-and-trade legislation was insufficiently opaque. Numerous analyses of Waxman-Markey (HR 2454) on this site and others have shown that the proposed cap-and-trade legislation will cost consumers dearly by raising the prices of electricity and gasoline, while ignoring viable sources of clean energy that have not yet found the key to the federal treasury.

With so much money at stake, each of the contestants (call them rent-seekers, some of them reluctant players in the political capitalism game) will attempt to gather up as much of the pot as possible. The only people not at the table, those of us who will pay for this orgy of confiscation, wonder just what it is that we will receive in return for our cash.

Rent-seeking is defined as follows in Wikipedia: [Read more →]

Some environmental leaders have said that I am naïve to think that there is an alternative to cap-and-trade, and they suggest that I should stick to climate modeling. Their contention is that it is better to pass any bill now and improve it later. Their belief that they, as opposed to the fossil interests, have more effect on the bill’s eventual shape seems to be the pinnacle of naïveté.

- James Hansen, “Strategies to Address Global Warming,” July 2009.

Welcome to the science of politics, Dr. Hansen–and welcome to a tradition in political economy that is more than a century old. “I see no force in modern society which can cope with the power of capital handled by talent,” stated William Graham Summer in 1905, “and I cannot doubt that the greatest force will control the other forces.” And said George Will in our time: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

The political hijacking of climate legislation is why the Left is now embarrassingly split on the issue. And just maybe this is the opening wedge to get the Left to reconsider climate alarmism in its wider dimensions. After all, higher energy costs disproportionately affect the poor and slow the drive to mass-electrify the developing world. And the climate crusade is  resurrecting (uneconomic) nuclear power–a Left no-no. And geoengineering–that too is an unwanted stepchild of climate exaggeration.

And there is even the spectre of Big Brotherism in this energy road to serfdom. Remember Jimmy Carter’s winter/summer thermostat regulations? [Read more →]