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Ice and Economics – Article by David J. Hebert

Ice and Economics – Article by David J. Hebert

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The New Renaissance Hat
David J. Hebert
July 21, 2012
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What can ice teach us about economics? We’ll see, but let’s begin with some fundamentals.

Prices, property rights, and profit (and loss) lead to information, incentives, and innovation. This simple statement contains nearly every lesson necessary for a free and prosperous society. But what do these words mean?

Prices convey information about relative scarcities and communicate to us the relative value of competing uses of a resource. They also economize on the acquisition of knowledge. When we see the price of a resource rise, market actors understand the need to use less of the resource. What they don’t know, however, is whether this rise is due to a disaster that destroyed some of the stock of that resource (an inward supply shift) or if a new, more valuable use for that resource has been discovered (an outward demand shift). These facts are irrelevant for a person who is currently using the resource, but from a societal level, her using less is necessary. If there is a disaster, we would want people to use less of it so that everyone else can still use some. If there is a new, more valuable use discovered, we would want the original users to use less so that more could be allocated towards this new use.

The Right to Exclude

Property rights refers not only to the right to use a resource, but also to the right to exclude others from its use. In this sense property rights provide the incentive to allocate the use of a resource efficiently across time, for example, to conserve it for later. With firmly established and enforced property rights, not only does the owner not have to worry about someone else taking his things but he also doesn’t have to rush out to gather the resources as quickly as he can. A situation where there are no property rights is susceptible to what is called the “tragedy of the commons,” where the resource gets depleted too quickly and never has a chance to replenish.

Profit (and loss) leads to innovation. Earning a profit is akin to being rewarded for doing something good. Suffering a loss is the opposite, a punishment for doing something wrong. In this case, the deed being done is the attempt to allocate scarce resources to where their will earn their highest return. People who successfully do this are rewarded with monetary gain, which we call “profit.” People who fail to do this experience what we call “loss.” In doing so, economic actors learn what works and what does not. Reducing the profitability of an activity through taxes or legislation or sheltering people from losses, therefore, acts to retard this learning process and stifles innovation.

This lesson is exemplified in early nineteenth-century Boston with the rise of the American natural ice trade. In 1806 Frederic Tudor sailed a ship full of ice from Boston to the Bahamas. Two years earlier Tudor had begun experimenting with insulation with the goal of bringing ice to the Bahamas.  When he was ready to set sail, he found that the ship captains refused to carry his cargo for fear of damaging their vessels. So he bought his own brig, the Favorite, and set sail February 10, 1806. He arrived in Martinique with a large quantity of ice still intact and began selling. The Bahamians loved the ice, which they had never seen before. Yet that first year Tudor lost a substantial sum of money, although he proved that ice could be shipped to the Bahamas. Now the objective became doing it at a profit.  Convinced his idea would be wildly successful, he continued his attempts to drive down costs and increase demand.

Higher Return

Meanwhile, as the price of the ice on the ponds rose, the people of Boston gained the information that the ice would bring a higher return in the Bahamas, thus they used less themselves and sold the ice to the Bahamians. In 1840 the ponds in the Boston area were explicitly divided, giving each person on the lake the right to exclude everyone else from harvesting any ice that wasn’t theirs. This allowed Tudor, for example, to invest in his ice and let it freeze longer so that it could better survive the long journey from Boston to India, which entailed crossing the equator twice and sailing around the tip of Africa. As Tudor earned profit from his venture, more people were attracted to the ice.

To continue to earn a profit, therefore, he had to find a way to outcompete everyone else. In 1825 Tudor enlisted the help of Nathaniel Wyeth, one of his suppliers. Tudor noticed that Wyeth’s ice was always significantly cheaper than everyone else’s and was cut in neater blocks which packed more easily. Wyeth had converted some old farm plows into ice-cutting plows and had fastened horseshoes with spikes to allow horses to pull these modified plows across the ice. By scoring the ice in such a fashion, Wyeth could break uniform sized blocks much quicker than his competitors, who were using hand saws that produced very rough and uneven edges.

These wouldn’t be the only contributions of Wyeth, as he went on to invent many other cost saving techniques. For example, Wyeth developed a conveyor-belt system that would haul the ice from the pond into the waiting icehouse.  He also invented bigger plows that could cut more blocks at once and poles that were used to guide the floating ice blocks onto the conveyor belt;  refined the above-ground icehouse, which allowed ice to be stored anywhere in the world for months on end without any external source of refrigeration.

New Insulation

Tudor and Wyeth also experimented with new means of insulating the ice from the heat, discovering that sawdust was not only a fantastic insulator but was also cheaply available from the sawmills around Boston. They also taught their customers new ways to use the ice, including making ice cream and storing the ice in iceboxes to preserve foods longer.

In short the three Ps lead to the three Is: Prices, property rights, and profit (and loss) lead to information, incentives, and innovation.  With these firmly in place, a free and prosperous society will follow.

David Hebert is a Ph.D. Fellow at the Mercatus Center at George Mason University.

This article was originally published by The Foundation for Economic Education.

Doing a Happy Jig Over the Sand Dune Lizard Decision – Article by Marita Noon

Doing a Happy Jig Over the Sand Dune Lizard Decision – Article by Marita Noon

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The New Renaissance Hat
Marita Noon
June 19, 2012
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The American public has awakened and is acutely aware of the damage environmentally driven policy is doing to America’s citizens and economy. The decision not to add the sand dune lizard to the list of species protected under the Endangered Species Act, announced Wednesday by the US Fish and Wildlife Service (FWS), was precipitated by public involvement as the citizens of Texas and New Mexico wrote the FWS, showed up at public rallies, and spoke up at official hearings in opposition to the listing. The listing of the sand dune lizard had the potential annual cost of more than $35 billion to the American economy due to lost oil production alone.

Most endangered species listings are proposed and then listed with little fanfare. The public is often totally unaware the listing is possible and the negative economic consequences on the local and national economy are not considered. But this time it was different. Armed with the history of the devastating impacts an endangered species listing can have on communities and economies—such as the spotted owl and the delta smelt—New Mexico Congressman Steve Pearce drew a line in the sand and stood up for the citizens who would be impacted most by the proposed listing of the sand dune lizard. Congressman Pearce’s efforts were augmented by Texas Congressman Mike Conaway and Texas Senator John Cornyn—each deserves plaudits from the people.

In December of 2010, the FWS announced the nomination of the sand dune lizard for listing as an endangered species—a move that was prompted by a petition filed by the Center for Biological Diversity and the Chihuahuan Desert Conservation Alliance.

Ben Shepperd, of the Permian Basin Petroleum Association, explains it this way: “The Endangered Species Act in current form is being exploited by activist groups that generate income for themselves while hiding behind a pretense of protecting the environment. Suing the U.S. Fish and Wildlife Service is a cottage industry for them. Regardless of the decision rendered in their manifold lawsuits, the groups receive legal fees—our taxpayer dollars—from the federal government.”

Throughout 2011, people came together. Community meetings were held and the stakeholders were engaged—even enraged. Large public rallies with hundreds in attendance took place in Roswell and Artesia, NM, and Midland, TX. News crews gave the issue national attention. Independent scientists gathered to examine the science behind the listing and found it full of flaws, assumptions, and erroneous conclusions—issuing a report, which was given to FWS.

In December 2011, when the Endangered Species Act required a “list,” “decline to list,” or “delay” decision, the FWS announced that it was exercising the “delay” option—which gave the agency six more months to study the newly presented evidence.

Concerned citizens and the oil and gas industry have been anxiously awaiting the decision.

Congressman Pearce called the decision a “huge victory for the people who have so tirelessly fought to save their jobs and their way of life.”

Secretary of Interior Ken Salazar praised the efforts of the oil and gas industry in working to preserve the lizard’s habitat through Candidate Conservation Agreements, saying they were “nothing short of historic.”

Meanwhile, environmental groups are claiming that the “Department of Interior sold out to big oil.”

The listing of the sand dune lizard had the potential to virtually shut down oil and gas development in the Permian Basin region of Southeastern New Mexico and West Texas—an area responsible for 20% of America’s domestic production. If the decision had come down on the side of listing the lizard, it may well have decimated the local economies and had the potential to raise gas prices nationwide due to reduced supply.

The publicity the proposed sand dune lizard listing attracted has, perhaps, gotten the attention of the Obama campaign—which may have influenced the outcome. After all, could he afford to hurt a major portion of the economy in a swing state just months before the election?

The sand dune lizard victory should be an example for concerned citizens everywhere—regardless of the issue. Wake up, show up, stand up, and speak up!

Celebrate while we can! The lesser prairie chicken and the jobs it may endanger are next. Without a looming election, we might not be so lucky. But then again, maybe the election will change everything.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great, Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy and its role in freedom and in the American way of life. Combining commentary on energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.

Commonsense Wisdom from African Farmers – Article by Kelvin Kemm

Commonsense Wisdom from African Farmers – Article by Kelvin Kemm

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The New Renaissance Hat
Kelvin Kemm
June 19, 2012
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If you want to learn what farmers think (and need), talk to African farmers – not to bureaucrats, environmental activists or politicos at the Rio+20 United Nations summit in Rio de Janeiro. You’ll get very different, far more honest and thoughtful perspectives.

The recent (May 24) Food, Agriculture and Natural Resources Policy Analysis Network conference in Pretoria, South Africa brought together delegates from agricultural communities in many African countries. FANRPAN’s primary objective is to improve food security in Africa, by ensuring that small-scale farmers can become more productive. Their obvious enthusiasm and commonsense views were heartening.

FANRPAN chair Sindiso Ngwenya of Zambia gave an incisive presentation, pointing out that agriculture is the key to reducing poverty and ensuring food security in Africa. “We call upon the world to assist us,” he said, “not by treating us as beggars, but by treating us as equals.”

Ngwenya criticised many First World attempts to use climate change, biodiversity and sustainable development arguments to prevent African agriculture from advancing. “If you are using implements that were there before Christ, how much chance do you have?” he wanted to know.

And why would anyone think these UN-EU-US issues are important to African farmers and families who are trying to feed their families and neighbors, and improve their living standards by exporting their products?

Africa does not need foreign aid in the form of handouts, Ngwenya emphasized. African farmers need modern technology and reliable, affordable electricity. They need the world to buy African produce. Instead, far too often, European and other First World countries impose rules or block African exports, using a multitude of excuses that can no longer be tolerated.

FANRPAN has decided to go “Africa-wide,” Ngwenya announced. Africa is huge –larger than the United States, China, India and Europe combined. And yet 60% of its arable land is not used at all. On the arable land that is used in most African countries, crop yields are typically a quarter of the norm in South Africa. What’s needed, he said, are modern farming methods, seeds, fertilizers and equipment –at the level of every individual farmer.

Referring to the 2011 COP-17 world environment congress in Durban, South Africa, Ngwenya pointed out that the FANRPAN slogan is “No agriculture, no deal.” However, agriculture, and particularly the advancement of rural African agriculture, was not included in past COP objectives. Many delegates criticised this, saying it reflected the First World’s hope that Africa and African agriculture will remain primitive and underdeveloped, so that rich countries can praise Africans for being “sustainable” and protecting the planet.

Africans are being told by First World activists, politicians and pressure groups to “stay in tune with nature,” delegates noted – when this attitude really reflects a well-fed First World’s maneuver to retard African agricultural improvements.

When it came to the eternal climate change saga, FRANRPAN delegates emphasized “climate-smart agriculture” and noted that Africa has always experienced dramatic weather and climate variations. What’s needed now, they stresse, is sensible, fact-based science, to predict and adapt to local and regional climate cycles and variations.

Equally impressive was learning that a group of small-scale farmers from Burkino Faso had paid their own way to attend a meeting in Windhoek, Namibia, nearly 3,000 miles (4,500 kilometers) away, to present a petition calling for the development of evidence-based policies, to replace what to now have been emotional, harmful and oppressive policies, rules and treaties.

The delegates said they were tired of the First World telling them what to do, based on First World interests and perceptions. They understand all too well that calls for “sustainable development,” “biodiversity” and climate change “prevention” really mean demands for policies and practices that ensure sustained poverty and malnutrition.

FRANRPAN CEO Dr. Lindiwe Sibanda emphasized that the real work is done on the ground, at the level of individual countries – and “policy comes from people.” Individual countries must come to their own conclusions about what works for them, and countries must align their policies to ensure food security for their people, she said. Modern methods and technologies are also required, to enhance intra-Africa food trade and enable countries to export what they are good at producing.

Her enthusiasm was praised by a farmer who spoke from the floor, with a strong French accent. “There’s a lack of resources for small farmers to come here,” he said, even for important meetings like this, but he was glad he had spent the time and money to be there. Certainly, those that did attend exhibited enough excitement and enthusiasm for the millions who could not join them.

Chairman Ngwenya wrapped up the proceedings by criticising the apparently intentional side-stepping of agricultural issues during COP-17. The First World must stop impeding African farmers and end “the paralysis by analysis,” he said. Absolutely right.

There is far too much First World smoke and mirrors, telling Africans they are saving the planet – when the real intention is to stop them from acquiring modern technology and electricity that would allow them to surge to middle class or even rich country status.

This FANRPAN conference serves notice to the United Nations Environment Programme, Rio+20 Sustainable Development Summit, Europe, United States and other obstructionists that Africa has caught on to what they are doing – and is no longer willing to play their game.

That’s good news for every African, Asian, Latin American and other poor family that wants to eat better, live better and have the freedom to pursue their dreams.

Dr Kelvin Kemm is a nuclear physicist and business strategy consultant in Pretoria, South Africa. He is a member of the International Board of Advisors of the Committee For A Constructive Tomorrow (CFACT), based in Washington, DC (www.CFACT.org). Dr. Kemm received the prestigious Lifetime Achievers Award of the National Science and Technology Forum of South Africa.

What People Mean When They Talk About Freedom – Article by Bradley Doucet

What People Mean When They Talk About Freedom – Article by Bradley Doucet

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The New Renaissance Hat
Bradley Doucet
April 11, 2012
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Most people I talk to believe that freedom is important. They generally want to be free, and they want others to be free as well. The disagreements only begin when we start discussing what, exactly, we mean by “free.” These disagreements over the meaning of liberty underlie a good part of the much-hyped polarization of politics in the western world.

One meaning, or set of meanings, is reflected in Freedom House’s annual Freedom in the World survey, whose findings for 2009 are available here. Freedom, according to this survey, is “the opportunity to act spontaneously in a variety of fields outside the control of the government and other centers of potential domination.” If that seems a little vague, the organization’s website gets more specific, breaking freedom down into two broad categories: political rights and civil liberties. Political rights allow people to “vote freely for distinct alternatives in legitimate elections, compete for public office, join political parties and organizations, and elect representatives who have a decisive impact on public policies and are accountable to the electorate.” Civil liberties include “freedoms of expression and belief, associational and organizational rights, rule of law, and personal autonomy without interference from the state.”

In the latest survey, fully 47 countries, ranging from Canada to Barbados, from the United States to Uruguay, get a perfect score of 1 for political rights and a perfect score of 1 for civil liberties. Only nine countries, including North Korea, Somalia, and Sudan, get the worst possible score of 7 on both counts. To get a sense of the spread, Argentina gets a pair of 2s, Turkey gets 3s, Kenya gets 4s, Ethiopia 5s, and Iran and Zimbabwe 6s.

Setting the Bar Too Low

This survey, however well-intentioned, suffers from two glaring deficiencies. First, it sets the bar way too low. By no stretch of the imagination are there 47 countries in the world that deserve perfect scores for freedom, even if we accept Freedom House’s criteria. Are civil liberties really perfectly safe in England, with surveillance cameras on every other street corner? Should the American Civil Liberties Union close up shop in an age of warrantless wiretaps, enhanced interrogation techniques, and jail time for smoking a joint? And here at home, how many Canadians really imagine that our proroguing Prime Minister is fully accountable to the public? I’m not saying I’d rather live in Zimbabwe—or Argentina, for that matter—but even in these relatively free countries of the Anglosphere, there remains plenty of room for improvement.

The other glaring defect in Freedom House’s survey is that it completely ignores economic freedom. There is no mention, for instance, of red tape, which costs small- to medium-sized Canadian businesses over $30 billion a year. No mention, either, of the eminent domain abuse that is rampant in the United States, robbing small property owners of their homes and shops in order to help some developer with deep pockets.

The Economic Freedom Network—with members in over 70 nations around the globe, including Canada’s own Fraser Institute—provides a picture of economic freedom in the world with its annual report. By its definition, economic freedom exists when property acquired “without the use of force, fraud, or theft is protected from physical invasions by others” and when individuals “are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.” More specifically, according to its latest report, to have high economic freedom, a country has to protect private property, enforce contracts, and have a stable monetary environment. “It also must keep taxes low, refrain from creating barriers to both domestic and international trade, and rely more fully on markets rather than the political process to allocate goods and resources.”

Compare and Contrast

Many of the countries that score highest in economic freedom are also at the top of the list in Freedom House’s survey of political rights and civil liberties, and conversely, most of the least free score dismally on both surveys. In fact, a graph in the Economic Freedom Network’s report shows this strong positive correlation. But there are some notable exceptions. Hong Kong and Singapore, first and second respectively for economic freedom with scores of 8.97 and 8.66 out of a possible 10, are only middling according to the Freedom House survey; and the United Arab Emirates (7.58) and Bahrain (7.56), 19th and 20th for economic freedom, are quite repressive on other counts, both scoring 5.5 according to Freedom House (with 7 being the worst possible combined average score).

Would I rather live in Singapore than in Canada, which placed 8th for economic freedom with a respectable score of 7.91? The trade-off in terms of civil liberties would probably be too high. But I would gain something in exchange for my loss. According to the Economic Freedom Network’s report, countries with higher economic freedom have substantially higher per capita incomes, higher growth rates, longer life expectancies, better environmental performance, and less corruption. The poor are also better off in absolute terms in countries with higher economic freedom, and no worse off in relative terms.

As a libertarian, I value both civil and economic liberty. I fault the authoritarian segment of the political right for running roughshod over the former, but I also fault an equally authoritarian segment of the political left for trampling the latter. But beyond this, I fault both sides of the spectrum for fetishizing political rights. Democracy is a tool, and it can be a useful one, but what good are elections if our representatives are not checked by a strict constitution from taking away our civil and economic freedoms? What good is accountability if the people don’t know or appreciate what is being taken away from them? Looking at it from the opposite perspective, if we cared enough and were wise enough to guard our civil and economic freedoms properly, would it matter very much anymore who administered the machinery of government? Yet without constitutional limits and the will to enforce them, political rights amount to the “freedom” to force others to do what we want—a power that interest groups will fight tooth and nail to wield.

As I am regularly reminded when I discuss libertarianism with my fellow Canadians, this is a pretty good place to live. Canada scores better than or as good as most places on the planet in terms of political rights, civil liberties, and economic freedom. This is a fact, and I am grateful for it. But does that mean we shouldn’t try to make life even better? Why are we so complacent, so ready to accept “pretty good” as good enough? Why are so many intelligent, educated people uninterested in even exploring what history’s great thinkers have had to say about liberty? Few Canadians, I wager, have even heard of Benjamin Constant, for instance. A champion of individual freedom two centuries ago, he viewed political rights as a collective kind of freedom, present in the ancient world, which was “compatible with… the complete subjection of the individual to the authority of the community.” Yes, Canada is a pretty good place to live, all things considered. When individuals are no longer subjected to the dictates of their fellows, free to live as they see fit and responsible for the consequences of their own actions, it will be a great place to live.

Bradley Doucet is Le Quebecois Libré‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.