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Wednesday, October 31, 2007

I don't need to check; I know I'm right.

In preparation for a possible op-ed on the Strategic Petroleum Reserve (SPR), which was established after the OPEC embargo to act as an added buffer, I asked an expert about whether the private industry saw it coming. I explained that I needed to know so that I could take my defense of the free market one of two ways:

* If the private sector people did anticipate the embargo, then I would explain that Nixon's price controls and high tax rates would make it pointless for speculators to build up inventories before the crisis hit. So SPR isn't necessary, we just need to unleash the market to do its job.

* If the private sector did NOT see the OPEC move coming, then I would explain that this isn't a strike against the market and FOR the government; after all, the planners were caught off guard too. So the question going forward is, okay, now that we realize OPEC could do this again, who is most likely to prepare for it better? Private speculators who are risking their own money, or bureaucrats?

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Now, is anybody else slightly troubled by this? It gave me the willies when I realized that my solution was going to be the same no matter what had happened historically. Now granted, this is partly the point of Misesians who stress that economic theory is a priori. But still, I could definitely understand if a leftist thought this simply proved how dogmatic I was.

4 comments:

  1. Bob, I don't fully understand what it is you're offering a solution to. OPEC's influence on oil supply?

    Certainly a SPR might act as stabilizing buffer, and is therefore a "solution" to one aspect of the problem. As a free market economist, no doubt you would like to emphasis Pareto-optimal solutions, many of which involve a reversal of governmental regulation which may influence this to a certain extent. The very fact that there is a SPR is taken into account by investors.

    I understand your more general concern. Most free market economists have a strongly developed intuition that whatever the problem is, it's probably the government. The government is interfering in the economy on so many levels no matter which way things go you will be able to point to government contribution to the problem. There are some nominal gains from governmental intervention as well, and these need to be compared. Ultimately this relies on some sort of a priori understanding subjective value and a presumption against intersubjective utility comparisons.

    I will say, though, that I have come to believe that neoclassical analysis of "market failures", though deeply flawed in many representations, are not entirely without value, contra Murray Rothbard's thorough analysis of monopolies as *only* the product of government. The question is, are there any cirumstances in which you think the free market might benefit from governmental intervention, assuming the detrimental effect of taxation is at a minimum (that is, the government acts fairly efficiently?

    What empirical information, if any, would change your mind on a given free market position you hold?

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  2. Bob, the resolution to this is to realize that "history" strictly speaking does not provide any unambiguous resolution of any theoretical problem whatsoever. History and theory are modally distinct -- theory deals in abstractions, and history in "concretions."

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  3. Analyzing a historical event involves both modes. The nature of a SPR might be encompassed by a theory, but the SPR is part of a concrete event. If Bob is trying to causally explain the formation of the SPR, he can't merely rely on theory, unless he is explicitly only explaining one aspect of a given event. If he wants to explain to what extent this aspect explains what goes on in reality, he must rely on some empirical considerations.

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