Daily Archives: 8 March 2012

How is a Government Mandate Pro Market Freedom?

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President Reagan’s national security advisor, Robert C McFarlane, recently offered some thoughts on a government mandate he considered would actually support a free market.   First, he lays out some background:

  • Petroleum products drive 97% of all air, sea and land transportation in our country. Oil is truly the lifeblood of every industrial economy.
  • The price of oil is set by a foreign cartel. The Organization of Petroleum Exporting Countries (OPEC) owns almost]80% of global oil reserves yet produces only 36% of daily global supply.
  • [I[ncreasing domestic production of oil or increasing fuel efficiency can reduce our trade deficit and the $400 billion (at current oil prices) we send overseas annually, but they won’t change the price we pay at the pump.

And thus, he says,

To outmaneuver OPEC we need to eliminate oil’s monopoly as the only transportation fuel.

His alternative fuel is natural gas from all those vast deposits embedded in shale, primarily in Pennsylvania, New York, Texas and Oklahoma.  Cleaned up and compressed, CNG (compressed natural gas), or with some processing, methanol, would make a fine fuel for our cars and truck, McFarlane says.  And he’s not far wrong on this, albeit NG has a considerably lower energy density than does gasoline.

Then he gets to his point:

Let’s open our market to good old American competition. …. Bills are now pending in both houses of the Congress…that seek to do exactly that by requiring car makers to enable fuel competition in their own product lines—adding flex-fuel, all electric, hybrid electric, or any other way auto makers choose to implement the law.

But this misses the point of a free market, capitalist economy with its inherent competition.  If the product is viable in the market place—IFF the product is something folks actually want and would buy—then a mandate to produce is unnecessary.  That natural market demand will drive production.

It’s true enough that some products have high barriers to entry, high initial costs to guts up a market; however, the automobile industry demonstrated that these need not prevent a market from developing: the car companies built their expensive factories, got their expensive distribution networks set up, and they did it all in a cutthroat competition environment.  So it is with flex fuel vehicles.  If there is a market for flex fuel cars and trucks, it’ll develop without need of mandates.

These bills don’t represent competition; they are government interfering in business decisions and in the market place.  The mandate contained in the bills is no different than a mandate that all of us must buy, oh, say, health insurance or contraceptives, whether or not we want or would use them.  Furthermore, mandates to produce (methanol) are mandates to buy (methanol); buying and selling are inseparable from each other—so such mandates limit both parties’ freedom of choice.

Iran, Nuclear Weapons, and Sanctions

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Our intel suggests that Iran can build a nuclear weapon in about a year.  The Obama administration that that’s time for economic sanctions to work and to convince Iran not to go ahead.  This week, President Obama implored Israeli Prime Minister Benjamin Netanyahu not to go through with a preemptive attack on Iran’s nuclear development facilities.  But is it true?  If Iran is within a year of building a nuclear weapon, can sanctions work at all anymore?

Consider: for sanctions to work, the Iranian government must agree that the costs of those sanctions are greater than the gains from possessing nuclear weapons.  Stipulate, arguendo, that the latest round of sanctions work insofar as oil sales are cut off, that Russia and China don’t continue to trade with Iran, simply bypassing the global financial network.  What are those costs?  Economic dislocation.  High prices.  Scarcity of goods.  But no one dies.  Everyone is safe.

Think about the sanctions that have been in place all these last several years: the Iranians don’t have any gasoline for their cars, for instance—and this one is largely self-inflicted.  They’re major oil exporters, but they’ve made a conscious decision not to do any refining domestically.  Food is expensive, the transportation network undermaintained and cumbersome to use.  Internet, cell phone, etc. contact with the outside world for the general population is hard to achieve.  Most goods beyond bare necessities are hard to come by, and their prices are very high.  Yet their nuclear weapons development program is proceeding apace and has been all along.  What are the gains?  I’ll come back to these below.

Consider: why does Iran want nuclear weapons?  It isn’t only for the status of being a nuclear power.  There are three primary purposes for nuclear weapons.  On the occasion of their first use, the reason was to hold down total casualties—both friendly and enemy—associated with invading a mountainous island nation.  Later, the weapons’ purpose was in their existence: to deter attack by others, whether those others also were nuclear powers  or not.  The third reason for having nuclear weapons is to use them, and/or to give/sell them to surrogates who will use them.

In a 2005 interview with an American journalist, the then leader of Hezbollah (an Iranian proxy terror organization), Hussein al-Moussawi, said

We are not fighting so that you will offer us something. We are fighting to destroy you.

Moreover, the Iranian government is on record, repeatedly, as saying that they want to see Israel wiped off the map.  They want to kill the Great Satan (i.e., us).  It’s clear that Iran wants nuclear weapons to use them and/or to pass them to others who will use them.

For sanctions to have the effect on the Iranian government we expect them to have, the Iranian government has to think like we do.  But they don’t think like us.  Moreover, their tolerance for pain is higher than ours.

What will Iran gain from obtaining nuclear weapons?  The destruction of Israel.  Weapons to pass to surrogates for use within the United States—and Europe—to kill as many of us and them as can be done—even to destroy us.

Will sanctions work on Iran?  Can Iran be dissuaded without military force, in this environment and with this mind set, from obtaining nuclear weapons?