Nuclear crony capitalism
As a general rule, if George Monbiot agrees with you, start worrying you may be wrong. The Fukushima nuclear crisis has made Monbiot a fan of nuclear power, at just the time when my doubts have been growing.
You will not be surprised to hear that the events in Japan have changed my view of nuclear power. You will be surprised to hear how they have changed it. As a result of the disaster at Fukushima, I am no longer nuclear-neutral. I now support the technology.
A crappy old plant with inadequate safety features was hit by a monster earthquake and a vast tsunami. The electricity supply failed, knocking out the cooling system. The reactors began to explode and melt down. The disaster exposed a familiar legacy of poor design and corner-cutting. Yet, as far as we know, no one has yet received a lethal dose of radiation.
Some greens have wildly exaggerated the dangers of radioactive pollution.
Yup, and some greens, George, have wildly exaggerated the dangers of genetically modified food, the population explosion, endocrine disrupters, acid rain, ocean acidification, ozone depletion, pesticides, oil spills and the Y2K computer bug.
Actually my doubts about nuclear power came before the Fukushima crisis, which has indeed reaffirmed the low risks involved in nuclear power. What worries me is the economics of an electricity generating industry that requires massive capital projects, whose costs usually over-run and whose costs per kilowatt hour are roughly double those of the newest gas turbines.
Of course, new technologies may come to rescue one day, as I argued in the case of thorium. But a perceptive article by Shikha Dalmia explains where nuclear's flaws come from -- its symbiotic relationship with government. Nuclear power requires, demands and gets subsidies of many different kinds.
But the mother of all subsidies is the liability cap that nuclear enjoys. In the event of an accident, the industry is on the hook for only $1.2 billion in damages, with the government covering everything beyond that. Japan’s cap is generous even by American standards, which require the industry to cover $12.6 billion before Uncle Sam kicks in. (Nuclear proponents in the U.S. argue that this liability cap is necessary given our insane tort awards. However, the fact that even countries without such awards have to offer a liability cap suggests that nuclear technology is not yet considered safe enough to be viable.)
Which leads Dalmia to this conclusion, which resonates very strongly with me.
The liability cap effectively privatizes the profits of nuclear and socializes the risk. It uses taxpayer money to diminish the industry’s concern with safety — which government regulations can’t restore.
That's exactly the problem with crony capitalism, whether in finance or energy or anything else. The `market' and `capitalists' are not on the same side and against `government'. No, its government and capitalists colluding against the market, which is on the side of the people. The `financial market' proved to be no such thing; it was a casino for favoured clients run by central banks. The `energy market' is no such thing. It is a scheme run by governments for favoured clients in the nuclear, renewable and environmental-pressure group industries.
As Adam Smith so astutely observed,
The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Comments (42)
Well,
Even Monbiot can be right sometimes I guess... but it DOES make one scared. You know, apocolypse and all that.
Although it isn't as explicit as the risk cap for nukes, many other activities share the government financial umbrella.
Construction at risk from flood or hurricane, imprudent mortgage backed financial instruments, badly managed automobile manufacturing businesses, insupportable pension commitments, on and on.
The nuke liability cap is not unique here in the US, just explicitly defined.
I had wondered how long it would take someone of Monbiot's stripe to realize that the world would not come to an end following an acute disruption at a nuclear plant.
Although it isn't as explicit as the risk cap for nukes, many other activities share the government financial umbrella.
Construction at risk from flood or hurricane, imprudent mortgage backed financial instruments, badly managed automobile manufacturing businesses, insupportable pension commitments, on and on.
The nuke liability cap is not unique here in the US, just explicitly defined.
I had wondered how long it would take someone of Monbiot's stripe to realize that the world would not come to an end following an acute disruption at a nuclear plant.
Consistent with the approach you use to to slay the myth dragon dogmas in Rational Optimist, socializing the risks of nuclear power generation negligence, a moral hazard, is, as you know, analogous to what the Fed, legislators and regulators have enabled in the financial services industry. The "aqueduct principle," which, I've been told, had the designers of Rome's aqueducts stand beneath them when the sluice gates were opened – to attest with their lives the safety of the structures – might reduce if not negate the conflict of interest that you and Adam Smith address.
I'm a serious supporter of your position on a range of matters - but I wish you'd stop using the Y2K problem as an example of a threat that was "wildly exaggerated".
It was a real problem, and warnings that it had to be fixed were legitimate. Software that assumed that every year began with "19" were plainly not going to work when they had to handle years beginning with "20": had large organisations, especially banks, not taken notice, I have no doubt that the outcome could well have been chaotic and possibly worse The fact that the media, not those who understood it, searched for scare stories (e.g. that "planes will fall out of the sky") does not change that. Whereas the media treats, for example, unverified predictions about the consequences of man-made global warming with wide-eyed uncritical reverence, it irresponsibly regarded genuine Y2K warnings as a bit of a joke.
You are so right regarding the subsidy for insurance. If that were taken away, nuclear power would be unaffordable.
are comments working? they were not yesterday.
forgive previous comment, I didn't see your moderation pending note.
This is all fine except that it ignores the positive externalities of Nuclear Power. The Dalmia article notes it is 4000 times safer than coal on a deaths/kilowatt basis, it is CO2 free, and it relies (on the US at least) on a domestic fuel source. Those advantages are also socialized. Claiming that society only gets risks from Nuclear Power, without acknowledging those advantages, is just wrong.
I posted a note here yesterday politely pointing out that fears about Y2K were not "wildly exaggerated" (except by the foolish media). It seems to have disappeared. Surely it hasn't been censored?
(I was CEO of the government's computer agency (in the Cabinet Office) in 1996 when the problem was first recognised in the public sector - although some major private sector companies such as Shell and M&S were already tackling it.)
sorry about not getting around to posting up these comments till today. I was on the move till now.
Matt
Just because there was some truth to the Y2K computer problem (like all the other issues I listed, there was of course a germ of truth), surely that does not mean it was not wildly exaggerated by some -- as in Robin's reference to comments about planes falling out of the sky, above. The argument that it only was not a problem because we acted to avert it is often used for acid rain too and I don't find it persuasive in either case. Countries that did very little about the Y2k issue suffered no catastrophic system failures, though no doubt they had the odd glitch. Nothing to justify Bill Clinton's comment about Y2k: ‘I want to stress the urgency of the challenge. This is not one of the summer movies where you can close your eyes during the scary parts.’
It's the delays and cost over-runs which doom nuclear. And who is responsible for these? In 90% of cases, government.
It is also expensive because it is built on the dry martini principle. If a beam of sunlight has passed through a Martini bottle then it's a martini. So you get toilet drains welded and tested to ASWE standards. And stuff with homeopathic levels of isotopes is classified as nuclear waste. Who wrote these safety standards? That's right, government.
Nuclear is of course not alone in getting a government subsidy. Leaving aside feed-in tariffs and all the other boodoggles, there are tax breaks here for plumbers and oil & gas companies (my newish condensing boiler) and foresters (my newish wood burning stove).
As that distinguished nuclear expert George Monbiot remarks, a crappy old reactor failed, but it failed in the way it was designed to: it failed safe. So I rather doubt the Japanese government will be shelling out any compo above the $1.2billion ceiling for TEPCO.
I must say I was rather taken aback at Monbiot's lucidity. This article is a gem of wisdom. What gives ?
No, Matt, you’re wrong about Y2K. Unlike acid rain etc. there was more to it than “a grain of truth”. The result of the careless programming of custom software developed in the 70s and 80s (see how easy it is to use 2 digits for the year) it affected, in particular, utility companies, financial institutions (see http://www.bankofengland.co.uk/publications/news/1998/024.htm - the BIS did the same job globally) and government departments. No country in the developed world was exempt - and, Matt, none of them “did very little”.
It was essentially fixed by thousands of junior IT people checking millions of lines of computer code to do the mind-numbingly boring and thankless job of finding, fixing and testing problems. But things still went wrong – one example: http://news.bbc.co.uk/1/hi/health/1541557.stm. An isolated incident – but only because the NHS spent a lot of time and effort fixing the problem: dates are massively important throughout the NHS and people might well have died had the problem been ignored.
Amazingly more problems occurred last year. One example: http://www.guardian.co.uk/world/2010/jan/06/2010-bug-millions-germans. (Probably a Y2K problem lazily “fixed” in the 1990s by inserting the command “if <10 = 20xx otherwise the date is 19xx”.) And note the cost: €300m for one relatively small problem! Extrapolate that across the entire financial sector and tell me if you still think the threat was “wildly exaggerated”?
Well, Robin, you make a good case, but in the end it all depends by what one means by the word "exaggerated". I am certainly not arguing that there were no bugs in the code that needed fixing, but I still think the rhetoric of the late 1990s from mainstream politicians and press abouyt how we were all starting too late and so on, was indeed "wildly exaggerated" and very few experts tried to rein them back.
Here is a story from The Australian newspaper:
``Maurice Newman, who was chairman of the federal government's Y2K committee told The Australian last week that "in pressing the urgency for compliance, the committee members relied heavily on confirmatory bias. Most of this came from so-called experts who had much to gain from creating a sense of alarm. The consequence of widespread inaction was claimed to result in chaos and systemic failure. As there was no alternative authoritative voice, this became perceived wisdom and was certainly believed by the committee. As such the Y2K phenomenon took on a life of its own." ''.
Is there not a germ of truth in this?
As for the claim that no country `` did very little'', is that really true of say Angola or Kirgizstan?
Just asking.
Thanks very much for starting up this interesting debate. A blog is required, I think.
Matt
Additional pertinent exaggerations include the risk (of cancer mortality) from low levels of ionizing radiation and the Grandfather of All Exaggertations, Catastrophic Anthropogenic Global Warming. Ironically, if CAGW due to CO2 from fossil fuels is true the only known technology capable of maintaining the current quality of life based on electrical generation is nuclear power.
If you believe global warming to be true, caused by CO2 and its effects negative to mankind, one might say that the fossil industry also "effectively privatizes the profits (..) and socializes the risk."
Yes, Matt, a Y2K blog would be excellent. And you might be interested to see this: http://fm2x.com/rwg.html. It’s a note I sent to Christopher Booker who, like you, likens Y2K to various unwarranted scares. (He didn’t acknowledge it.)
A few points:
1. A major difference between Y2K and the scares you mention is this. Re the latter, it’s the greens and the media (and some of the “experts”) who are doing the wild exaggerating. Re Y2K, the media kept claiming that we were making wild claims (e.g. “experts say that planes will fall from the sky”). We weren’t. So who was doing the wild exaggerating? (BTW Matt: have you tried to “rein in” the media?)
2. We started in late 1996 – that was desperately late: e.g. credit card expiry dates were already becoming an issue. So, yes, our perception that we were “starting too late” was justified.
3. The media’s confusion of warning with prediction and focus on “the worst case scenario” is paralleled by its, and the greens’, treatment of the Fukushima incident.
4. No one had “much to gain from creating a sense of alarm”. For the IT industry it was an embarrassment; and, in any case, its focus then was on pumping up the dotcom bubble.
5. Unlike almost every other big IT project, this one was completed successfully and on time. Because of the way it was (and still is) misrepresented, no one has learned the obvious and important lessons.
PS: surely, Matt, you don’t regard Angola and Kyrgyzstan as being in “the developed world” (see my previous post)? Just asking.
Robin,
Yes, sorry about not spotting the word `developed' in your comment. But surely there were banks and firms in the developing world that should have had great problems, greater than in countries that acted. Were there? Or do you just argue that they relied on western software?
Matt
Matt:
Yes, banks in particular. But, as you know, banking is an international activity and, as I indicated above, the Bank for International Settlements prioritised a global effort.
I deal with these issues here (written 11 years ago - before the examples I mentioned above came to light):
http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=002UXP
Cheers - Robin
R. Guenier likely has many specific examples of actual y2k infections cured. Most would likely be code expected to be superseded before the issue of the 2 digit date ever arose.
A more general topic might be unanticipated continued use (persistence?) of some things we do.
Airplanes flying on for 70 years, locomotives (steamer in Spain, now long retired) in use for almost 100 years, nuclear plants for 40, code for 30 years?
I used to fly a plane built in the 40s which at the time was 30 years old. A 30 year old plane encountered in 1946 would have been built in 1916. So how much experience with 30 year old planes did the guys who designed the 1946 effort have? None.
Service life or useful life seems something more at the option of the user than the designer. Maybe this is self-evident.
Matt, great post -- but I think you've only barely scratched the surface on the 'crony capitalism' institutionalization of risk.
I've spent a bit of time delving into this at my blog that Ludwig von Mises Inst kindly hosts:
- Sorry, but I can't resist asking: Feel Sorry for Tokyo Electric Power Co?, http://bit.ly/emZo3E 'a tribute to Lew Rockwell's 'Feel Sorry for BP?')
- Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning, http://bit.ly/hvvWHU
- My posts exploring the ramifications of the state grant of 'limited liability' corporation status: http://bit.ly/f7awsx
- The case of BP: http://bit.ly/hHeu1N
- Not surprisingly, similar issues arise with respect to the rest of the Govt-licensed energy sector and climate: http://bit.ly/fRyqtw
Thus small things contribute to the Road to Serfdom: http://bit.ly/gsLXe3 http://bit.ly/9oBkC7
I hope you'll take your concern for nuclear crony capitalism even further.
TT
Tom,
very interesting. Thanks. will follow up.
Matt
Matt:
This is an intriguing post (leaving aside the Y2K issue – where I hope you now accept my criticism). If one agrees (and I do) that the moral hazard enjoyed by financial institutions is deplorable, then logically it’s impossible not to take the same view of crony capitalism and nuclear power. And, as j ferguson and Tom have pointed out, it doesn’t end there. For example, I’ve been involved with the UK defence industry and recently with the appalling NHS computer system – in both cases, I’ve seen huge overruns and vast sums wasted. Classic examples, I suggest, of “government and capitalists colluding against the market”: neither the government nor its suppliers are penalised; all the pain is passed onto the public. And, if that is unacceptable – and surely it is – it’s hard to dispute Tom’s conclusion that the state grant of limited liability may be the problem: “one of the key roots of snowballing corporate statism”.
And yet … and yet: the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liability. Moreover, many major projects that would not have been implemented without an alliance between capitalists and government have turned out to be widely beneficial despite seemingly inevitable delays and cost overruns.
Is there a distinction to be drawn and, if so, where?
Robin
Robin,
Yes. I agree with both points you make and see what you mean about limited liability's role and the importance of govt-driven infrastructure. Compulsory purchase for railways and canals springs to mind: easier in Birtain than in France.
Not quite on the same lines, but sometimes I get criticised for being too hard on government and I reply that if Carnegie and Rockefeller and Maxwell were bad, then they weren't half as bad as Hitler, Mao and Pol Pot.
I hope to get time to dig further into this issue.
Matt
Matt, thank you for your kind reception.
This post might help to clarify some of my thinking, even as we see both intransigence among other libertarians and a confused recognition that something is wrong by Harvard Business Review:
http://bit.ly/gFgyid
Others are also confused, such as this yesterday by Michael Lind at New America Foundation:
The Failure of Shareholder Capitalism
http://www.newamerica.net/publications/articles/2011/the_failure_of_shar...
TT
Robin, your statement that "the industrial revolution and the huge benefits it has provided to society were built on the foundation of limited liablity" is a statement of fact - not one necessarily of causation - but so has been our financial house of cards: banks are corporations, shareholders have limited liability (and megabanks are public cos in which shareholders are even further removed from oversight), and depositors are insured by Uncle Same. As a result, depositors don't bother to check out what a crapload of risk that traders and execs are piling on in order to get bonuses, and Uncle Sam and his legions of wizards set up regulations that the smart boys at Goldman and lawyers figure out how to finesse to load up ever more risk at the lowest possible capital - BANG!
And all thanks to the wonders of institutionalized misincentives!
Sure, we got wonderful things from complex organizations, all of which remain in check somewhat by competitions. But there's been a lot of abuse, alot of risk-shifting, alot of Superfund sites, alot of barriers to entry raised the very regulations whose purported intent is to rein in the bad behavior, massive statism, and a ball and chain of costly and intrusive IP legislation and enforcement.
I've given a very short summary of the dynamics at this post: http://bit.ly/9oBkC7, but it's a fairly obvious and understandable game of whack-a-mole, where government and the big boys - with their unlimited lives, purposes, facelessness, deep pockets and revolving doors - who always seems to benefit while ordinary citizens and smaller firms and potential rivals get whacked.
It is very clear that limited liability of shareholders is a gift from government at the expense of un-consenting creditors ('victims' IOW), and thus is a subsidy from the public as a whole to the wealthier classes who owned corporations and still by and large are the shareholder class. Corporations used to e very rare - the grants have a very dubious history, typically one of false justifications of offering a 'public good' in exchange for monopoly rights. The owners of very limited life, limited purpose firms somehow always managed to get the special deal extended. So we got bigger firms and more corruption, and labor unions and then regulations and workers and citizens finally started to get fed up.
The widespread statism and government-provided social welfarism - now falling into cynical kleptocracy and fuelling a breakdown in initiative, integrity and other virtues Hayek saw are necessary for market-based wealth generation to works to work - we now see are part of the price we've paid. The other part of course is damage to peoples' lives, property, communities and to whatever public or community property that corporations can get their hands on and strip, without have an owner's incentive to balance possible revenues over the long run.
Is this kit and caboodle a necessary part of "capitalism"? I don't think so. Wall street banks and investment firms were private partnership for most of their lives, Amex was a listed corporation who owners had UNLIMITED liability, and Lloyds of London itself was not a firm but a private MARKET of names who all had unlimited liability. Many firms used to have only Partially paid-in shares, so that managers had a call in case more capital was needed for new projects or to pay off debt.
Just because we've democratized corporate formation by opening the floodgates of socializing risk to anyone doesn't mean ways can't be found to put an end to institutionalized moral hazard. Eliminating unlimited liability would shift risk and responsibility for oversight back to a conveniently truant shareholder class from government and the public at large. It would of course mean that people not in a position to evaluate risks would be less likely to invest, making firms work harder to earn trust and get capital. Credit evaluation, rating agencies and insurers would all compete to step into the breach and to lower and spread risk.
Better managed firms are more profitable than the big Frankensteins we have lumbering around these days; while reform would happen overnight, it is not only desirable but possible. Since firms whose shareholders bear the risk that they may be held liable for damages they could be expected to be more cautious and thus could be exempted from the regulation that have been found needed for the Frankensteins. Thus both risks and barriers to entry could be lowered, and consumers and could determine what works best. Other initial steps could be to encourage firms whose shareholders have only fractionally paid-in shares. In the US, at least, corporations are creatures on state law, so just one state is needed to start such an experiment (which would be possible and protectable under the Constitution).
Well I've run on quite a bit in my excitement. My sincere apologies! Let me toddle off for a wee bit of sleep.
Tom
Tom:
Yes, I agree with much you say. But, nonetheless, I’m sure that limited liability has, on the whole, been beneficial. I haven’t time now to elaborate properly on this so I’ll confine myself to the following:
The concept of limited liability is very old. But it didn’t take off until 1811 when New York State allowed manufacturing companies to adopt limited status. Thereafter, it became widely accepted throughout the USA – and in Britain in 1854. As a direct result, because private investors no longer risked total ruin (even prison) if their company went bust, vast sums of new capital became available to finance the new industries that went on to transform the world and radically improve the lot of millions of people. In my view, without limited liability that transformation is most unlikely to have happened.
Robin
Robin, thanks for your response.
I understand your argument, but the acceleration of innovation at the time of the Industrial Revolution was NOT kicked off or led by corporations.
Perhaps I naively have more faith in human ingenuity than you, but I suspect that the great leap in human welfare could and would have continued without limited liability corporations. We don't get do overs, so it's hard to know; but there were plenty of sophisticated organizations where partners and shareholders retained personal liability or significant residual risk (e.g., companies with shares that were NOT fully paid-in).
In any case, limited liability has also led directly to where we are today, with (i) large governments - purportedly on missions to protect the public from now faceless capitalists who are anonymous to the communities they affect - entangled deeply in a revolving-door game of rent-seeking, influence and corporate welfare, and (ii) publics now nursed and cosseted by governments who demand from bankrupt government more of the 'welfare' that the government have so generously bestowed on large, 'too-big-to-fail' financial and other firms whose self-interested managers and traders, unchecked by shareholders, have lodged their companies firmly on the shoals of institutionalized agency problems and moral hazard.
The real need is simply to understand the roots of our present problems, so we can find productive approaches to move ahead. More government bailouts - either for everyone or for the most disfunctional and damaging firms - is clearly not going to improve the situation, though of course it may give more power to politicians and bureaucrats, and may put more money in the pockets of industry 'leaders' who are socializing risks and privatizing gains.
Sincerely,
Tom
Maybe someone can enlighten me on this. Assuming that limiting liability can confine your exposure to your investment; or less if it is a stated liability, during the period of industrial expansion, what was included in effective liability. Did the courts award damages to the injured ion a railroad accident? If a boiler exploded was Watts and Co. liable in any significantly expensive way? Beyond the cost of repair?
For a liability to have any meaning no matter how it is characterized, there must be a chance of financial ruination beyond the total of the amount invested. Limited liability certainly didn't protect the folks who chose General Motors as their sole investment, or Lehman brothers, who I saw off with the price of a nice automobile.
Having recently read a book addressed to the development of patent protection starting in late 17th century in England (where else?)Rosen's "The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention" I am much more impressed with the theory that the granting of temporary monopolies to inventors had much more effect on the growth of industrialization than did anything to do with liability.
Briefly, the monopoly protected by patent enabled the broadcast of new inventions across England rather than simply building a single example and using it as a competitive tool at the local mill.
Having sat in a room full of attorneys arguing about how the supplier of the new "high-speed" trains to be acquired (it's "acquire" when it's government money) should provided liabiliy coverage for his equipment, when Amtrak itself was unable to obtain such coverage and was forced to rely on the financial wherewithal of Uncle Sam, the insurer off last resort --- or first if you have good connections.
Tom:
I disagree. I’m sure that limited liability was a key factor in making available to mankind many of the benefits developed in the nineteenth and early twentieth centuries. I think that the Economist put it well in 1923 when it suggested that whoever invented the concept might earn ““a place of honour with Watt, Stephenson and other pioneers of the industrial revolution”. Of course, it was the latter not the former who, as you say, “kicked off” all that technological innovation. But, for its widespread exploitation, it needed huge amounts of capital. And that was provided by private investors – I cannot see how that would have happened without limited liability.
However, as I indicated in an earlier post, I strongly agree about the pernicious consequences of the many current examples of moral hazard. But I’m unconvinced that they're a direct result of limited liability. For that, I think it’s necessary to look elsewhere.
Robin
Robin, thanks for your further thoughts.
In retrospect, isn't it clear that the Economist is praising stock market BUBBLES, which are destructive disruptions created by artificial credit expansions by banks and central banks? http://www.economist.com/node/347323
Unwary individual investors, lulled by government regulations of "public companies" that have removed managers from all shareholder oversight, have been badly burned -- and much capital wasted and directed into the pockets of executives and traders, who have shifted risks of failure to shareholders and to the governments that continue to bail out these failed organizations.
Sure, all that technological innovation required huge amounts of capital, which was provided by private investors. But capital is created by savings. Those savings could have been more wisely invested if shareholders bore greater residual risk - and were thus more incentivized to monitor the risk-taking by executives.
I think there is growing empirical evidence that firms that are more closely overseen by shareholders are more profitable. This, in addition to the hurdles to the public capital markets created by Sarbanes-Oxley, is leading to greater reliance on private capital-raising.
Tom
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"The first principle is that you must not fool yourself - and you are the easiest person to fool."
Richard Feynman
[...] post here some of my further dialogue on the comment thread to Matt Ridley's "Nuclear crony capitalism" post that I blogged on earlier. Posted by, Robin Guenier (not [...]
No, Tom, that's not what the Economist was saying. Quite simply, its point was that limited liability was a key factor in making the industrial revolution happen. I agree. And it's still important today. For example, in 1999 I was founder chairman of an online research business. Without funding from private investors, we would not have got it off the ground. And, had there been any possibility of their putting their entire wealth at risk, they would not have invested. Limited liability made it possible.
As I said before, I strongly agree about the pernicious consequences of the many current examples of moral hazard. But I’m unconvinced that they're a direct result of limited liability. For that, I think it’s necessary to look elsewhere.
Matt: have you seen that George Monbiot has today gone even further in attacking greens’ attitudes to nuclear power? See this: http://www.guardian.co.uk/commentisfree/2011/apr/05/anti-nuclear-lobby-m...? Interesting – especially his criticisms of greens’ failing to provide sources, refuting data with anecdote, cherry picking sources, etc. Surely he knows that’s how greens usually operate?
Cheers - Robin
No, Tom, that's not what the Economist was saying. Quite simply, its point was that limited liability was a key factor in making the industrial revolution happen. I agree. And it's still important today. For example, in 1999 I was founder chairman of an online research business. Without funding from private investors, we would not have got it off the ground. And, had there been any possibility of their putting their entire wealth at risk, they would not have invested. Limited liability made it possible.
As I said before, I strongly agree about the pernicious consequences of the many current examples of moral hazard. But I’m unconvinced that they're a direct result of limited liability. For that, I think it’s necessary to look elsewhere.
Matt: have you seen that George Monbiot has today gone even further in attacking greens’ attitudes to nuclear power? See this: http://www.guardian.co.uk/commentisfree/2011/apr/05/anti-nuclear-lobby-m...? Interesting – especially his criticisms of greens’ failing to provide sources, refuting data with anecdote, cherry picking sources, etc. Surely he knows that’s how greens usually operate?
Cheers - Robin
Robin, like George Monbiot you appear to be more of a central planner than a lover of free markets. Monbiot has decided he'd rather have nukes than dirty coal and its CO2.
Try the piece in Forbes by Jerry Taylor and Peter Van Doren:
http://www.forbes.com/2011/04/04/nuclear-energy-economy-opinions-jerry-t...
All any enviro or lover of free mkts needs 2know abt #Nuclear: it's unaffordable even w massive subsidies Forbes.com http://bit.ly/dIO9iY
Can I get back to you later on your other comments (it's past bedtime now)?
Tom
Matt and Robin, more good stuff from Jerry Taylor:
Post-tsunami radio clip of Jerry Taylor/Cato discussing the past and future of US nuclear power http://bit.ly/f8H2kA
I blogged these further remarks:
I note that Taylor has really only scratched the surface of the problems relating to nuclear power. For example, far from governments simply shifting the risks of nuclear power cost over-runs to ratepayers and taxpayers, this incentive structure actually compounds financial risks, as the contractors do not have to bear the amount of cost over-runs, and the utilities can put their hands into the pockets of others.
Further, Taylor has not addressed the further subsidies provided in the form of Federal liability caps and by "limited liability" state corporation laws that leave shareholders without ANY liability for damages that nuclear accidents may cause others - as has now materialized in Japan. Just as we have seen in our financial sector, the result is a loss of personal "skin in the game", a concomitant reduction in critical oversight, unleashed moral hazard, poor decision-making and then hand-wringing and blame-shifting when the "black swans" come home to roost.
TT
Tom:
It might be a good idea if you were to read my comments. For example, I said this (on Wednesday): "If one agrees (and I do) that the moral hazard enjoyed by financial institutions is deplorable, then logically it’s impossible not to take the same view of crony capitalism and nuclear power."
Does that sound like support for nuclear power? Or that I'm not a lover of free markets?
Robin
The 'free-market' objection to nuclear is real but there are some justifiable 'subsidies'. I have in mind that society should pick up the costs local to a plant's location that are over and above the sort of manageable (though nonetheless devastating for locals) that cannot be covered by normal operations insurance. These are in reality quite small.
The principle objection is to the cost over runs that seem to go with each new generation of reactor type - a consequence of the cutting edge nature of the business. But mankind has to weigh risks on many things to progress and provided we manage those risks responsibly and rationally and not in the sense of panic and horror that surrounds this whole subject we should be fine. In short some central subsidy is acceptable even to a free marketeer, provided the case is rational and not ideologically driven.
[...] a somewhat ironic post, "Nuclear Crony Capitalism", Ridley first notes that the troubles at TEPCO's Fukushima plants have caused [...]
Nothing inherent to fission requires large capital outlays or government subsidy.