TCS Daily

Friday Fodder: Scheer Madness, Seeking Refuge, and WW III

By Nick Schulz - December 28, 2001 12:00 AM

Scheer Madness - The Los Angeles Times has in recent years cultivated one of the best opinion pages in the country, far better, more interesting and important than the New York Times.

The exception to the page is its columnist Robert Scheer who this week has published a rant that is noteworthy only insofar as it exceeds even the standard that he himself has established over the years for hysterical rhetorical pyrotechnics.

Scheer uses the collapse of Enron to indict, in no particular order: "unregulated markets," the Bush White House, efforts to transform Social Security, tax cuts, and Argentina's government. If he had more column inches perhaps he could have tossed in global warming and Mumia's conviction, too, but newspapers do have space constraints.

Of course, a lot remains to be learned about the collapse on Enron, and there was certainly some shady stuff going on. After all, this was a company that has hired super lawyer Bob Bennett as its counsel, so you know the executives were most likely up to no good.

Econ 101 -- But as Susan Lee demonstrates in this week's Wall Street Journal the collapse of Enron was hardly a failure of unregulated markets, but a market success. She points out that:

"Enron`s success and failure ran along the lines set down in any microeconomics text. The company discovered a new product -- mostly ways of trading energy in the derivatives market -- that allowed producers and users to lay off risk. This new product was wildly popular and, as the innovator, Enron made lovely above-market returns. But those abnormal returns attracted other firms into the business and Enron`s advantage was gradually 'competed away.' Each new market entrant put the squeeze on Enron`s margins."

Social Insecurity -- Meanwhile, Reason magazine's Michael Lynch points out that the Enron collapse should in no way be construed as an indictment of private capital markets or private investment and retirement vehicles. In particular, the company's collapse doesn't, as Scheer suggests, undermine the case for Social Security reform. "What Enron's employees needed most," Lynch says, "was sound financial advice not to put all their money on one horse." As my colleague Jim Glassman routinely points out, diversification is a hallmark of sound investing.

The Social Security system, by definition, has all of its money on one horse - a glue prospect at that - and is gypping the people forced against their will to contribute to it. President Bush, in floating possible privatization of Social Security, is not "hellbent on bankrupting" the system, as Scheer foams. That's an impossibility since, after all, the system, with its massive $60 trillion unfunded liability, is already bankrupt.

"The Breathing Public" -- Meanwhile, even as the Los Angeles Times opinion page is to be commended despite Scheer, its news coverage of environmental issues has a long way to go. In a piece titled "Some See Nature as a War Victim" the Times asks several environmental groups for their opinions about the Bush administration's energy initiatives. These groups lambast the administration for what they see as an assault on the Clean Air Act, with Frank O`Donnell, executive director of Clean Air Trust, saying that the Bush administration is "going to mean terrible news for the breathing public." Presumably, the non-breathing public will do fine, and you may quickly join them if you hold your breath waiting for a balanced view on national energy needs and environmental concerns from Times news writers.

Seeking Refuge Fox News' Steve Centanni has aired the first installment in a series on drilling for oil in the Arctic National Wildlife Refuge. Centanni does do a commendable job of framing the real debate.

He quotes one employee of an oil concern saying, "We believe even with the greatest conservation measures there is still going to be a large demand for oil products for years to come. This is an area that has the greatest potential in the country for that type of discovery." That's exactly right. Conservation may or may not be, as Vice President Cheney said, a sign of personal virtue. And certain conservation efforts are worth pursuing. But the fact remains that oil demand will remain very high, and growing, for a long time to come. And the longer the United States and its allies in the west rely on the Middle East and Central Asia (or the Castro of South America, Venezuela's Hugo Chavez) for the bulk of its energy needs, the longer our foreign policy remains handcuffed and restricted. As Sept. 11 demonstrates, easing our reliance on energy supplies from that part of the world is an urgent national security imperative and opening up a sliver of ANWR for exploration is a small but necessary step in the right direction.

Vouching for ANWR -- Writing in the Wall Street Journal, the economist Martin Feldstein condenses an article he originally wrote in the journal The National Interest into a piece advocating the creation by the feds of a market for Oil Conservation Vouchers. These vouchers could be traded in the United States as a way of decreasing our dependence on foreign oil.

The Fodder isn't quite so sure this is a great idea, but Feldstein is correct to point out that efforts to reduce gas consumption by increasing CAFE standards or imposing high gasoline taxes (but offsetting them with tax cuts elsewhere) are bad ideas. Why? "The regulatory approach [i.e. CAFE standards] does nothing to encourage individuals to drive less, to use their cars more efficiently, or to shift sooner to new and more fuel efficient vehicles," he says. And Feldstein is rightly skeptical of using taxes to alter behavior in part because he's doubtful that "extra gasoline taxes would actually be returned by cutting other taxes." He points out that "In Europe, the revenue raised by heavy gasoline taxes is used to finance a bloated welfare state. In the United States, the current, more limited gasoline tax, finances government spending on roads and on urban transit systems. There is no hint of giving the money back to the taxpayers."

Feldstein is also correct that while "we cannot change the fact that the Saudis and other Persian Gulf states have most of the world`s oil reserves ... with the right policies, we can make that fact irrelevant." How? Among those policies should include expanding oil exploration in the Western Hemisphere beginning with opening the Artic coastal plain to further exploration.

Incontinent Subcontinent -- Lastly, by the time this piece gets published, India and Pakistan may have put the world on the path to WW III. Here's hoping they haven't. But if nothing else, tensions on the subcontinent demonstrate the folly of those who argue that pursuing missile defenses is an illegitimate goal of American defense policy.

As a strategic rule, it is better to have as many defensive and offensive options as possible. Missile defense technologies are only a small part of a larger strategy. But the possibility that missiles flying around the globe can one day be knocked out of the sky by employing the ingenuity of America's scientific community is certainly worth the time, money and effort. Not just to protect American soil, but also to prevent a holocaust of the kind that now threatens India and Pakistan.

Tech Central Station wants to wish you a Happy New Year. We resolve to keep providing you with the best in opinion, argument and information on technology, science, defense, and public policy, if you resolve to keep coming back and telling us what you think.


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