Over at Catallarchy, Sean Lynch critiques a recent study by the International Center for Technology Assessment focusing on hidden externalities in the automotive fuel market. The study makes a startling claim:
The report divides the external costs of gasoline usage into five primary areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle Services; (4) Environmental, Health, and Social Costs of Gasoline Usage; and (5) Other Important Externalities of Motor Vehicle Use. Together, these external costs total $558.7 billion to $1.69 trillion per year, which, when added to the retail price of gasoline, results in a per gallon price of $5.60 to $15.14.
A swing of almost $10 per gallon is quite a bit of uncertainty, I'll admit. But the entire point of the study (at least, the one I took away) is that these hidden costs that the State assumes make calculating the real price of gasoline completely impossible. Therefore, consumers cannot adjust their consumption - or demand for an alternative - with any degree of reliable market information. Merely by distorting prices to cover up true calculation, the gasoline market is helped simple by being the "stable", established product.
Of course, libertarians (and mutualists in particular) have always argued that, without a market free of state manipulation, it's impossible to arrive at a price that reflects the true input and external costs. As I've written earlier, corporations thrive in an environment where the state apparatus allows them to offset these costs onto the public at large - but they do so at our collective expense, to say nothing of the efficiencies we're missing out on because of opportunity costs. Indeed, state-sponsored handouts to American corporations may in fact dwarf their actual profits by a factor of five!
While Lynch attacks subsidies, there is a hint of apologism in the tone he uses to analyze this particular example of state intervention:
In fact, some of the "subsidies" mentioned by the study actually serve to drive the average price of gasoline up by providing price supports. The study just takes the total cost of these subsidies and then adds them to the price of gasoline, which doesn't make much sense to me.
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I'm all for ending government subsidies in any form, but it's not clear to me that overall government meddling in the oil market is really driving the price we pay at the pump down.
And a fellow Catallarchy blogger, Matt McIntosh, chimes in:
I've never understood why anyone would refer to tax breaks as subsidies. We have two different terms for these things for a reason: a subsidy is when government robs Peter to pay Paul. A tax break is when it declines from robbing Peter in the first place. Yeesh.
While I commend Lynch's call for an end to all subsidies, I think he's missing the point about the "price at the pump". Without correctly calculating and responding to costs, there's no way to communicate to consumers the relative efficiencies and inefficiencies inherent in their purchase. These extend well, well beyond price supports: they include alternative energy competitors who are put at a competitive disadvantage (which was the point of the article that inspired the orignal post), traditional energy competitors who experience barriers to market entry and true competition, and a host of other opportunity costs that are impossible to really quantify outside of market calculations.
It is in this context of large scale industry with little differentiation or opportunity for cost-cutting that tax breaks serve as effective subsidies. In his analogy, McIntosh correctly recognizes that the Peter is not being robbed to pay Paul because he's not being robbed at all. However, if the state continues to rob Paul or the other competitors, it puts Peter at a comparitive advantage. This advantage has a value equivalent to what Peter's competitors are paying in taxes and the increased market share Peter is now able to secure by lowering prices just enough. Especially when one takes into account all the costs businesses externalize onto the state - for which some of are paid from public funds, such as military defense of oil production in hostile third world countries as well as the violent opening of markets overseas - these tax breaks are effective subsidies in disguise, as another commenter pointed out, regardless of whether we notice the wool over our economic eyes.
I go on to point out another issue that I think they're ignoring: the cartelizing effects of regulation upon the energy market:
And don't forget that regulations - especially, of all places, in the oil industry - serve to cartelize the market. By setting almost insurmountable barriers to entry for competitiors to build new refineries, this keeps supply lowerer than the market would otherwise be able to bear.
Now, one may argue that the energy industry in the aggregate - seeing opportunities for profit in increasing supplies - may start regarding this regulatory effect as less than 100% advantageous. However, throughout the history of state capitalism, big business has frequently sought government intervention at the expense of profit in order to rationalize the market and insulate themselves against risk. Sure, they may be forgoing some profits to be made by expanding supply, but on the other hand, they're in a fat "market" position right now with no foreseeable dip in sales in the long run. It's not at all clear to me from my study of corporatist history that big, established business values profits over stability - and the oil industry is a perfect example.
In other words, the corporate beneficiaries of a cartelized market realize that it's more advantageous to keep competitors out of the market than to expand their production to meet demand. In a functioning free market there would be all sorts of pressures to meet demand and bring costs down through competition. But that would introduce into the market the very volatility big business seeks to avoid in order to assure steady profits. The idea is to stake out a favored position in the economy and just collect the windfall - then any expansion of production can be done on one's own terms without taking the entrepeneurial risks of business. State intervention for the purposes of rationalizing markets - making them more predictable and steady - is actually preferable to increasing profits.
Kevin Carson makes a point of articulating this interest in stabilization of corporate oligarchy around the end of the 19th century, as both big business and the regulatory state started to gain real power. He argues in Studies in Mutualist Political Economy that the rising "New Class" of scientific social management sought a partnership of state and business interests long before it got the name "fascism". Market rationalization was a huge motivation once markets were acceptably locked up by fat cats:
The New Class, its appetite for power satiated with petty despotisms in the departments of education and human services, was put to work on its primary mission of cartelizing the economy for the profit of the corporate ruling class. Its "populist" rhetoric was harnessed to sell state capitalism to the masses. Those overeducated yahoos admirably served their masters in the capacity of useful idiots.
But whatever the "idealistic" motivations of the social engineers themselves, their program was implemented to the extent that it furthered the material interests of monopoly capital. Kolko used the term "political capitalism" to describe the general objectives big business pursued through the "Progressive" state:
Political capitalism is the utilization of political outlets to attain conditions of stability, predictability, and security--to attain rationalization--in the economy. Stability is the elimination of internecine competition and erratic fluctuations in the economy. Predictability is the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations. By security I mean protection from the political attacks latent in any formally democratic political structure. I do not give to rationalization its frequent definition as the improvement of efficiency, output, or internal organization of a company; I mean by the term, rather, the organization of the economy and the larger political and social spheres in a manner that will allow corporations to function in a predictable and secure environment permitting reasonable profits over the long run.
The entire chapter is worth reading to understand the full context of how "captialism" works only superficially as a market phenomenon. One cannot argue against subsidies without arguing against those politically responsible for them: politicians and the corporations that support them. By forcibly and purposefully reconstructing the economy to their own advantage, massive corporate interests - such as Big Oil - have always profited at our expense. Without a doubt they continue to do so.
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