The Failure of Markets

Energy, Housing and Health

Craig Allan Medlen

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000546484
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The core thesis of this book is that the major economic issues of renewable energy, housing, health and income disparities could best be addressed through direct government "in kind" production and redistributive measures.

It is argued that this governmental "in kind" production of essential needs would allow a rapid movement towards solutions that the market cannot possibly match. The market works through indirect means. So, it is no mystery why in the areas of energy, housing and health, problems are not only formidable but in many respects are getting worse. In contrast, governmental "in kind" production would be direct. Outcomes could be explicitly planned and managers would be publicly accountable. This shift in production should be accompanied by redistributive measures through higher taxes on corporations and the rich and the possible adoption of monetary policies in line with Modern Monetary Theory (MMT). Relatedly, the book demonstrates that the current lack of imaginative solutions results from a paralysis of imagination, rooted deeply in nineteenth century liberalism that held that the market was to serve all issues. A progressive agenda today needs to separate out "needs" from "wants" and to engage government production in the service of collectivist needs. "In kind" production would infuse a democratic component within the economy. The last chapter of the book also deals with how the ideology of neoliberalism blocks even the contemplation of governmental production in the service of people's needs.

This accessible work will be of significant interest to anyone seeking original solutions to age-old problems, particularly readers of public policy, heterodox economics, progressive politics and MMT. More generally, it is of interest to scholars

1A national buyout plan of eco-destroyers

DOI: 10.4324/9781003258308-1

For those ideologically grounded to the existing mode of production, the ecological boundaries of nature are seen mainly as obstacles to be overcome in the continual process of capital accumulation. Technological fixes such as sequestering carbon out of the atmosphere and placing atmospheric blankets of chemicals so as to mitigate climatic warming may well be undertaken given the short time frame within which ecological disaster awaits. But such fixes also serve to disguise the largely unconscious acceptance of the capitalist mode of production which, in its necessity for never-ending growth, comprises a never-ending attack upon nature.

This attack is carried forth by an unaccountable corporate elite.

In the following, I calculate the buyout costs of transferring into US communal ownership some of the main industrial actors of eco-devastation. I stress “some.” The large-scale eco-devastation of the present era involves a massive complex of industrial sectors and firms. Accordingly, the exercise below should be considered a starting “wedge” towards eco-health and a model for extension in the service of moving towards a more sustainable economic and social system. It might be argued that in light of the current global eco-devastation, any nationalization movement would be hopelessly narrow and inadequate in addressing any possible remediation towards eco-health. At one level, this may well be true, but a significant start towards eco-health has to be made. In terms of alternatives, what other agency, apart from the national state, is available now in terms of adequate resources to make at least some difference? International pledges aimed at reducing carbon emissions are symbolically useful, but as pledges they are just that symbols of concern and little else.

There should, of course, be no illusions as to the ease of bringing about an extensive nationalization of eco-destroyers, even in light of the fact (shown below) that such a buyout “wedge” could—under ideal regulatory conditions—cost the federal government virtually nothing. As Thorstein Veblen repeatedly stressed, business ideology seeps into the underlying population to the point that the acceptance of the for-profit economy appears as analogous to the acceptance of divine right under medieval conditions. Moreover, the long history of nationalized industry gives little cause for optimism. Some industries, such as the British railways, had been nationalized so as to dump operational losses on the general public while continuing to provide needed public services. And when profitable, nationalized firms—like the Tennessee Valley Authority—have almost universally behaved like private concerns. Nevertheless, the ongoing large-scale public outcries over eco-devastation and the short time allowances towards outright eco-tipping points of no return could lead to nationalization precedents that would guide publicly owned enterprises towards eco-health. Most importantly, communal possession of the most egregious actors of eco-devastation would sideline large vested interests and place publicly accountable management teams in charge of major swaths of industry now devoted to a continuation of the profit-maximizing status quo.

I recognize that envisioning enclaves of socially responsible nationalized firms within the larger capitalist complex seems naïve in the extreme. A massive nationalization project presupposes that sufficient political power could be mustered against not just the combined political might of the largest corporations in the world but the ideological web of privatized production itself. Unless opposed by a very large public constituency armed with legal prohibitions against large purchases of stocks in “to-be-nationalized” firms, private interests could be expected to grab such stocks in a preemptive attack against nationalization and to cash in on any governmental acquisition of shares. In addition, US regulatory agencies only police US stock exchanges and citizens. In the absence of international coordination, cross-border shareholdings would no doubt present additional complications.

Too, even if established, such nationalized enclaves would entail a continual fight against the for-profit forces that are at the base of the vast bulk of productive activity. Regulatory capture is most generally understood as a threat directed towards regulated private firms. But an analogous threat would also apply to nationalized industry devoted to ecological health. Competitors of nationalized industry could be expected to attempt capture of management positions and guide nationalized firms away from results devoted to eco-health and towards profitable ends.

Awareness of seemingly insurmountable obstacles is psychologically debilitating. But the pursuit of an eco-buyout plan, even if initially defeated, is one way to heighten awareness of the stakes involved.

The general plan

In what follows, I sketch out the economics of a nationalized buyout of what I term “eco-assets.” To the problems noted above, I present possible avenues of approach but no magic bullets. I do, however, hope that a larger involvement of thinkers could make progress in solving these formidable obstacles. The main purpose of this sketch is to initiate this wider discussion.

I concentrate on the purchase of the top fifty major US firms devoted to electrical generation and transmission that now generate and transmit three-quarters of electrical power, four of the world’s top oil and gas companies and General Motors and Ford—the two largest US headquartered auto firms. These firms are a significant part of the carbon emission problem, which implicates damaging eco-effects across the board in agriculture, heating, transportation, oceanic balance, glacial melt, species devastation, and a slew of other issues too numerous to specify here.

In reference to the nationalization of the electrical generation and transmission sector, public purchase would permit a rapid transition into solar and renewable energies. In regard to solar, given transmission lines would be supplemented by direct current (DC) lines coming out of the sunbelt states where the fuel is free. In the sunbelt, the federal government owns huge chunks of land, ranging in some states from 35 percent to nearly 80 percent of total land area (Nevada 79.6 percent, California 45.9 percent, Arizona 38.7 percent and New Mexico 35.4 percent) (Argueta et al., 2017, 7–8). In broad outlines, the specifications of renewable electricity have already been laid out. In 2008, Ken Zweibel, James Mason and Vaasilis Fthenakis sketched out a Grand Solar Plan that would cost $400 billion over forty years—roughly half of 2019’s military budget. The Grand Plan involved the installation of DC lines for long-distance transmission and a series of pressurized caverns for the storage of compressed air across the nation that would be released to power electrical turbines during off-hours. Along with increased conservation assumptions, they calculated that with the use of sun energy alone, 69 percent of US electricity and 36 percent of total energy could be achieved by 2050 (Zweibel et al., 2008). More recently, Mark Z. Jacobson and nine coauthors laid out specifications by state to engage Wind, Water and Sunlight (WWS) to obtain above 80 percent reduction in fossil fuels by 2030 and a completely fossil fuel-free energy US economy by 2050 (Jacobson et al., 2017).

Given the complexity of projecting future possibilities, it is not surprising that these latter results have been challenged on the basis of allegedly unjustified assumptions, modeling errors and a disregard for various political, environmental and economic obstacles involved in the transformation into an optimal exergy mix (Clack et al., 2017). But what is noteworthy about both those who have spelled out the “eco-specifications and goals” and their critics is that both sides have ignored the question of agency. Who is to carry the plans forward?

The use of leveraged buyouts

In the merger market, buyouts of firms by other firms are often accomplished through the aid of debt. The acquiring firm borrows (leverages) to attain the assets of the “target.” In turn, the supposed synergies of the new combined assets are then optimistically projected to service the debt and make a net return.

The federal government has an enormous advantage in pursuing analogous buyouts. Backed by the taxing power of the state and the legalized use of the printing press, the interest rate on government debt is the lowest of all interest rates. In the case of the US where the dollar is the world’s major reserve and invoicing currency, there is a ready (indeed expanding) market for US debt across the world.¹ This distinct advantage makes government debt financing of eco-buyouts quite easy to accomplish, particularly at the historically low interest rates of today.

In calculating the initial net buyout costs and returns, the federal interest rate has to be compared to the profit/capitalization rate of the assets to be acquired, or more exactly the profit/purchase price. If the interest rate of procuring funds is less than the profit/purchase price ratio, the purchase price will yield a net return—that is the assets not only are free but will gain monies initially through the first stages of nationalization. I emphasize “first stage” as the eco-assets moving forward would pursue healthy eco-results as opposed to profitability. Indeed, as I note immediately below, the introduction of renewables and the phasing out of damaging industrial production in autos and fossil fuels would be best facilitated by a below-cost program in driving renewables forward.

A below-cost renewable energy program is key not just to the phase-out of fossil fuels but also to a nationalized takeover of the energy and transportation firms noted above. A program of nationalization would be best facilitated by laws that would suspend stock trading on targeted firms and laws that would impose very high capital gains taxes on stock preemptively purchased in anticipation of governmental takeover. Details as to the implementation of such laws are important. Unless reinforced by legal prohibitions and penalties levied against the preemptive purchase of shares, any nationalization policy would drive up the price of targeted shares and make takeovers prohibitively expensive. Unlike the private merger market where insider trading raises the price of targets, a governmental takeover program would have to be transparent. Initially, the government would announce its intention of bringing about a below-cost program in the fields of energy, autos and oil production and would suspend trading in targeted firms. It would then buy up a controlling portion of shares of each of the target companies. In announcing a “negative-profit” policy in the service of eco-health, the remaining shares would be theoretically worthless as gauged by profit criteria. But in order to minimize political opposition, the government would purchase the outstanding shares at pre-takeover prices with an acquisition premium thrown in. Of course, even a stage program might well encompass acquisition problems, particularly in regard to a legal definition of “preemptive” share purchase. These problems would have to be worked out by those crafted in political and judicial skills backed up by a massive political constituency devoted to eco-health.

The cost calculations put forth below in assessing the net return on takeovers of eco-destroyers implicitly assume that the government could obtain targeted stocks at pre-takeover (i.e. current) prices plus an acquisition premium. Accordingly, the calculations below should be taken as simply a crude (and optimistic) benchmark for the purposes of discussion.

According to the latest comprehensive Business Census (2016) compiled on 2012 data, the top twenty firms in “Electrical Power generation transmission and distribution” had over half of the revenues and controlled about half of the over 10,000 establishments in the private sector; the top fifty had roughly three-quarters of the revenue and controlled about two-thirds of the establishments.² Given that concentration ratios remain relatively constant over short periods, a provisional estimate can be made of the amount of monies necessary for the government to dominate the utility field. The market capitalization of the top twenty firms at the end of 2019 was 685 billion dollars.³ Under the assumption that the same market capitalization-revenue ...