Ep. 20 Government Water Supply Is Contaminated? Don’t Blame Government, Urges Krugman

29 January 2016     |     Tom Woods     |     32

You’ll never guess how Krugman apportions blame for the polluted water fiasco in Flint, Michigan. Wait, you probably will. Bob and Tom exonerate libertarianism in this episode!

Krugman Column

Michigan’s Great Stink” (January 25, 2016)

Contra Columns

Flint’s water crisis isn’t a failure of austerity. It’s a failure of government,” by Shikha Dalmia
The Myth of Natural Monopoly,” by Tom DiLorenzo
Environmental Agency Uncorks Its Own Toxic Water Spill at Colorado Mine,” by Julie Turkewitz

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  • Justin Gordon Spratt

    Hey, Tom and Bob! Great show!

    You could also have mentioned that competition could exist as potential competition in a free market. There is something on mises.org on that. I want to say Thornten of the top of my head. Whoever it was also showed that historically, companies often lower their prices after achieving a monopoly in the free market in order to maintain that monopoly rather than risk entry by another potential firm, and that while in actual competition, prices can be higher and more varied.

  • http://altfeed.com N. Paul

    This has fast become another must listen podcast. Thanks guys!

  • Ron H.

    Tom, I don’t see the DiLorenzo link. Is this the article?

    https://mises.org/library/myth-natural-monopoly-0

  • whateverdude

    Keynesian economists don’t like monopolies, but they sure do love monopoly money!

  • David A Galler

    This is rich–that Flint mayor telling his constituents that the the water was safe after GM found that it was destroying engine parts.

  • Kyle J Gibson

    Great episode! The links on the show notes page need to be updated though. It looks like they were copied from episode 19.

  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    Everyone here should check the comment section at Libertarian Utopia: 400,000 Ohioans Warned Not to Drink Water After Poisonous Toxins Found. http://aattp.org/libertarian-utopia-400000-ohioans-warned-not-to-drink-water-after-poisonous-toxins-found/ There is so much comedy material here,… it would take years to exhaust it all! Afterwards, check out The Myth of Natural Monopoly https://mises.org/library/myth-natural-monopoly

    The idea of competing water companies does sound bizarre whenever it is first heard. To me the simplest solution would be to have those who own property in the area also being shareholders in their preferred water company.

    • Ron H.

      You’re right The notion that competing water companies – or any competing utility companies for that matter – would need to dig up the streets to install their own delivery systems is a red herring. Consider that in every case of development of vacant land, the developer provides the distribution systems for utilities, and arranges for connection to an existing interface.

      Ownership of the newly built streets and the stuff under them is typically transferred to new private property owners or a city or other government entity. There is no reason for competing service providers to own the distribution system, therefor no need to dig up the streets.

  • RobertRoddis

    Hey you dumb libertarians. If it weren’t for the government, there wouldn’t be giant water projects like Canada’s ST. LAWRENCE SEAWAY! It was a brilliant move bringing all those oceans ships into the Great Lakes to help out a few Canadian prairie farmers. Invasive species be damned!

    “The seaway turned the Great Lakes into a North American beachhead for invasives from other continents,” said Jeff Alexander, author of the book “Pandora’s Locks: The Opening of the Great Lakes-St. Lawrence Seaway.” “There’s no telling how much more damage these critters will cause and how much more money they’ll cost us.”

    http://www.washingtonpost.com/wp-dyn/content/article/2009/08/30/AR2009083002333.html

  • RobertRoddis

    I book maybe I should read: “Alexander’s style is both personal and factual. He does not mince words when writing about the cozy relationship between the shipping industry and the U.S. Coast Guard, which is supposed to regulate it, nor the U.S. Environmental Protection Agency, which is reluctant to get involved.

    Alexander documents federal foot-dragging at the highest levels of government. The story that unfolds is an old one, pitting the benefits of commerce against the cost of regulation and what the shipping industry will do to retain its position.

    “The Seaway was supposed to make the Great Lakes greater, at least in economic terms,” Alexander writes in his preface before taking readers on a 376-page journey that leaves them wondering if closing the Seaway isn’t the best solution, since no one seemed willing to tackle the problem head on.

    This is the story of toxic algae on beaches, of zebra and quagga mussels, round gobis and lamprey. It is a look at how the Great Lakes have changed for the worse, the unanticipated complications and undesired results of a project meant to do good.

    If you boat, fish or swim in the Great Lakes and ever wondered how things got the way they are, this is a book for you.”

    http://www.mlive.com/outdoors/index.ssf/2009/07/book_pandoras_locks_shows_how.html

  • RobertRoddis
  • Lucien

    Paul Krugman talking about race and inequality. That’s interesting. He went to an all white high school. Grew up in an all white wealthy neighborhood. Then went to MIT. What a life of privilege. All he wants is to run the lives of everybody. But we really can’t blame him. He did go to a public high school.

  • Lucien

    Where I live the government run sewage company was caught dumping raw sewage in the river, illegally. Now everybody else has to pay the fines. Maybe Michael Moore should make a movie about that. But, that wouldn’t push his agenda.

  • macsnafu

    Definitely a timely article and podcast, as lots of people are talking about the Flint water crisis.

  • planejane

    No one has mentioned private wells. There are still a lot of us who have our own water supply. Several homes on the block could join together and have their own well and be in charge of their own water quality.

  • Jan Masek

    As great as Liberty Classroom is, I sure miss the Mises Academy, R.I.P. It was just better, I can’t help it. Not just the q@a sessions every week but even the lectures themselves were more lively. In LC the lecturers know it’s recorded for eternity so it’s a little robotic. While the MA was more informal.
    But still, God bless the LC.

  • SteveVictor1

    I’m a “practical” libertarian, and to me the idea of private ownership of the water supply is a gray area. Water’s a necessity and we use a lot of it every day. It’s not the same as a discretionary commodity. An unscrupulous owner could raise prices as he saw fit. Perhaps the population in the region could truck-in water until more permanent arrangements could be made, but it would be at considerable expense and disruption. If water lines were owned by property owners, the neighborhood curmudgeon or lunatic might decide to cut the line on his land for any reason– and this would not be a crime since he could do with his property as he wished, correct? Gray area, not black and white.

    • ax123man

      Rothbardian’s aren’t claiming that libertarian society will solve all problems. Making arguments based on the unscrupulous and the existance of lunatics isn’t a very effective argument in my opinion. Isn’t it the unscrupulous within government that was to blame in Flint? I wonder how a private court would handle a case where some unscrupulous land owner shut off water to a whole neighborhood of people? My guess is it would be quite different than a case where government action led to contaminated water and a government court was responsible for apportioning blame.

      • SteveVictor1

        I agree: some situations have no good solution.

    • RobertRoddis

      How does allowing the initiation of violence get you clean water? Or anything? With a free market in water, everyone would be guaranteed crystal clear water with the option of taking a bath in Christie Brinkley skin restoration oils. With a guarantee.

    • Ron H.

      and this would not be a crime since he could do with his property as he wished, correct?

      Like most such arguments, this one begins in the middle without considering how we got to this particular moment in time. If Mr. Curmudgeon owned the land prior to the installation of water pipes, then he, as well as every other property owner involved, is almost certainly a party to a legally binding contract with regard to the water supply and its distribution, and his transfer of a property right in the water system.

      If he is not the original owner, his purchase agreement would include language that included this easement , and describing his non-exclusive ownership of the water system on his property. A violation of this agreement would be immediately actionable just as it is now with publicly owned water systems.

      • Luke Perkins

        Whaaaaat? You actually want pseudo-intellectuals to start their arguments at the beginning?

        And people say I’m a Utopian =P

        I would bet most of these pro-utilities folks don’t even realize the legal system you describe is currently what binds most private owners with utilities (give or take certain owners had no choice but to accept the easements) or that utilities were provided more cheaply and effectively, relatively speaking, in the 19th century than the 20th.

        It’s not water, but most of the arguments are the same.

        http://www.felj.org/sites/default/files/elj/Energy%20Journals/Vol17_No1_1996_article_the_origins.pdf

        • Ron H.

          I think most begin-in-the-middle arguments are designed to show that voluntary societies and free markets can’t work as advertised, but actually tend to show the questioners have a poor understanding of human nature and history.

          • Luke Perkins

            “the questioners have a poor understanding of human nature”

            Or perhaps a good understanding of human nature. They at least seem to understand most humans never notice, let alone question, implied premises. 😉

  • Justin Gordon Spratt

    Where is today’s episode? I am losing my mind. Need more contra!

  • tz1

    Narrow minds.
    Heard of co-ops? Credit unions?
    Only socialism or totally private by strangers?
    Have the consumers of water supplier (Natural Monopoly) own the water company via shares using a formula.

    • Luke Perkins

      “Only socialism or totally private by strangers?”

      Does tend to be the way it goes, other than the “strangers” part. Credit unions, and other forms of co-ops, developed as a reaction against government regulation. Remove the regulation, I would bet most of these ancillary structures would soon follow.

      Btw, I will grant you water is a “natural monopoly” the moment it stops raining on my property (that I am not allowed to collect said water is what creates monopoly). Water is even less a “natural monopoly” than, say, oil, which never falls from the sky, yet we seem to have no problem getting gasoline without co-ops. =D

      • tz1

        There were fraternal organizations that provided insurance in the 1920s – Knights of Columbus does so with Life insurance today (but no health insurance). The response to a “natural monopoly” might work better if the customers and shareholders were the same group. The incentives tend to be aligned.
        Even flint – do you pay $80/mo for sludge or $100/mo for clean.
        But I think my general point stands, no one can conceive of what DeToqueville called “voluntary organizations”.
        So lacking the ability to understand there are myriad ways, everything has to be either-or. Binary. Government or Businessman.

        As to Gas/oil – you can get water too – just buy bottles from almost any convenience or grocery store.
        I’m in a semi-arid region so there is little rate – we require irrigation.

        • Luke Perkins

          I guess I still don’t buy the “natural monopoly” idea at all. Even having little rainfall in your area, I bet oil is even more scarce. So you end up buying water and gasoline from other regions, but I don’t see how that constitutes either a “natural monopoly” or requires co-ops (or government) to provide either good.

          My point was just that co-ops tend to be inefficient from a lack of specialization by the owners. Yes, they have aligned incentives (give or take the principle agent problem), but the owner/customer are not typically knowledgeable about the business. Because of the resulting inefficiency, without some external pressure, such as regulation, co-ops tend to be rather limited in scope.

          I would also point out, a free market corporation is a voluntary organization. From that perspective, there is very little difference in an unhampered market economy between a credit union and a bank except whether the owners actually know something about banking. Hence why these other forms of organization developed mostly in response to regulation.

          But, I would settle for being proven wrong by the unhampered market economy, if only we were allowed to test it =D

          • tz1

            Generally two things lead to the rise of natural monopolies – the first is high fixed costs. Running pipes everywhere is expensive for one set. Two sets would cost the same but only have half the returns. The second is property gridlock. From point A to B, or running wires and utility poles, you can’t usually run more than one set. Even a road – it is hard enough to buy the rights to build one, a second parallel one would be harder. For there to be a properly functioning market, there needs to be multiple vendors and multiple customers that can compete.
            Usually there is only one emergency room or trauma center within a reasonable distance (you won’t die because the journey is too long), and you usually aren’t in a condition to haggle.

            Nature isn’t fair. There might only be one peninsula or narrows to build a bridge or run a ferry service. Rivers and mountain passes to build roads or rails over aren’t abundant or interchangeable. Some people have lots of talents, others few.
            The market itself is efficient, and neither fair nor just (as in justice) except in the cases of voluntary exchange when knowledge is symmetrical and either side can choose from among many or is free to say “no”. That is 99% of the cases, maybe more. The few cases where it doesn’t work breeds two equal and opposite evils. The first is to use the outliers to justify regulating areas that aren’t having any problem. The second is pretending or attempting to shoe-horn them into a purely free market model.

            An example I use of a market problem is if a Thief can obtain something for me for 20% of buying it through direct voluntary exchange with the owner – is it a free market because my transaction with the thief is perfectly voluntary, but upstream it is not? Is it the owner’s responsibility to pay enough for security or have his stuff stolen? There’s a market for that too.

            As to the specialization, most shareholders, even if they own a company, not a S&P 500 mutual fund, are totally ignorant of the business, so they would hire a manager. A co-op would employ an expert, or at least someone who can focus full time. And if they do well, they keep them on, if they don’t they hire someone else. That a co-op would be limited in scope is a feature, not a bug. I would get quality water at a minimal price from a water, or maybe utility co-op. Many were formed in rural areas because the larger companies didn’t want the hassle of serving small numbers of people far apart.

          • Luke Perkins

            Don’t misunderstand, I am familiar with the argument for “natural monopoly,” I simply believe they, like unicorns, have never existed, regardless of how elegant or plausible the theory might sound. For example, you talk about multiple wires running side by side as though such a thing could never happen, and yet such things did happen all while the price of electricity was falling. Multiple railroads were built side by side when one became too expensive. Etc.

            To me, the one thing all the “natural monopoly” examples fail to account for is human ingenuity. Because we humans are clever, even if a “natural monopoly” formed per your examples, it would not be long before someone figured out a different way to “scratch that itch” and circumvented the monopoly… assuming said person is allowed to, obviously.

            I think Tom DiLorenzo has done an excellent job of following up some of Rothbard’s work to demonstrate none of the utilities’ histories follow what we would expect if there were actually a “natural monopoly” (i.e. cutting production and raising prices). To the contrary, prior to regulation, production increased and price fell in every single case where, according to the “natural monopoly” theory, the opposite should have happened.

            To me, if a theory contradicts experience, the theory is necessarily false.

            Here’s a good article about the “natural monopoly” of electricity I dug up some years back. It’s quite interesting and quite different from what I was taught in economics class =D

            As for the inefficiencies, what you point out about large companies not being owned by people familiar with the business and therefore hiring owners is indeed similar to coops. It is also the same reason we did not tend to see these huge joint-stock companies until the government regulation “busted” the “trusts” and other forms of intervention either made it more difficult for people who know an industry to also own the companies in the same industry, or incentivized absentee ownership.

            Of course, I would argue, with these regulations, the businessmen then need a group of “owners” who do not know the industry to satisfy the regulations yet not get in the way of business. To some extent, therefore, I see the principle agent problem as really just a fight about how much the ignorant “owners” should be paid for their “service” of keeping the regulations satisfied. But I digress…

            In fact, the current system of corporate ownership really came into its own in the 1980s after the tax laws changed to favor larger “conglomerates,” leading to a massive merger wave in the late ’80s. After the wave of “deregulation” (which was really just “re-regulation”), many of these conglomerates have broken back apart (due to the inefficiencies stemming from the aforementioned problems) and headed back toward smaller ownership.

            So, like I said, the system of owners not being familiar with what they own leads to higher costs, which, all else being equal (i.e. sans government interference) *tends* to make these forms more limited in an unhampered market economy than we presently see in the economy today.

            Your last sentence is actually a perfect example of what I am saying if we look at electricity. Again, read the article I linked, but I will just mention, prior to the creation of the utilities, those rural areas were being expanded into by electric companies far faster than after the regulations.

            When the electric companies were subject to market competition, they perpetually needed to either provide better services, or find new markets. A common way of entry was to figure out how to provide service to an unserved area, then expand said service into an inefficient area. Of course, with the advent of public utilities cartelization, the “large companies” became secure in their respective markets, thereby negating their need for efficiency improvement and also removing the incentive for other companies to expand into new markets as a method of ousting another company. Given this new constraint on competition, as you say, the rural areas were largely ignored, thereby causing them to form coops to provide themselves electricity.

            So I am not saying coops are bad, again, I am only saying they arose in response to regulations discouraging entrepreneurs from providing the services and would likely either not exist or be considerably smaller in an unhampered market economy.

            Fun stuff 🙂

  • The Mad A-Rab

    I am from Detroit and I know how those ghouls work…

    They will use any excuse possible, no matter how anemic, to blame anyone besides the progressives. Even though progressives ran Flint for 40-50 years it is somehow magically a republicans fault.