—My thoughts on Notleys announcement and the UCP/NDP solution—Tim Moen
Published in December, 2018
Written by Tim Moen
2 fallacies I keep hearing from Kenney and Notley that are bugging me:
1) “The market failed”
Saying “the market failed” is exactly the same as saying “peace failed and now we need violence” since a free market is just a bunch of people respecting each other’s rights and trading voluntarily. So saying “the market failed” is just another way of saying “now we are going to use violence”. Where’s the violence? Well let’s say I own an oil company and I decide not to abide by the production slow down and I keep working/producing. What happens? Does the government leave me alone? No it sends threats. If I ignore the threats it eventually sends enforcers to use real physical force.
2) “Oil belongs to Albertans”
No we don’t own the oil under our feet, neither does the government despite acting like it does. You don’t just get to own stuff because you live in proximity to it or plant a flag in proximity to it and say “in the name of the Queen.” Stuff is unowned until an individual or group of individuals mix their labour with it and make it theirs. Oil belongs to the people who go get it. The people who risk their life, their livelihood, sacrifice their property (capital), devote their energy to getting it out of the ground. Frankly it’s insulting to the hard working people in industry to say “the rest of us own what you did by virtue of sitting down over here within a few hundred kilometres of where you’re working your tail off making sacrifices and taking financial and physical risk.”
I’m grateful for oil field workers and company owners because I don’t want to go get the oil myself and I’d gladly trade my money and labour to buy some of that energy from them because it makes my life better. That’s how markets work. Almost everything good we have comes from respecting property rights and peaceful voluntary interactions with each other.
Socializing resources (everybody own it); a) means nothing, because in what sense do I own the oil since I have exactly zero control over it, b) sets up an environment for conflict as all of us “owners” squabble over what is to be done, c) creates an environment where political connection is more profitable than the ability to produce.
Now let’s talk about the problem with the two government solutions Notley has announced.
1) Railcar purchase
Why is the government and not oil companies buying these railcars?
Now taxpayers will be on the hook to the tune of about $1 billion. That is $1 billion taken out of the hands of economic actors that can’t be used to invest to save to consume on other things. This is a $1 billion opportunity cost and a taxpayer subsidy to politically connected oil companies.
Notley says this purchase will be revenue neutral because royalties will pay off the railcars. So I’ll give her the benefit of the argument here that these oil companies that benefit from railcar access are the ones paying royalties that eventually buy the railcars. But this begs the question; why not just let the oil companies that are able to buy railcars buy them directly and give them a royalty/tax break? Why reinforce the oligopoly and state ownership of the means of production? Never mind, the question answers itself.
The next question is how does the government determine which oil companies get railcar access?
In a market it would be those companies that have skin in the game by risking capital and coming up with a plan. Privatized risk and reward. Here of course it’s going by the most politically connected oil executives that will be able to get access and so the risk is socialized and the reward privatized to the politically connected, not the most industrious individuals with their own skin in the game.
The Alberta government isn’t an oil company and shouldn’t act like one. This is going to create chaos in the form of negative unintended consequences that will no doubt lead to calls for more government intervention as politicians line up to act decisively to correct the next “market failure” they manufacture.
2) Production cut
No doubt there is some elaborate centrally managed, command and control scheme to determine which companies get to produce how much.
In a market some companies may choose to cut production while other push on ahead full steam because they make a calculation about the risk and reward and have skin in the game. Some companies may find a way to produce at a profit despite the low oil prices. Some companies may determine that their ability to produce in the future will be harmed by slowing production.
All of this gets distorted now and we may see companies fail because they are forced by government to slow production beyond a point that makes them sustainable. After all why wouldn’t they slow production voluntarily if it was going to harm them to continue to produce in this environment?
— Some solutions off the top of my head —
1) eliminate the carbon tax - we know that the carbon tax has driven billions of dollars in investment from Alberta. Eliminating this tax could give oil companies some breathing room and resiliency to weather the storm.
2) a royalty moratorium - royalties are a huge tax that cuts into the bottom line of oil companies. Eliminating them, at least temporarily until say a PIPELINE GETS BUILT, will allow oil companies to make more profit and give them more resiliency to weather the storm.
3) get out of the way - with a sharp increase in profitability to oil companies through tax breaks we’d see some things start to happen. They may buy railcars themselves. Railcars offer a dynamic advantage over pipelines of finding different markets and refineries to sell oil to in shifting market. Managed by individual companies rather than an inefficient government bureaucracy these railcars can be diverted to the most efficient markets.
The government has created all the “market failures” we see today. Asking them to use their power to fix these problems is like asking an alcoholic to fix their alcoholism by drinking more alcohol. It’s insane...
Tim Moen grew up on a farm in Northern Alberta. Leader of the Libertarian Party of Canada, Tim is also a public speaker, filmmaker, businessman, and a firefighter/paramedic.