The folly of fiat

Mark Milke, The Orca, October 11, 2019

In the ancient tale of King Canute, the monarch (who died in 1035 A.D) attempted to command the tide to stop coming in. The story, possibly apocryphal, is often recounted by those who wish to illustrate the folly and arrogance of a king—or anyone in power—who thinks even nature must obey him.

In fact, the story’s actual intent is to show that Canute well knew that nature and God could not be ordered about, and some things were beyond the power of mere mortals. The failed seaside command was actually a lesson for Canute’s subjects, who too often attributed omnipotence to him.

One millennium after he died, King Canute is relevant once again.

We are beset by politicians and activists who actually think they can command economic and physical forces, to “transition” from Canada’s massive resource economy and the jobs that depend on it to some imagined employment building windmills or solar panels.

British Columbia premier John Horgan and the NDP offer up this mistake when they continually obsess over commanding the forestry sector to stop exporting raw logs, a decades-long obsession for New Democrats. Thus, the premier complains that B.C.’s forestry sector is not “transitioning” away from raw logs fast enough for Victoria politicians.

Said the premier earlier this year: “If we don’t have a transformation away from the high-volume to the high-value economy, we’re going to be struggling.”

Fact is, if a B.C. company could make more money/find a market for value-added wood, they would (and sometimes do as Vaughn Palmer just pointed out with regard to Surrey-based Teal Jones). In other cases, exporting raw logs makes sense for the same reason exporting “raw” oil or gas makes sense; the buyer/user has other plans for the product and/or can only add value at the end.

In some instances, the comparative advantage B.C. has is precisely in the raw logs, not in, say, shipping finished furniture to South Korea or Singapore. Or on oil, it’s why gasoline refineries are located near major population hubs or tidewater. It doesn’t make sense to refine most oil into gasoline in Alberta and then send it to British Columbia; it makes sense to refine it in Burnaby.

Or another example of the folly of fiat, this time applied to physical realities. The federal Liberal campaign recently announced that if Justin Trudeau’s party is re-elected, it would “transform” B.C.’s fish farms by 2025 by requiring all farms to move to closed containment systems. Tim Kennedy, chief executive officer of the Canadian Aquaculture Industry Alliance, told the Canadian Press, that promise was akin to telling ranchers to keep all cattle indoors all the time.

Politicians are not the only ones who routinely display a belief that physical and economic realities can be moved aside with wish-fulfilment political fiats. I’ve seen advocacy groups and others routinely advise Alberta and the rest of Canada to “transition” away from the oil and gas sector and its jobs. David Suzuki of course thinks this is eminently doable. He once quoted a report urging a “just transition for the workers and communities that depend on [the oil and gas sector].”

It was nice of Suzuki to at least acknowledge energy workers. There are 269,000 of them across Canada. (Alberta has the largest share, followed by Ontario, Quebec, and British Columbia.) But here’s the problem: politicians cannot just order a new economy like a meal at a restaurant.

The economy of any region, province or country has much to do with geography, geology, population, what’s in demand, and a whole host of other factors. In Ontario, near a major population centre in the American northeast, investments in factories are a smart move. Try and do the same in northern British Columbia and you’ll likely lose your shirt on transporting manufactured goods to New York.

Here’s another reality. According to the International Agency Energy, which constantly urges governments to subsidize renewables, energy demand will grow 25% by 2040, with oil and gas consumption both rising until at least 2040 under any scenario. The only question for Canada is whether politicians and advocates will continue to demand, a la Canute, that “transitions” occur, by which they mean government-imposed higher costs and regulatory actions, that deliberately seek to end the energy sector and the jobs that go with it.

We’ve seen this movie before. Such political preferences and activism caused mining companies to increasingly drop British Columbia and go south for the last three decades. The same thing will happen to fish farming if unrealistic political promises are imposed on that sector. The forestry sector has long struggled with the twin poison pills of anti-realism politics and activism. And a vocal minority of activists in B.C. (and the rest of Canada) have made it no secret: they want Canadian oil and gas dead.

We’ve seen this movie before

In theory, there is nothing undesirable about transitions. It happens all the time. It’s why I oppose subsidies to any industry: Let innovation and transitions rip and without political interference and forced taxpayer subsidies to protect someone’s corner suite or political constituency.

But successful transitions from one energy use to another occur when a new technology replaces an old one, and which makes life much easier; for example, when gasoline-powered tractors replaced horses in farming. Or when an energy source becomes cheaper, such as is taking place now, with natural gas replacing coal-fired electricity.

Or where the benefits are so advantageous as to make an old product obsolete: A useful example is when kerosene lamps for lighting were replaced by electric lamps, even though kerosene was cheaper. People were willing to pay more cleaner air and convenience.

But there’s the rub: When it comes to energy-intensive usage, we’re not there yet on many proffered alternatives. As energy expert Vaclav Smil, the University of Manitoba professor has pointed out for years, the attempt to transition from energy-dense energy sources that “pack a punch” (as one journalist characterized it) to lower power density is not going to work any time soon. That is, not unless we care to return to pre-industrial lives circa the medieval age.

Smil accepts that CO2 emissions affect the climate; he just refuses to play along with those who think there is any ready alternative to what powers the modern industrial and consumer economy. It’s also why Bill Gates, a fan of Smil’s work, last year mocked those who assert otherwise. At a Stanford University conference, Gates asked aloud and rhetorically how alternative energy could power Tokyo or produce steel?

Good question. It’s also why the level of ignorance on matters economic and physical among politicians and activists is stunning. And unhelpful.

None of this means attempts to innovate should end. Quite the opposite. But transitions cannot be commanded.

Mark Milke is an independent public policy analyst. His newest book is The Victim Cult: How the culture of blame hurts everyone and wrecks civilizations, published by Thomas & Black. Image Credit: Pixabay Intographics (of Poseidon).

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