Two Bits – 27 March 2015

Here we are, a decade and a half into the 21st century, and it’s quite absurd that we are being urged to use less of society’s most basic resources – electricity and water.
As I write those words I also feel a chill down my spine, because is this really what the future holds? That we will have to resort to squabbling over such basic necessities?
Some have predicted that future wars will be fought over fresh water supplies, but we’re not quite there yet. For my lifetime the mantra has always been “more, more, more” as society strives to get ahead, make more goods and make more money. There has never been a question that power and water could be so limited that we have to ration them.
I can hear you say that the reason why water and electricity are in short supply today is because  government failed to plan for growth and provide it.
Which brings me to a very interesting question: Why is government allowed to determine how and when we get more (or less) of anything? Why, after we elect a party, a group of people, into power do we hand over to them all responsibility for planning and producing, and allow them to dictate the pace of that production and planning?
But that’s how it’s always been done, I hear you say. And my question is, why is it so? It need not be.
Actually it’s not my question, it’s the philosophy of Austrian economist Freidrich Hayek, a colleague at the London School of Economics of that other (and much more famous) economist, John Maynard Keynes.
The world was desperately seeking answers to end the Great Depression before the Second World War. Keynes said governments should spend to create jobs and so would create recovery. In other words, hire people to dig holes in the road, hire more people to fill them in and everyone would be happy.
And the politicians heard Keynes and said “Here is a great man!” Because there is nothing politicians like more than spending other people’s money. Spending money would make them popular, then they’d be re-elected and have a nice job for life. In fact there would be more jobs, because bigger government would be needed to control the money, more departments would be needed to plan how the money should be spent.
The problem is, governments don’t make money. Private enterprise does. Follow Keynesian logic all the way and eventually the time will come that government is bigger than private enterprise and the money supply dries up.
Freidrich Hayek took the opposite view. He said big government is bad government.
In a nutshell, Hayek said that the market was so ingenious it could be neither designed nor controlled. Economic freedom was a prerequisite for economic growth.
It was not wrong to make a profit, nor was it wrong that businesses should be allowed to go bust. For example, high import tariffs might protect a local industry for a while, but the people who bore the cost of that protection were the consumers.
Why should you and I pay for a few to get rich? If their product is not competitive, if I could buy it cheaper from another source, why not? Yes, the local manufacturer might go out of business, but that’s the nature of business! The very essence of being an entrepreneur is to get your thinking cap on when things don’t go your way, and work your way out of trouble. When the going gets tough, the tough get going!
Which brings me back to electricity and water. We live in the middle of the sugar belt, which is notable for two products: sugar and waste. The waste is called bagasse, which is a French word for waste. It sounds better when said in a foreign language. Anyhow, some of the bagasse goes into making paper, but there’s a lot left over. Which would be ideal for burning in a furnace, to create steam, to drive turbines which create electricity. And feed it back into the national grid and help solve the power crisis.
The sugar industry has been trying to convince government of the wisdom of doing this for years. And, I gather, not making a lot of headway. Hayek would say it’s blindingly obvious why not. Because that would make Eskom less omnipotent, lessen government’s grip and make the politicians feel inadequate. Can’t happen.
Ditto with water. Why shouldn’t a private company set up a desalination plant, for example, take water from the sea and sell it to the cities? Who said government had the sole rights over water?
It is only because of government’s total control over the supply of both resources – and its inability to plan outcomes for market forces – that we find ourselves in the situation we’re in. And we have only ourselves to blame. Just a thought.
But not an original thought on my part. The Keynes/Hayek argument was the theme of a talk by the guest speaker at the Dolphin Coast Chamber of Commerce, Industry and Tourism’s gala bash at the weekend. Only problem was, his day job was with the national treasury and a lot of what he was saying is not PC with his socialist masters, so he wanted his name left out of it.
It was pretty powerful stuff, if a bit dry. But I did have a quiet chuckle when Jane Wiltshire asked me afterwards if I’d read Hayek’s book “The Road to Serfdom”. I said I hadn’t.
I was about to say that, however, I’d studied his teachings at Wits Business School, but before I could get a word in she peered at me and said: “Perhaps you could get the Idiot’s Guide to Hayek.”
Gee thanks, Jane.

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Q: How many conservative economists does it take to change a light bulb?
A1: None. If the government would just leave it alone, it would screw itself in.
A2: None, because, look! It’s getting brighter! It’s definitely getting brighter!
A3: None, they’re all waiting for the unseen hand of the market to correct the lighting disequilibrium.