China's threatened cutoff of rare earth elements lays bare failings of

freemarket economics

By Glen Wallace

Now that China is threatening to restrict the export of rare earth elements to the US, how do we prepare for such an potential eventuality? Perhaps a better question would be, why aren't we already prepared. Because, as I understand it, extracting rare earths from the ground and refining and separating them into their elemental component pieces, is not a quick process. I read a piece on some mainstream news website that seemed to insinuate that the process of accessing rare earth elements from the US earth was relatively quick and easy. I believe the article was reporting on a report by some think tank that came to those conclusions.

I think those think tanks exist largely to validate the freemarket capitalist economic system. The think tanks interpret the numbers in such a way that supports their bias that the freemarket, if left to its own devices, will always be able to either correct an existing problem or can be be shown not to be the cause of any existing societal problem. In the case of rare earths, the think tank argues that if China were to restrict or stop exports of rare earths, then that will make it a profitable enterprise for an American mining firm to start mining and producing rare earths when it wasn't profitable before any potential Chinese embargo.

There are couple of problems with that line of thinking;

1st It is not a quick process to mine and extract the elements. So, even if an American mining company takes on the challenge of rare earth mining, the US will be left scrambling for rare earths in the meantime. There is also the possibility that as soon as the American mining firm is finally online, has all its permits in order, equipment bought and online, employees hired -- the Chinese could end their embargo and flood the market with cheap rare earths; thus leaving the American operation no longer profitable.  Or maybe, even with a Chinese embargo opening up a market, no American mining firm would want to take on the challenge -- possibly due to the above point of the uncertainty on the length of a Chinese embargo of rare earths. 

2nd Even if an American mining operation were to be successful in terms of providing an adequate supply of rare earths for the nation and do so profitably, rare earth mining tends to be potentially very environmentally hazardous. Some environmental tradeoffs may have to be made by the mining company in order for them to achieve profitability.

As a result of the above two points, I think we should do now what should have done long ago: start a US Federal Government owned and operated rare earths mining operation. By taking away the necessity for profitability, a government owned and operated rare earth mining and extraction operation could be guaranteed to achieve a reliable supply of domestic rare earths and thus take away a bargaining chip the Chinese now posses in any trade negotiations; and do all that without having to take environmental shortcuts in the process.

The government could extract the rare earths while following the most stringent of environmental and ecological safeguarding practices, then sell the rare earths on the market. Any shortfall between operating expenses and revenue could be subsidized. While the subsidies from the public may have to be substantial, those numbers would be dwarfed by the many senseless wars of late that have been subsidized by the public 100% -- war doesn't provide any revenue.

And the argument that the government always mucks things up is complete nonsense. There should be no more expectation that the federal government will muck up a rare earth mining operation than it would have mucked up the Apollo moon program before it began.

And the rare earths are something this nation needs just as it needed the national highway system when it was proposed under President Eisenhower -- the result of which is the government toll free highway system, the freeway system, we all enjoy and tend to take for granted today.

What should be clear is that capitalist freemarket system is no more reliable or dependable than a wind vane -- well maybe we can depend on a wind vane to tell us from which way the wind is blowing, but we can't depend on it to stay pointed in any one direction for an extended period of time. And the nuances of the capitalist freemarket behave much like a wind vane insofar as it keeps swinging around in all sorts of directions from one time period to the next. And understandably, we can only expect a business to chase that market wind vane in whatever direction it is pointed at the time. But as a nation requiring a reliable supply of a product, in this case rare earths, we can't depend on business to supply a product when they are going wherever the economic winds blow and not necessarily towards where our resource needs are.