Notes from the Underground: Libertarianism Hiding in Classic Lit

By Nick Deiuliis

Fyodor Dostoyevsky is widely recognized as one of the giants of literature.

Of his most noted works, the first and shortest is the novella Notes from the Underground, published in 1864. It’s also his most underrated and most insightful, particularly for modern times.

Some consider Notes from the Underground classic literature.1 Others say it is more political commentary. Social scientists point to it as a study in psychology.

All correct. Yet Notes is first and foremost something else: a basis for philosophy and policy rooted in the freedom of the individual to choose and the individual’s protection from control by the state and wider culture.

I interpret Notes as advocating for triumph of the ‘I’ over the ‘we,’ the ‘self’ over the ‘collective,’ and the ‘individual’ over the ‘public good.’

I read Dostoyevsky’s classic and contemplate a warning of how the Left (whether manifesting through communism, nihilism, or utopianism) presents a danger to the individual; and how the Left cuts against the grain of human nature. In many ways, Notes from the Underground was serving as a foundation for American libertarianism before the movement took root. And it is a decisive refutation of the modern-day nanny state.

A closer look at (or revisit of) Notes from the Underground is worthwhile to anyone who considers himself or herself a classic liberal and defender of the individual.

The Story

The first lines of the novella read, “I am a sick man…I am a spiteful man. I am an unattractive man.”

Notes from the Underground is not a story for the meek of heart. No sunshine and happy endings. The book is humorous at times, but it is certainly a dark humor.

The main character narrating the story is the anti-hero Underground Man, a miserable bureaucrat who spent his career abusing his position to make life difficult for other people.2 His directional perspective of being ‘underground’ serves as a metaphor for being separate from, an outcast to, society. He falls into some money, quits his job, and writes the notes as a form of confession.

That’s the focus of the first half of the book, titled “Underground”. The narrator observes that utopian society attempts to remove suffering and pain, but that humans desire both and need both to be happy. The narrator confesses his realization that attempting to remove pain and suffering in society takes away an individual’s freedom.

Underground Man realizes human beings are cursed with consciousness; it is what causes us to suffer. But it also allows for our free will and individuality.

He argues that despite humanity’s attempts throughout history to create a utopia where everyone lives in harmony, anyone can decide to act in a way that might not be in their own self-interest as defined by society or government. Some do so simply to validate their existence as an individual and to protest. And no one knows for sure whether the individual will choose a rational or irrational path.

The second half of the book, “Apropos of the Wet Snow”, consists of a series of adventures and events that occurred in the narrator’s life.

One of those stories is central to the book. The narrator tries to help a prostitute by promising to save her. She finds herself enthralled by the Underground Man’s lectures, his confidence, and ends up looking to join him. He then revokes everything he said to her, telling her he was laughing at her all along, and ridicules her miserable life and reality.

Then he breaks down and admits he was only seeking power over her and desired to humiliate her. He starts to self-loathe and focuses on his own poverty and embarrassing life. He doesn’t save her, she leaves and is never seen again.

The concluding sentences of Notes recall themes explored by the narrator in the first part, and he tells the reader directly, “…I have merely carried to an extreme in my life what you have not dared to carry even halfway…”

The Learnings from Notes

In the arenas of policy and classic liberalism, Notes contains a plethora of key passages that resonate more than ever.

Start with perhaps the underlying key premise of the book:

“What has made them conceive that man must want a rationally advantageous choice? What man wants is simply independent choice, whatever that independence may cost and wherever it may lead.”

Dostoyevsky is making a subtle but crucial point here: human nature yearns for the ability to self-select for oneself and to not be chained to the decisions of others (whether ‘others’ are controlling individuals, religion, or the state). Arguing that the state or a third party is better informed to make decisions for the individual than the individual himself or herself misses a key point (and is a dubious assumption when considering the track record of anything run by bureaucrat): the individual’s innate desire to decide for themself cannot be quelled.

Underground Man uses the analogy of humans serving as glorified organ-stops in oppressive societies to illustrate how the individual instinctively longs to decide their own destiny:3

“For who would want to choose by rule? Besides, he will at once be transformed from a human being into an organ-stop or something of the sort; for what is a man without desires, without free will and without choice, if not a stop in an organ?”

Dostoyevsky freely admits that humans enjoying freedom will often choose paths that are irrational, against their self-interests, and that may lead to misery for society. But that doesn’t mean oppressive forms of government that cripple the individual spirit won’t lead to the same or worse (think of Stalin and Mao and how we measure their ‘transformation’ of society to ‘paradise’ in the tens of millions of murdered innocents).

“In short, one may say anything about the history of the world – anything that might enter the most disordered imagination. The only thing one can’t say is that it’s rational. The very word sticks in one’s throat.”

Place those words from 1860s Russia into the context of today; with the war in Ukraine, Hamas terrorism, and Uighur genocide. Or with the breakdown of law in our cities and the epidemic of opioid death in our rural communities. There is no guarantee of rational order in the world, and there never was. Whether it be with democracy, colonialism, communism, socialism, or free will. Truer than ever.

Underground Man provides his thoughts on those who argue moral superiority and wish to superimpose their views or ways onto others. Read the following and try to not be instantly reminded of today’s elite and expert classes:

“There is the odd thing that is continually happening: there are continually turning up in life moral and rational persons, sages, and lovers of humanity who make it their object to live all their lives as morally and rationally as possible, to be, so to speak, a light to their neighbors simply in order to show them that it is possible to live morally and rationally in this world. And yet we all know that those very people sooner or later have been false to themselves, playing some queer trick, often a most unseemly one. Now I ask you: what can be expected of man since he is a being endowed with such strange qualities?”

Most experts in the field point to this passage as Dostoyevsky’s criticism of utopianism and, ultimately, communism. The idea that if you eliminate private property and make everyone equal, it not only makes people happy, but it makes the world neatly rational. Nonsense, of course, as shown by the epic misery brought to humanity by the Left.

And today there is a special refinement to the way of the Left. Leaders of the Left no longer bother to live their lives consistent with their preaching to everyone else as to how to live life in a moral and just way. Hypocrisy is paraded in the open, for all to see. That’s why a Hollywood star who is a self-proclaimed climate activist sails around the world on carbon-spewing yachts. And why a self-anointed Climate Czar who looks to impose travel restrictions on society flies private charter jets at will.

If you wish to think of Notes from the Underground as simply great literature and not policy thought-provoking, consider Dostoyevsky’s analysis of human nature:

“Shower upon him every earthly blessing, drown him in a sea of happiness, so that nothing but bubbles of bliss can be seen on the surface; give him economic prosperity, such that he should have nothing else to do but sleep, eat cakes and busy himself with the continuation of his species, and even then out of sheer ingratitude, sheer spite, man would play you some nasty trick. He would even risk his cakes and would deliberately desire the most fatal rubbish, the most uneconomical absurdity, simply to introduce into all this positive good sense his fatal fantastic element. It is just his fantastic dreams, his vulgar folly that he will desire to retain, simply in order to prove to himself–as though that were so necessary–that men still are men and not the keys of a piano, which the laws of nature threaten to control so completely that soon one will be able to desire nothing but by the calendar.”

Dostoyevsky concisely summarizes why large government, bureaucratic control, and nanny states ultimately fail to improve the standing of people the state policies were specifically designed to help.

I wonder if Woodrow Wilson, FDR, LBJ, or Barack Obama read Notes from the Underground. If so, did any of them underline that passage? Because it made an impression on them, they agreed with it, or they disagreed with it?

The narrator then addresses head-on what has become an all-too-common rebuttal of the Left, with:

“You will scream at me (that is, if you condescend to do so) that no one is touching my free will, that all they are concerned with is that my will should of itself, of its own free will, coincide with my own normal interests, with the laws of nature and arithmetic. Good heavens, gentlemen, what sort of free will is left when we come to tabulation and arithmetic, when it will all be a case of twice two make four? Twice two makes four without my will. As if free will meant that!”

Save that passage for every time one hears the bureaucrat’s defense of onerous control of the individual by the state with the position that government knows what is best on the topic(s) and that the individual remains largely free. Hogwash, as Dostoyevsky’s narrator articulated.

In the first part of the book, “Underground,” the narrator marks the supremacy of the individual to choose whichever path desired, even if the path is illogical or irrational when compared to the norms of society. Check out:

“You, for instance, want to cure men of their old habits and reform their will in accordance with science and good sense. But how do you know, not only that it is possible, but also that it is desirable to reform man in that way? And what leads you to the conclusion that man’s inclinations need reforming? In short, how do you know that such a reformation will be a benefit to man?”

Humans are inherently driven, albeit to different levels. Being truly satisfied is a state many never reach. What makes one think that providing economic security at the cost of surrendering freedom is desirable? We are not sheep.

Consider this sentence from the book:

“Man is sometimes extraordinarily, passionately in love with suffering: that is a fact.”

Society cannot be organized in a way that guarantees the happiness of citizens.

And one may argue that being in love with suffering is nothing more than human nature associated with achievement. Someone earns a million dollars, and they immediately desire two million dollars. Someone wins a championship in sports and immediately desires another title. Someone climbs Mount Everest, and they want to start planning to summit K2. The drive to achieve cannot be extinguished by a forced contentment injected by policy.

Concluding Thoughts

Notes is a short book, but an incredibly dense one, packed with passages that speak to so many contemporary policy and current events issues. Invest in a highlighter to mark key sentences, and then place Notes from the Underground close by for easy access in the future. It’s something you will pull off the shelf and reference more than you think.

This is one of those books that every college student should read before graduating (I would argue every high school student should read it, but that might be stretching things in this day and age of failing public education). Notes warrants a place on the syllabuses for English Lit, Civics, Psychology, and Philosophy.

There is something for everyone to take away from Dostoyevsky’s first classic. Now more than ever.

[1] And a bleak one at that!
[2] Dostoyevsky often portrays his protagonists as unattractive and the characters opposing them as more likable. Perhaps he felt doing so made his messages more impactful.
[3] Organ stops are buttons that are manipulated (pulled out or pushed in) by the organ player to send compressed air through a specific organ pipe.

A Dose Of Dissidence And A Pinch Of Living In Truth: Remedy For Troubling Times

Today the West struggles under the Left’s tightening grip on the economy, education, individual rights, and nearly all facets of society. Voices from the past who warned of the perils of the threat resonate more than ever; Ayn Rand, George Orwell, Friedrich Hayek, and Milton Friedman saw it coming.

Yet there is another leading voice who didn’t just see the Left coming, but who also devised a means to escape it. A voice that doesn’t receive near enough attention.

Vaclav Havel.

You may have just read that name and said: Vaclav who? Understandable, because despite his greatness, Havel is largely unknown in America. But lamentable, especially in times like these, with numerous contributions to explore, learn from, and emulate.

Evolving Excellence in Tumultuous Times

Havel was born in Czechoslovakia just prior to World War II, in 1936. He lived an exceptional life.

He was many things: author, poet, playwright, dissident. And ultimately a statesman and leader of his nation(s).1  You might remember him as the poet who rose to the presidency of Czechoslovakia around the time the Berlin Wall came down.

Havel served as the first and last president of Czechoslovakia up to its dissolution. He then became the first president of the Czech Republic, serving for a decade.

But Havel first rose to prominence as a playwright. He utilized an absurdist style of writing to criticize the communist system. After participating in the Prague Spring in 1968, he got blacklisted when the Warsaw Pact invaded Czechoslovakia and forcibly put down the movement.

Havel became more politically active, and he spent years under government pressure and as a political prisoner; he spent nearly four years in prison during the late 1970s into the early 1980s.

Havel played a key role in the Velvet Revolution that toppled the communists in Czechoslovakia in the late 1980s. He assumed the presidency shortly after. Havel led the charge to undo the Warsaw Pact and grow NATO eastward.

Czechoslovakian citizens flood the streets of Prague during the Velvet Revolution in 1989
Credit: Velvet Revolution Street Museum

Many of his stances ended up controversial domestically; by the end of his political life, he had greater popularity abroad than at home. Havel continued life as a public intellectual after serving in office and until his death in 2011.

The Big Picture

Havel’s views have been labeled many things over the years. Anti-consumerism, humanitarianism, environmentalism, civil activism, and direct democracy activism.

But one Havel theme reigns supreme over all others: the implications of the individual dissident who decides to live within the truth in a post-totalitarian system.

Let’s unpack that.

Havel feared a future where society’s attention would be diverted by consumerism and television (today add reality TV and social media). The distraction would draw individual citizens’ attention away from the substance of public policy and governance. He foresaw today’s crisis of culture and technology: individuals enslaving themselves because they don’t ask who they truly are and what they should be doing. A form of modern dis- or un-freedom.2  

Havel applied first-hand experience to develop his philosophy and construct his plays.

A key example of this dynamic was a friend of Havel’s who worked at a brewery. The employee-friend was smart, knew of ways to improve the brewing process, took pride in his job, and he cared about the product.

But the employee also knew he should keep quiet and his head down in a socialist and communist system. And defer to his superiors at the beer plant. Yet the employee could not help himself. He spoke up with his ideas for improving brewing efficiency and the quality of the beer. That exposed him to the likelihood of negative consequences.

Havel used that experience to illustrate the key concept of ‘living in truth.’

Even though a single, lowly employee within a giant bureaucracy of an organization or collective had little direct connection to the output (beer), the individual fundamentally cared about the quality of the beer and the efficiency of the process. It connected to the essence of who the individual was, even though the employee didn’t own the brewery and wasn’t responsible for the product. He cared because it was core to who he was.

Havel referenced this employee who speaks up as an individual who chooses to live within the truth. And Havel introduced the idea that the employee brewer, or anyone else trapped in a controlling society who chose to live in truth, were dissidents of the system.3  

Enter The Power of the Powerless

In the late 1970s, Havel penned the essay The Power of the Powerless. It is genius, inspiring, thought provoking, and timely.

He used a character in the essay, a greengrocer shopkeeper, to illustrate how one living within a lie might choose instead to live in truth. Making such a transition means becoming a dissident in a post totalitarian system or society.

Havel’s referencing of ‘post-totalitarian’ does not mean that the system is no longer totalitarian. Quite the contrary. He defined a post-totalitarian system as one where every individual is trapped within a dense network of the state’s governing instruments made legitimate by a comprehensive ideology.4   The post-totalitarian system is a secularized religion of coerced decision-making, repression, fear, and self-censorship.

Havel applied his themes using a communist system as backdrop. But the learnings and lessons apply to the West today with the ongoing stifling of individual freedoms by the Left.

The nameless greengrocer hangs a sign in his shop window that says: “Workers of the world, unite!” Yet the greengrocer cared nothing about that famous line from Karl Marx. It was a stock phrase that everyone came to blindly accept and adhere to. It was not unifying or inspiring to the individual in Czechoslovakia in the late 1970s, whether it be the greengrocer in the essay, Havel’s friend who worked in the brewery, or any other typical individual.

By placing the sign in the window, the greengrocer was telling society that he was compliant, that he fit in, and that he was willing to live in the environment defined to him by the post-totalitarian system.

Note the greengrocer used a common, popular phrase to say this instead of stating something more direct, like “I am a sheep and I blindly and obediently follow what the system (i.e., shepherd) tells me to.” The sign explicitly states one thing but implicitly informs of something very different. Yet the greengrocer was able to communicate the implied meaning through his sign without having to explicitly state it.

And the greengrocer is playing into a form of peer pressure, or what within a post-totalitarian system of government or ideology would be considered as indoctrination. He didn’t receive an order by the government to compel him to put that sign in the window. He did it because he saw that others did it too.

Such behavior becomes self-fulfilling and self-determining. The next person who walks past the shop sees the sign, making it more likely that they will then put the same sign up in their home or business. It feeds on itself as a form of auto-indoctrination.

Havel realized some systems are totalitarian not because a single person, a dictator like Hitler or Putin, has total power. Instead, a system or society may be totalitarian because power is shared in a state of collective irresponsibility. Citizens become both supporters and victims of the totalitarian system, individually and collectively deciding to not live in truth. The system or society becomes post-totalitarian.

Havel highlighted freedom may not always be as we think of it, particularly in post-totalitarian societies. In the West freedom is viewed as doing things we are inclined to do. But Havel taught that freedom is contemplating what you should do as an individual and then having the courage to go do that very thing, even though it will risk the ire of the system or society. That’s a deeper, more meaningful, form of freedom.

Comparing Havel’s Eastern Europe in the 1970s and the West of Today

Today’s West is showing symptoms of becoming a post-totalitarian system, one where many individuals refuse to live in truth (and thus live a lie). Worse, those who decide to live in truth are feeling and looking more and more like those dissidents that Havel spoke of.

The first two sentences in The Power of the Powerless read, “A spectre is haunting Eastern Europe. The specter of what in the West is called dissent.” Havel leads with this to set up an explanation of his premise. And indeed, a similar specter is now haunting the West which is increasingly controlled by the Left.

The post-totalitarian system subdues citizens with the drugs of government subsidy and giveaways to the individual. Havel pointed out how government gifts (rent and housing subsidies, etc.) come with a price: surrendering one’s reason, conscience, and responsibility. A core objective of a post-totalitarian ideology is to rip these away from the individual and assign them to a higher authority.

Today the Left in America and Europe provides government handout after handout to individuals. Entitlements, healthcare, student debt forgiveness, corporate subsidy, and so on. In exchange for something quite precious: surrendering the individual’s right to choose for themselves and to live in truth.

Whether it was Havel’s Eastern Europe in the late 1970s or America today, the benefits bestowed upon citizens by a post-totalitarian system are far from free and are the most expensive benefits one might imagine.

That sign in the greengrocer’s shop window, ‘Workers of the world, unite!’, has an eerie analogy today in the West with ‘Climate action now!’ You see those signs everywhere, in large manicured suburban front lawns (ironic), in corporate public relations materials, at over-priced colleges hanging on bulletin boards, and on T-shirts. Are the people who post these signs truly enthusiastic about climate action? Have they given any serious thought as to what the message might mean?

It’s evident that the overwhelming majority are not and have not.

But someone, or something, produced those signs and then distributed them to the greengrocer in Havel’s story or to the suburbanite, corporation, or student in today’s America. The signs go up because everyone is doing it; because that’s the accepted norm within the system. If you don’t sport a sign, there will be consequences. You show the sign to get along in life. It assures you of not being hassled.

Those displaying the sign are telling us something subliminal yet powerful. That the greengrocer then, or the college student today, knows what one must do and how one must behave. And the sign looks to deliver such a message to those in power as well as to fellow citizens.

Such behavior through the signs also implies that the individual is scared, intimidated, and a follower. That’s where the role of the explicit message on the sign comes into play; it provides a salve to the ego of the obedient individual. Because the explicit message demands proactive action: uniting the workers or climate action, both with an exclamation point.

The approach in a post totalitarian system is diabolically genius: it provides an explicit illusion of being moral while the reality underneath makes it easier for the individual to part with his or her morality. And that’s true whether it was for communism in Eastern Europe in the late 1970s with the greengrocer and his workers sign or with the Left running the West today with the student or suburbanite and their climate signs.

Havel illuminated the difference between the objectives of the post-totalitarian system, or government run by the Left, versus the objectives of a meaningful life and the human spirit. There was what he referenced as an abyss between the two.

With the individual’s human spirit, there is a striving and hunger toward variety, choice, individualism, self-determination, and a fulfillment of one’s own potential.

Compare that to the objectives of the post-totalitarian system: forcing individuals into predefined states and a movement toward rigid structure and belief.

That post-totalitarian approach, or the playbook of the Left, forces individualism to be secondary to a blind obedience that drives the system. Individuals are not deemed by the system or the state to be worth much, only inconsequential cogs in the machinery of the post-totalitarian system.

Building and growing the post-totalitarian system generates continual hypocrisy and irony.

  • Government by bureaucracy is called popular government, even though it’s anything but.
  • The middle class becomes enslaved within the system, but that occurs in the name of the middle class.
  • Taking away the freedoms of the individual is in the name of defending the rights of the individual.
  • Denying society information and censoring is labeled as making things transparent, truthful, and accessible.
  • A bureaucrat’s subjective and wide use of power gets labeled as adhering to the law or the Constitution.5
  • Suppressing free speech becomes a way to protect individual rights, including free speech.
  • And punishing scientific thought and the scientific method is to further ‘The Science.’

To propagate the charade in the post-totalitarian system of Havel or with contemporary government run by the Left today in the West, the system must fabricate and contort statistics, data, and history. Climate change is a prime example, with the cherry-picking of statistical datasets for climate models, selectively reporting one set of weather events while ignoring other sets of weather events, and by constantly changing predictions into the future and conveniently ignoring prior predictions that keep proving inaccurate, time and again.

The culmination is the system transforms reality into a ritual of signs and pseudo-reality. Science gets replaced with political science. Objective reality is replaced with religion of the system. Backed by signs and slogans such as ‘climate action now’ and ‘code red.’

It impacts everyone in society, from the lowliest of the working class to the most elite of the educated class. That’s why some of the most educated and successful individuals blindly adhere to ideologies such as extreme environmentalism. The process that the post totalitarian system employs works across all strata of society and all education levels.

There is a psychology at play. People sport the slogans and the signs not looking to persuade others, but instead to conform and contribute to the wider view and objective of reminding people what is expected of them. It’s affirmation of the herd, and subliminally coercing others to comply or face alienation and losing the peaceful lifestyle that comes with obedience. Individuals are conscripted into the system’s effort to assist each other to become obedient; instruments of control and at the same time subjects of control.6

Pivoting to Living in Truth

What happens if the greengrocer decides to pull down the sign in the window or if the homeowner removes the ‘climate action now!’ sign from the suburban yard? What if both start to say what they think, and start following objective truth and what conscience demands?

Perhaps it’s a form of revolt. But Havel defined it as an attempt to live within the truth.

Living within the truth breaks the veneer of the system and exposes it as a manufactured scheme. Living a lie is exposed as just that, living a lie. Like the Wizard of Oz, one finally gets to see what’s behind the optics. Thus, for the post-totalitarian system (or for government run by the Left in the West today), the ultimate fundamental threat to its power will be individuals daring to live in the truth.

Just as there was a cumulative effect that plowed society into living the lie, when an individual chooses to live within the truth, the system runs the risk of teetering and crumbling.

Trust that the post-totalitarian system will react. Today the Left will accuse someone speaking their mind as wanting attention, money, clicks, or notoriety despite none being true. In fact, most individuals who decide to live within the truth have no prior political activity or affinity for politics. They just want to be able to exert their own individual freedoms: to speak, participate, and think.

And freedom to achieve, create value, make decisions for themselves, and utilize energy. Starting to see how climate change and Code Red are foundational tactics of the Left’s post-totalitarian system today?

This is why Havel considered individuals looking to live within the truth in a post-totalitarian system as dissidents. It’s a different connotation than what we typically think of dissident; it’s not so much that the individual proactively acts as a dissident as much as it is the system treats the individual as a dissident.

The media will shun and ignore individuals living in truth. But if the individual speaks freely despite the system looking to suppress them, the views of the dissident living in truth start to stretch beyond immediate circles and start to gain wider traction across society. The individuals in this category start to be known for their thoughts and ideas beyond their respective professions.

That’s how Havel evolved from a renowned poet and playwright into a political leader. He was the ultimate dissident living in truth in a post-totalitarian system.

Individuals living within the truth in a post-totalitarian system are often labelled rebels. But they don’t consider themselves to be. They aren’t rejecting anything. Instead, they are exerting freedom. They are thrown into the situation by a sense of personal responsibility coupled with the times.

And when these individuals say aloud what others are afraid to say or cannot say, dissidents living in the truth become inspiring. Another threat to the system. Especially if the dissident living within the truth jumps from no longer living within the lie and into proactively advocating for the truth, becoming vocal and visible to all.

There is a key difference between the post-totalitarian system of the Left and a dictatorship.

A dictatorship has no need to respect the law. But the post-totalitarian system, or today’s big government of the Left, has great use for the law. It uses the law to create power and to preserve it in the form of control over the individual. Tightly regulating and weaving an intricate web of complexity within the law are useful tactics for the post-totalitarian Left.

What Would Havel Think Today?

Havel, interestingly, considered himself an environmentalist. But environmentalism back then is a far cry from what it is today. No doubt that much of what he exposed of the post-totalitarian system is embedded within today’s extreme environmental movement. One wonders what Havel would think of today’s Code Red and Climate Action Now!

I’d like to believe he would carry the torch of dissidence when it came to the supposed scientific consensus of Climate Action Now!

Let’s follow his lead in the full spirit of living within the truth.


(1) How many people can lay claim to leading two nations in a lifetime? And being the first democratically elected leader of both? And being the last president of one?
(2) For related reading on enslaving and distracting individuals, check out the essay, “When a Blinded 1930s Writer Saw the 2022 Future.”
(3) Dissident had a different meaning within Havel’s philosophy compared to what we typically think of in the West. Read on for an explanation.
(4) As summarized by Havel biographer John Keane.
(5) Hello, Chevron precedent.
(6) Using Havel’s words, “They are both victims of the system and its instruments.”

The Logic and Morality of Share Buybacks

The following commentary is by Nick Deiuliis and Yemi Akinkugbe.

In 1982, the SEC, under President Reagan, reinstated share repurchases to the American public corporation capital allocation tool kit with Rule 10b-18 of the Securities Exchange Act. Every year since, the criticism of this crucial capital allocation option from the anti-business Left and the populist Right has grown more strident. Yet corporate business leaders will be hard pressed to find a more effective and moralistic approach to capital allocation than share repurchases, when executed at the right times by applying clinical math.

Political Witch-Hunt

President Biden, in his 2023 State of the Union address, attacked corporate share repurchases and proposed “quadrupling the tax on corporate stock buyback” to punish the practice. President Trump was a critic of buybacks prior to President Biden. Senator Elizabeth Warren calls share repurchases “nothing but a paper manipulation” and criticizes corporate executives who utilize the tool. Senator Bernie Sanders proposed introducing a bill that will prohibit corporations from performing share buybacks unless certain conditions are met.

It seems as if the whole of government these days aims to dictate and micromanage corporate America’s capital allocation decisions. The justification proffered is the popular, yet false, premise that stock buybacks necessarily lead to significant declines in business investment. How ironic that the anti-business crowd criticizes the tactic of share buybacks because it reduces…business investment!

Unfortunately, there are more than a few influential academics and Wall Street leaders who obligingly echo politicians when attacking share repurchases. The CEO of the largest financial institution in the world once stated corporate leaders needed to be on guard against practices “to deliver immediate returns to shareholders such as buybacks…. while underinvesting in innovation, skilled workforce, or essential capital expenditures to sustain long term growth.”1

Repurchases the Right Way

Like most things in life, how one assesses share buybacks and the timing and transparency of them matter greatly. The goal of share repurchases should be to perform them in a way and during a time when the capital allocation decision increases the intrinsic per share value of the corporation for the remaining owners.

The formula for achieving such a goal is surprisingly simple.2  The board and management of a corporation should have a refined view on the intrinsic valuation of the business, one that reflects the long-term cash flow generation expectations expressed into a present value on a per share basis. That view should be methodically updated and refined as conditions and strategy change.

Publicly traded corporations can then compare that internal view of the value of the business to the current share price of the company. If the share price is at or exceeds the internal per share value view, then share buybacks do not represent a value-adding capital allocation proposition at that time and should be avoided. The time is not right.

But if the company’s view of its per share value exceeds the current share price by a significant margin, the opportunity exists to deploy free cash flow into share repurchases, and by doing so leaving more per share future value of the business to the remaining owners.3 Running this clinical math highlights periods of time when share buybacks make tremendous logical sense.

A properly executed process for assessing share repurchases means there will be times when buybacks should be declined and times when they should be eagerly pursued without risking the balance sheet. The math dictates the timing. When the process and decision filtering are consistently adhered to over the long term, share buybacks can prove to be the most effective of capital allocation tools.

The Morality of Share Buybacks

The great economist Milton Friedman succinctly stated, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…”4

There are many tactics managers must apply at different times to achieve Friedman’s view: investing capital into the assets of the business, paying top talent to incentivize performance, building a strong balance sheet, and taking the long view of local communities that are core to the business by nurturing economic and social progress. Share repurchases, when applied clinically, can be as effective as these other tactics.

Following Friedman’s view and utilizing share repurchases under the right approach is not greedy, immoral, or wrong. It is morally just because of four reasons:

  • First, note who benefits when a corporation maximizes its profits through share repurchases at the proper times: the shareholder owners. Which include pensions (and their retirees and active workers), mutual fund investors (aka 401k owners), mom and pop investors, and nonprofit foundations. Sure, executives will stand to benefit by the proper application of the share repurchase tactic. But that is the essence of pay-for-performance and it places the business leader in the same shoes as those stakeholders who own the company.
  • Second, share buybacks are the ultimate expression of the individual investor’s freedom of choice. Even though the initial decision to repurchase a share starts with the corporate management and the board, the transaction is not consummated until an owner decides to sell the share back to the company. It is the ultimate exercise of a free market transaction. Those owners not wishing to sell are free to hold on to their shares and end up owning a larger piece of the corporate pie. Owners looking to exit the investment have a willing buyer, the corporation itself, ready and able to transact on the other end.  Each owner is ‘free to choose’ (to borrow another line by Dr. Friedman).
  • Third, share repurchases when done properly do not reduce investment in business. To the contrary, they grow investment in business and the economy. Owners who decided to sell shares back to the corporation are now able to redeploy their investment into whatever venture is compelling and in need of capital. And owners who hold their shares now enjoy a larger piece of future profits from the corporation, creating higher net worth to invest and stimulate the economy further. And the corporation should realize improved valuation and investment prospects as the market begins to reflect the business’ true intrinsic value over the long term.
  • Last, a proper process for share repurchases forces management and boards of public corporations to take the long view and shun the short-termism and herd mentality that plague the public capital markets. Advocates who understand the power of effective share buybacks learn to bask in times when Mr. Market misunderstands the future prospects of the business and wrongly devalues the stock. That is not a short-term problem to an effective capital allocator; instead, it is a long-term opportunity to grow the intrinsic per share value of the business.

If you doubt the case for share repurchases under the right circumstances, consider the view of the Oracle of Omaha.

Warren Buffet in his 2023 shareholder letter pushed back on share buyback critics when he said, “When you are told that all repurchases are harmful to shareholders, to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongue demagogue (characters that are not mutually exclusive).” Buffet knows a thing or two about capital allocation, and investors would be well served to heed his advice.

“When you are told that all repurchases are harmful to shareholders, to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongue demagogue (characters that are not mutually exclusive).”


Shun the Shrill Ideology and Embrace the Clinical Logic

Yes, the tactic of share buybacks can be poorly applied and end up harming a business.5 Yet that risk is present in all tactical business decisions and, frankly, most life decisions.6

A risk of getting share repurchases wrong does not make it immoral nor should it be grounds for limiting the ability of corporations to perform it or for investors to benefit from it.

Like many other religious tenants of the modern-day Left and, often, the populist Right, the attack on share buybacks is based purely on dogma bordering on an extreme religion. The belief that capitalism, business, and profit are unethical. That the individual company or investor should not be free to decide for themselves. And that meritocracy and survival of the fittest are to be avoided in the market.

Instead, too many politicians these days demand that government and the unelected, faceless bureaucrat should determine capital allocation decisions, along with selecting winners and losers in a stacked game. The individual, whether it be a company or investor, is subservient to the political and ideological whims of the elite and expert classes.

That belief system is more 1960s East Germany than the American legacy of a free market. If you wonder which is preferable, ask yourself which side of the wall Berliners risked their lives to end up on.

We should shun rigid ideology that limits the freedom of individual investors and that constrains the free market to optimally allocate capital.  Embrace the morality and rationality of share buybacks when done right.

Connect with Nick on Twitter at @NickDeiuliis and on LinkedIn, and CNX Resources consultant Yemi Akinkugbe on LinkedIn.


1 Larry Fink Annual Letter to CEO’s April 2015
2 A fantastic book on the topic of effective capital allocation and the power of share repurchases when done right is Will Thorndike’s The Outsiders.
3 What constitutes a ‘significant margin’, or adequate margin-of-safety, is quite subjective and will rely on the judgment of the manager or director running the corporation.  Yet such subjectivity will be present in all major business decisions for corporations, from M&A to capital expenditures into the going concern asset base.
4 Give a read online of Milton Friedman’s “A Friedman Doctrine: The Social Responsibility of Business is to Increase its Profits”, from New York Times Magazine in 1970.
5 The two most common mistakes when applying the tactic of share buybacks are placing too much debt stress on the balance sheet (borrowing to buy back shares instead of using free cash flow) and repurchasing shares when the stock price does not offer a substantial discount to the intrinsic value (or margin of safety). The former does not appear to be a widespread phenomenon, as the MSCI All Country World Index of Debt Issuance vs Buybacks shows little-to-no correlation between buybacks and debt issuance.  The latter is a much more common error, with Warren Buffet commenting that, “American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked.”
6 A person stuck in a bad marriage does not mean the institution of marriage should be vilified by all. A badly timed investment in a small business should not serve as justification for shuttering entrepreneurship.  The same logic should apply to corporate share repurchases.



LA County Lincoln Club • June 2023 Address

The following is a summary of Nick’s June 2, 2023, address to the Los Angeles County Lincoln Club – Downtown Chapter.

I am so happy to be here, to be with so many doers and value creators. I typically decline many of these invitations to speak and interact. It’s much more comfortable for me to write commentary on my website or discuss issues on my weekly Far Middle podcast than to take the much bolder step of interacting with fellow human beings.

And I have a day job running a publicly traded energy company, CNX Resources, with a great team who are always demanding that I focus on the next summit to climb.

But when I first connected with Nish, I didn’t hesitate for a moment; I was all in. Let me tell you why.

Since you here today are from California or the LA area, you may miss something crucial about California and the position it holds within our nation. My family, like Nish’s and most of yours depending on how far you go back, were not from America. Our people came to America. More specifically, our people aspired to come to America. Because of what it represented and offered, which was in stark contrast to the places where our people left. People from all over the world dreamt of…coming to America, to steal the title of a great 80s movie.

But within this great nation sits California. You see, people from all over America dreamt of…going to California, to borrow the title of a great Led Zeppelin song. California for decades was the dream within the dream. The next level of the American ideal.

I had that dream but never realized it. Since I was a kid. My favorite TV shows were centered in California, hello CHIPs. The first movie I ever saw in a theater was Earthquake, where my perceived ideal of a place was devastated by a natural disaster.

A self-respecting Pittsburgher, I was a Pirates fan growing up in the early 1980s. But I was also a massive Dodgers fan. I fell in love with Vin’s voice and the stadium. That crisp white uniform in the sun. Lasorda, Garvey, Dusty, and my personal favorite, third baseman Ron Cey. The Dodgers perfectly mirrored my image of California and LA.

One of life’s great mysteries to me are people, many of them smart people mind you, who say they prefer New York City to LA. What? That’s not even a fair comparison. People…escape from New York; yeah, another 80s movie title again; they don’t desire to go live there, certainly not over LA.

Although I never left Pittsburgh, I remain fond of California and LA. And I am deeply troubled about both. And America. And my hometown as well. Allow me to explain.


Understand my makeup. Like most of us here today, I am a mosaic of things.

I am an engineer by training, which means I am passionate about the scientific method and objectivity when setting policies. I am not a fan of, and am deeply troubled by, ‘The Science’.

I am a liberal, as in the endangered species of classic liberal, when it comes to individual rights. The Constitution and our republic were structured to protect the rights of the individual. From the tyranny of the majority and certainly from the state. The individual should be free to choose.

I am most definitely a fiscal conservative. I never spent more cash than I took in, including when I was young, starting out with basically nothing, and no car. So why should our government systemically and constantly grossly outspend what it takes in?

And philosophically, I am best defined as libertarian. I recognize we need some level of government – to protect property rights, protect individual rights, and to defend from outside threats. But that level should be minimal so that the individual is optimal.

And I am a proud capitalist. And an unapologetic domestic energy producer of natural gas. And a believer in meritocracy. And free market advocate.

What’s interesting is how out of style that mosaic makeup I just listed has become. In fact, it is now beyond unpopular with the elite and expert class. It is outright vilified as something in need of silencing and eradicating.

Think about it. The Science reigns over science. Individual rights are trampled by the official views set by the elite and expert classes. Fiscal responsibility in government has been obliterated and we pretend the bill will never come due. Government has become a monster, light years away from minimal. Socialism eats away at capitalism. Zero carbon myths are used to attack domestic energy. And equal outcomes destroy meritocracy.

Why are all these things coming to bear at the same time across our great land and this awesome state? It boils down to one culprit, friends: the Left.


Learn how CNX Resources produces natural gas.

If you could create the opposite composite of the things that I love, that I associate with, that I just listed, you would come up with today’s Left.

And not only is the Left the antithesis of all that I hold near and dear, but it also—quite astutely I might add when one considers the Left’s end game—attacks and vilifies the industry and region that are in my DNA. Those being the domestic natural gas industry and Appalachia, with Pittsburgh serving as its beating heart.

And there is much that we all stand to lose if the Left succeeds. Allow me to illustrate with my world, which seems far from here but in fact impacts everything here in Cali. It’s the greatest success story never told.

The U.S. went from being a net annual importer of natural gas as recently as 2016 to the largest global producer of natural gas and a net annual exporter today. The Appalachian basin is a big reason why; the Marcellus and Utica shale horizons underneath where I live represent cumulatively the second largest natural gas field in the world.

What catalyzed this stunning rapid transformation and dominant position? The free market bringing innovative and disruptive technology in the form of horizontal drilling and advanced completions techniques. American ingenuity allowed methane, aka natural gas, to be liberated from shale rock deposits at prolific rates and low cost.

Cumulatively, the benefits across this virtuous value chain total in the trillions of dollars. Because of capitalism and efficient market theory.

You see these benefits locally in places where the manufacturing of energy occurs, often in rural and underserved locales. Landowners have enjoyed a windfall from gas rights leasing that they’ve reinvested into family farms, homes, kids’ education, and local businesses. Communities ravaged by global “free”, but really unfair, trade now see high employment in jobs that pay family-sustaining wages. Where no hope existed not long ago for these communities, attention has now turned to a future with promise.

You see the benefits regionally. Pennsylvania retooled its power grid to feed off domestic natural gas and the state’s carbon dioxide intensity declined nearly 40 percent in just 12 years while its manufacturing sector was revived and businesses and homes enjoy lower energy bills. Old-line manufacturing, petrochemicals, and industrial products are resurrected across the Rust Belt by the jolt of cheap and reliable energy. Which means the building trades are booked solid.

Benefits are evident across America and North America. Canadian heavy industry in western Ontario is now fed by new pipeline infrastructure conveying Appalachian carbon-based molecules, making it more competitive. Mexico is the largest importer of U.S. natural gas.

The US shale industry and free market have done more for North American prosperity than the NAFTA and USMCA, combined.

America’s domestic energy industry is redrawing the geopolitical map.

We broke OPEC’s back. Domestic carbon manufacturing allows the U.S. to withdraw from endless conflicts in faraway lands since we now deliver our own energy security. U.S. natural gas is the biggest strategic lever against the growing threat of the ominous Chinese communist state and its global ambitions, as well as Russia and Putin.

There are basic underlying reasons why this miracle occurred in a very short time.

First, the free market was able to function without major government intervention. The industry innovated faster than bureaucrats and the Left could keep up to meddle. Second, the free market allocated capital across the value chain, and what were once fragmented pieces quickly become integrated and efficient.

And if left unmolested by the Left, we are just getting started. Two big opportunities are on the horizon.

First, another round of disruptive and innovative technology is coming to bear, much of it being developed and demonstrated by CNX in Appalachia, that will allow natural gas manufactured at the wellhead to be efficiently transformed from gaseous methane into compressed natural gas and liquified natural gas. Or CNG and LNG, respectively. That’s a game changer, because CNG and LNG will instantly displace massive volumes of foreign-sourced oil used in the transportation sector.

When you blend in CNG or LNG into a truck, heavy equipment, bus, or airplane in place of gasoline or diesel, a few things happen. Costs go down because the natural gas derived BTUs are less than half the cost of gasoline or diesel BTUs. Huge savings.

Supply chains shrink drastically, from tens of thousands of miles with oil currently, down to as short as dozens of miles under this development chain.

Global CO2 and local emissions plummet, because you are now using the lowest methane intensive natural gas on the planet to displace higher emission pieces of the energy portfolio.

Employment and tax base go up as workers earn family-sustaining wages and pay taxes. Trade balance improves and trade deficit shrinks as energy imports drop. And our geopolitical leverage increases as we create not just improved energy security for ourselves, but also our allies.

Allowing doers to do their thing in domestic energy has the geopolitical reach of several aircraft carrier groups, when one thinks about it.

Second, once you displace the foreign-sourced gasoline and diesel transportation markets, you can start to expand the exporting ability of domestically produced natural gas to other nations.

Liquified natural gas (LNG) terminals along the east and gulf coasts, and what should also be the west coast, liquify natural gas transported from inland basins via pipelines. The product is then shipped to places like Poland, South Korea, Spain, Japan, and India. There, the natural gas is re-gasified and utilized for home heating, electricity generation, and manufacturing. Our carbon-based molecules are being utilized globally to help spur improved quality of life for billions of people.


But…the doers in domestic energy and Appalachia are not being left alone by the Left. Quite the contrary. It’s as if the success of the domestic energy industry drove the Left mad, to the point where their zealotry to destroy and appropriate the value of doers exponentially increased.

“It’s as if the success of the domestic energy industry drove the Left mad, to the point where their zealotry to destroy and appropriate the value of doers exponentially increased.”

Code Red for humanity and climate change serve as the overarching religion to destroy not just the domestic energy industry, but everything tied to it. Which is effectively the entire private sector economy and the freedom of the individual. There are three tactical prongs to the Left’s attack under the ideology of climate change.

The first prong of attack is heightened regulatory standards on domestic energy production and reduced access to natural gas reserves. You see this attack every time an administrative state bureaucrat in the EPA issues a new regulation on the industry. Although these attacks have a cumulative negative impact, the industry has become adept at meeting such onerous challenges.

The second prong of the attack targets the industry’s access to capital and looks to cut off supply of the vital lubricant for any capitalistic endeavor. This attack will be evident when major banks bow to pressure from environmental groups to stop lending to the carbon economy, when foundations or endowments of universities chest-thump about their divestment from carbon-producing companies, or when credit ratings firms assign poor credit ratings to such companies not because of quantitative metrics but instead because of subjective views of the industry’s social worthiness. The logic of this prong is simple: starve a growing industry of capital and you can slowly strangle it to death.

The third and final prong of the attack is the most insidious of all: thwarting the future demand growth for natural gas. This attack manifests through the throwing of regulatory and legal roadblocks into the paths of new pipeline projects that would convey natural gas from the producing basins to the growing demand centers.

The Left justifies the three-pronged attack with a few convenient energy myths.

The first myth being wind and solar and EVs are zero carbon. Nonsense; they have massive carbon and CO2 footprints on a life cycle basis, higher than natural gas power generation for sure. Mandating wind and solar power generation and EV adoption will increase atmospheric CO2 net-net, not decrease it.

The second myth being we can manufacture wind, solar, and EV batteries at scale here in the US. We can’t because the stuff you need sits largely in Africa and South America and China. And all the processing capacity to purify that stuff is controlled by China. A mad dash to wind, solar, and EVs necessarily creates energy dependency on the CCP, as designed.

And the murky supply chain of wind, solar, and batteries brings epic human rights abuses. It’s a new form of brutal colonialism. Brought to you by the Left, the Church of Climate, and the IRA.

Now, why aren’t these myths about wind, solar, and batteries exposed as nonsensical under the basic laws of science that a high school student should be able to posit? Well, the myths masquerade under a veneer of an effective tactic. A tactic that if done objectively is of great use, but when purposely misapplied by the Left does great harm.

The tactic I speak of is ESG screening methodology; ESG standing for environmental, social, and governance. The Left uses ESG as a blunt instrument to punish domestic energy and cover over those inconvenient myths of wind, solar, and EVs. How? By distorting the E within ESG.

I wrote a piece that you can find on that gained a bit of notoriety in the energy space and capital markets. Its title, and this is the last time I will borrow another movie title, is: The Good, the Bad, and the Ugly of ESG.

The good, or the Blondies, of ESG investing focus on tangible objective performance metrics that help filter best-in-class performers within a group from the norm or poor performers. Example: show me the safest and most compliant player in an energy or manufacturing field and it will likely be the most profitable or lowest-cost player.

The bad, or Angel Eyes, of ESG investing is the racket. Corporations making vague promises about this or that years into the future, typically after the CEO retires. Or an investment house using ESG labels to shove high-fee products down gullible throats where the ESG portfolio doesn’t look all that different than a standard one. Or pension funds preaching ESG but who don’t want to do the hard work to properly screen players and instead rely solely on third party institutions who arbitrarily judge ESG worthiness using an ideological bias wrapped within a black-box model no one can see.

The ugly, or Tucos, of ESG investing are what happens when companies get distracted from true substantive risk management by ESG gloss and optics. Exhibit A in state: PG&E. Hundreds of millions spent on charging stations, solar, and optics while starving core infrastructure, including a 90+ year old transmission line hook, of needed maintenance. The utility was celebrated as an ESG leader. Until. Then the consequences: deaths, a third-world grid, and bankruptcy.

Yes, the symptoms and consequences of the Left meddling in energy are real. It creates energy scarcity, which creates energy inflation, which then stokes general inflation. It helps create energy insecurity in the West and a dependency on places like Russia, because when wind and solar inevitably fail to perform at scale, the energy needs to come from somewhere. Putin feels emboldened and decides he can take a nation or two because of his energy stranglehold over the EU that the Left gave him.

Climate change is not the problem. It’s been happening for millions of years. Climate change policies and the myths they embody are the problem.


Now you sense my anxiety. The Left is everything I am not. And on top of that, the Left is looking to eradicate my beloved industry and region out of existence, with serious consequences for a range of stakeholders, from the local to the global.

That realization built over time and changed me. I used to subscribe to what I referenced as ‘political quietism’. Keep your head down, ignore the babble, and do your job. But with everything I just discussed looming larger, I began to ponder if that is what good leaders do. Is it ethical to not speak in defense of the accurate, of the rational?

I began to focus on policy advocacy. I maintain a website where I’m constantly posting various thoughts and materials and commentaries; I’m active on Twitter and LinkedIn. And I publish a podcast weekly titled The Far Middle, as in not the far right and not the far left.

And, yes, I wrote a book, Precipice: The Left’s Campaign to Destroy America. I encourage you to give the book a read; all the royalty proceeds go to another one of my endeavors, which is helping to fund the CNX Foundation’s Mentorship Academy – check that out on my website or on the CNX Foundation website.


I’d like to discuss the core themes of Precipice and tie them back to where I started: California and LA. What this epic state and great city once represented as the ideal for Americans and what they have unfortunately become: bastions of the Left.

It is uncanny how you can take the themes of Precipice and align them with what is going on here. And you know it better than me, so I will be brief. But it’s worth mentioning.

The overarching theme of the book is that our society, economy, and culture have historically broken down into two broad groups. In one category are Creators, Enablers, and Servers of value creation.

Creators are the foundation; they create wealth, and range from inventors to surgeons to construction workers to those in manufacturing. They are the embodiment of competent man or woman.

Enablers make the job of the creator easier, possible, or more efficient. They include nurses to the surgeon, accountants to the innovator businessperson, or long-haul truck drivers to get a Creator product to its destination. Without Enablers, Creators cannot do their thing, or are throttled.

Servers take the invention or service of the Creator and use it to make life more enjoyable. The Server class is large and includes obvious examples of professions such as waiter or Uber driver. But Servers also include pro athletes and musicians; although sometimes we look to define those professions into something they are not. Servers don’t make life possible like Creators or Enablers, but Servers make life better.

Those three constitute the first category. And some professions can subjectively be defined as part of two or even three of the subcategories. But what these three groups have in common is that if you let Creators, Enablers, and Servers do their thing in a free market economy with minimal government intervention, you have the success that was America. And that was California. And that was this great city that blossomed in an arid basin out of nothing.

Then there is the second category out there today. One that doesn’t create value or optimize it. Instead, this category exists to appropriate value and consume it. I refer to it as the Leech. It is perhaps more of an organism because it exhibits a set of common characteristics that I define as the ‘Leech way’. It serves as a leftist roadmap.

The Leech used its ground game to commandeer professions and regions and institutions, converting them from once manufacturers of value into present-day exporters of need. Once noble professions are subsumed.

Which professions have fallen under control of the Leech and the Left?

Certainly, much of government. The bureaucratic state is a monster. I tag it as the Deep State in the book. Not ‘deep’ as in secret; I wish. No, ‘deep’ as in rooted and entrenched everywhere and with everything. There is a historical lineage of how it came to be, from Wilson to FDR to LBJ to Obama to what we have today. The individual can do nothing today without government approval. And California is in many ways ground zero of the Deep State movement.

Public unions are another domain of the Leech. Teachers’ unions, which punish great teachers, students, parents, and taxpayers so that the union can grow its power and influence. Have you seen LA County Unified School District competency scores in math, science, and reading? Yet what have funding levels done over decades as scores have declined? What happened here with education during pandemic and who called the shots? Who benefits and who pays the price says a lot.

The media: another tragedy where a once noble profession the Founders thought of as vital to our republic and needing Constitutional protection that has morphed into the propaganda agency of the Left. Here we have Hollywood to the LA Times, serving as front and center exhibits of this crisis in journalism.

The tech industry here in Cali and across the nation should be ashamed. On one hand it surely exhibits classic Creator, Enabler, and Server traits; true, massive value creation for society. But then it looked to curry favor with the Left and supported its aims and ideology. And it made the Leech stronger. And now the tech industry is getting its just due in return as the Leech turns its attention to the industry.

Academia went from the marketplace of ideas to an Iron Curtain of ideology. From where a student expanded horizons to one where the student comes out indoctrinated with narrower horizons. The California state university system was once the envy of the world. Today it is a massive burden, fiscally and culturally, for state taxpayers and citizens.

When the Left controls government, it is only a matter of time before the policies of government feed the Leech and catalyze its growth. Consider Fed monetary policy: massively negative real interest rates and constant running of money printing presses fund a model of outspending. To punish savers and to subsidize broken business models. To manipulate capital markets and pick winners and losers.

The consequences here include inflation and real estate bubbles. And a growing spate of bank failures whose balance sheets became addicted to perpetual free money monetary policy along with making loans to risky businesses whose entire business model was premised on free money. And SVB is only the start, friends.

These tactics come to bear the heaviest in our major cities. I don’t need to lecture you about LA or San Francisco. We know exactly what Dave Chapelle meant when he referenced San Francisco and asked out loud, ‘what happened to this place?’

In The Far Middle episode 101, at approximately the 11:20 mark, Nick discusses California’s precipitous drop in personal income tax revenue—signaling difficult decisions loom for the Golden State.

I also have a few chapters at the end of the book that explore three individuals in depth. You may enjoy the chapter on Bono; I understand members of U2 had homes or owned property in Malibu. And with LA being one of the largest dioceses of the Catholic Church in America, check out the chapter on Pope Francis. I am not a fan of the current pontiff, from my perspective of being both American and Catholic.

Yes, sadly California and Los Angeles served as much of the inspiration for Precipice. And the rest of America is gravitating toward where you are. The Left and the Leech never sleep, they always are growing by consuming the value of others. Day by day. Profession by profession. State by state.


To wrap, I have just a few simple asks. First, please consider giving Precipice a read and share your thoughts on LinkedIn or in an Amazon review. Second, please follow me if you use LinkedIn or Twitter. Much of my advocacy effort flows on those platforms; they are great ways to connect with me and the content.

The Far Middle podcast is always looking for new constant listeners. Please join those growing ranks – we issue episodes weekly, and they run under half an hour. I think you will enjoy them. Prior episodes are archived and available as well.

And my website is the depository for all the advocacy content, from book to podcast to news. Check-in regularly. By the way, I posted a piece on LA in late 2021 you can find on the website under the Commentary section titled ‘Ode to Los Angeles from a Wary Admirer.’

Last, please speak up in defense of free enterprise, capitalism, individual rights, fiscal responsibility, value creators, and the middle class. For LA, for California, and for America.

For daily insights and commentary from Nick Deiuliis, follow Nick on Twitter at @NickDeiuliis and on LinkedIn.



Crunching the Numbers: Energy Source Externality Accounting

Nick’s discussion and commentary below follows an inquiry from an academic team conducting research on externality costs. The inquiry asked to identify peer companies that either externalize the smallest or largest proportion of their costs. Externalities were defined as, “costs incurred by third parties, such as local communities, due to a company’s business operations that are not borne by the company itself.”

In his response to the inquiry, Nick suggests externality accounting is first performed across different sources of energy and power generation prior to assessing peers or competitors within a specific type of energy. Nick subsequently compares the externality costs between the natural gas industry versus the wind and solar industries.

Properly Sequencing Externality Accounting

Externality accounting is a useful tool when applied objectively, but one that is often misapplied and mishandled by those looking to dial in desired outcomes. Many fail to appreciate the sequencing of externality screening is crucially important when assessing entities across the energy industry.

Before assessing peers or competitors within a specific type of energy (such as natural gas), one should first apply externality accounting across the different sources of energy and power generation.

Thus, I propose a context of peer/competitor that is a level higher than, and a precursor to, what you proposed in your request.

The first cut of externalities should be done on an energy source-versus-energy source basis. In other words, domestic natural gas compared to wind or solar energy sources.

Society must screen options of energy sources within the wider portfolio first, and then set policy and investments to reflect the math of the externality accounting. First figure out the best energy source, as dictated by externality accounting.

After the first cut, or filtering, by energy source, one can then turn attention to different players within individual energy sources.

Getting the externality accounting/ranking for discrete energy sources (natural gas versus wind or solar) right is much more important than, and is a prerequisite to, screening or ranking individual players within an energy source (CNX Resources versus our natural gas competitors).

Many, including those in academia and government, have failed miserably to perform the rudimentary externality accounting and ranking of different energy sources. That leads to wrong-headed energy and climate policies resulting in dire consequences seen everywhere these days. Conditions will only worsen until this failure is corrected.

So, for the purpose of your inquiry and the discussion that follows, I am the natural gas industry, not just a player within it. And my peers/competition are the wind and solar industries, not another peer in the natural gas industry.

CNX Resources

CNX Resources is not a typical public energy company. We occupy a unique space in both the industry and region we call home.

We are nearly 160 years old – Abe Lincoln was president when we were incorporated. We manufacture natural gas in the northern Appalachian basin (PA/OH/WV/VA). The Appalachian basin “accounts for nearly one-third of all U.S. dry natural gas production,” and looks to be the second largest natural gas field on the planet. We operate in the Marcellus and Utica shales, we collect coal mine methane, and we operate midstream pipeline and processing infrastructure.

At CNX, our sustainable business model is simple: Tangible, Impactful, and Local. We’ve embraced the role as a regional innovator driving Appalachia’s socio-economic revitalization through local talent, homegrown energy, and breakthrough technologies.

We don’t apologize for what we do for society, we proudly celebrate it.

If our industry were to disappear tomorrow, society would come to a complete halt and humans across the planet would suffer greatly. That might not be what the experts or the environmental movement warrant, but that is certainly the engineering reality.

CNX recently unveiled its Appalachia First vision, which lays out many of the key themes I discuss below. Please learn more about our vision at The site includes an approximately 45-minute presentation where I further discuss Appalachia First, which can be best summed up as “produce it here, use it here, first.” I think you will appreciate some of the policy positions.

Natural Gas

There are a few, crucial scientific and engineering realities that are often ignored when assessing the externalities of domestic natural gas.

Natural gas is the most cost-effective form of energy in the United States, providing consumers, businesses, and homeowners savings in energy costs that total in the hundreds of billions of dollars annually. Rampant inflation has caught everyone’s attention these days; the most effective means to curtail general inflation is to simply allow natural gas to provide cheap energy so that energy inflation, and by extension general inflation, is mitigated.

Natural gas is the superior solution to immediate and material greenhouse gas emission reductions. Domestic natural gas has and can continue delivering these benefits while maintaining power grid reliability during the dark days of winter and dog days of summer.

Power grid reliability cannot be underscored enough. From college campuses to homes, from hospitals to emergency responders, and from government buildings to other businesses and facilities, America needs power all day and night, 24/7, 365 days/year.

Environmental Benefits of Natural Gas

Today, much attention is focused on methane emissions. Natural gas produced in Appalachia has the lowest methane intensity (0.09%) of all major U.S. oil and natural gas-producing basins, according to Clean Air Task Force data. Additionally, Rystad Energy analysis of CO2 intensity performance “brings Appalachia to the top quartile among all oil and gas fields globally” with the firm expecting the basin to “improve further in its CO2 intensity dimension in the next three to four years.”

When natural gas competes with alternative energy sources in a free market, emissions drop, and environmental quality improves. As natural gas-fired electric generation topped 40% of the total grid, power sector emissions dropped by nearly the same, per the U.S. EPA. “The decrease in coal-powered electricity generation and increase in natural gas and renewable energy electricity generation contributed to a decoupling of emissions trends from electric power generation trends over the recent time series,” the agency wrote in its April 2022 inventory.

Consider the specific example of the PJM power grid. Power sector emissions declined 11% year-over-year as natural gas grew to 44% of PJM’s total capacity. And, Pennsylvania had the highest absolute decline of energy-related CO2 emissions of any state between 1990 and 2018, with emissions falling as natural gas became the state’s largest electricity source. The data and facts are unequivocal, yet rarely heard.

Economic Benefits of Natural Gas

The environmental gains tied to natural gas come with additional economic and job creation benefits.

Natural gas development across Appalachia has breathed new life into forgotten Rust Belt communities and brought the building trades and apprentice programs to full employment.

Careers paying family-sustaining wages offer on-ramps to the middle class for young adults in urban and rural communities who are not able or wanting to attend college. Manufacturing, which relies on reliable and cheap energy inputs, is experiencing a resurgence across Appalachia and the Midwest, creating a downstream benefit to the natural gas industry. These create huge, positive externalities.

Investment and growth in the natural gas industry grows tax base for governments and communities. Today governments are desperate for sustainable endeavors and economic sectors that pay their fair share of tax. You won’t find another industry in Appalachia that pays more of a fair share of tax than the natural gas industry.

And natural gas is the catalyst that accelerates and de-risks the integration of next-generation technologies, such as hydrogen, into our economy. That creates optionality for innovation, a serious and positive contributor to the externality math.

Bottom line: there’s never been a better climate jobs program than the shale gas revolution. Performing an objective and clinical externality accounting would prove it.

Intermittent Wind and Solar Energy Sources

Now, let’s discuss the externalities of wind and solar.

The most fundamental misunderstanding about wind and solar is the myth that they present a zero carbon footprint. That is simply not true, not by a long shot.

Carbon footprint must be assessed on a life cycle, scopes 1-3, basis. It doesn’t matter to the atmosphere where the CO2 is emitted in the life cycle of making and running a wind turbine or solar panel; just because there is not a significant emission once in place does not mean there is a zero carbon footprint.

To accurately account for the carbon footprints of wind and solar, the supply chain of how wind and solar power ‘happen’ must be traced:

  • First, massive environmentally destructive mining must occur in Russia, China, and Africa for the metals and materials comprising wind turbines and solar panels. That presents a huge carbon footprint and large CO2 emissions.
  • The raw mining products must be processed to purify them, which also requires huge inputs of carbon power and the associated CO2 emissions.
  • Then components need manufactured in factories, often in China, that are carbon-powered.
  • Manufactured components are then shipped thousands of miles on carbon-fueled planes, trains, ships, and trucks to arrive in places like America.
  • Trees and land must be cleared to site pads and concrete will be used to build the pads for the turbines and panels, emitting more carbon dioxide.
  • New transmission lines must be run to every wind turbine and solar panel block/array, requiring the felling of more trees to create the rights-of-way and the manufacturing of the new power lines, adding to the CO2 emission tally.
  • Backup and reliable sources of generation will be required for when the sun isn’t shining or the wind isn’t blowing, which will typically be carbon-based power generation (often coal) creating more carbon dioxide emissions.
    • There is no such thing as a wind- and solar-only grid, because both sources of electricity are intermittent (battery storage cannot be scaled to serve as backup and it has a carbon footprint worse than wind and solar).
    • It’s also worth noting the double-building and maintenance of power generation units increases costs to consumers.
  • In seven to 10 years, you need to perform this process all over again, because the turbines become obsolete and must be scrapped (there is no way to recycle wind turbine blades) and solar panel efficiency declines year after year. The repeat of the cycle doubles the carbon footprint.

There is also the impact on surface land that wind and solar have to add to the externality analysis. For a 100% wind- and solar-powered U.S. grid, wind and solar farms would have to occupy 300 million additional acres of land beyond what’s used to power our economy today. That’s building solar and wind farms across land areas equivalent to Arkansas, Iowa, Kansas, Missouri, Nebraska, and Oklahoma, according to Bloomberg analysis of Princeton data. A ridiculous non-starter of course, yet no one seems to acknowledge it as such.

Negative externalities exist with the aforementioned disposal of turbines and panels beyond their useful lives. Wind turbines can’t be recycled and are “piling up” in landfills, according to Bloomberg. Solar panels contain hazardous materials which must be disposed of properly or risk environmental damage; most environmentalists would consider it hazardous waste (until you told them it was from solar).

Today, consumers want their eggs to come from cage free chickens, their tuna to be caught with dolphin friendly nets, their straws to be biodegradable, their detergents to not use chemicals harmful to water ecosystems, and their jewelry to have gems that are conflict-free.

Yet there is not a home in America today with rooftop solar that can say with certainty those panels were not partially manufactured by either child- or slave-labor. The human rights abuses tied to the murky global supply chains of wind and solar are egregious. Yesterday we were concerned about blood diamonds; today the concern should be about blood solar. The externality cost of human rights abuses in the manufacturing of wind and solar is sobering.

And there is no wind turbine in America today that can warrant it does not kill scores of birds and bats, many of them endangered. Offshore wind farms near New York and New Jersey are being constructed in the middle of endangered whale habitat, and, wouldn’t you know it, but dead whales are now washing up on beaches in New Jersey and New York. Yesterday we were worried about saving the whales and the bald eagle; today the worry should be how wind turbines lay waste to whales and eagles. Energy production that proves deadly to sensitive species and habitats should be reflected in an externality analysis.

Wind and solar require tax subsidy that exceeds total subsidy of natural gas, coal, or oil by orders of magnitude. When you add up the various programs and subsidies to favor wind and solar, the tally will register in the hundreds of billions of dollars (or perhaps even in the trillions of dollars), depending on what time frame you choose. Those valuable dollars could be invested elsewhere and should be added as an externality cost.

There are serious geopolitical externality costs tied to wind and solar. China’s control of the solar panel supply chain has ballooned to 84% over the past decade, with the country also controlling the bulk of critical minerals production and processing necessary for battery storage. This is a critical risk that presents energy security, supply chain, and national security concerns that manifest as negative externalities.

Wind and solar aren’t keeping pace with global energy demand, falling 165 exajoules short of needed capacity, according to the 2022 BP Statistical Review of World Energy. Growing global energy demand requires massive scale that cannot be met with wind and solar under the laws of physics.

When wind and solar inevitably fail to deliver at scale due to their engineering realities, energy security in places like Europe necessarily falls back to carbon-based fuels from places like Russia. That emboldens despots to use the gifted energy leverage to warmonger, as in the case of Ukraine. Climate policies and the resulting flawed reliance on wind and solar are the root causes of the war in Ukraine. The policies created a de facto EU reliance on Russian energy. What’s the externality cost of Russia in the Ukraine? Whatever it is, add it to the negative externality tally for wind and solar.

Add it Up

Tabulating the externality impacts of energy provided through natural gas and comparing it to those for wind and solar will present a trio of decisive and obvious conclusions:

  1. All economic activity and forms of energy have carbon footprints; there is no such thing as truly zero carbon power or a zero carbon economy.
  2. Natural gas offers the best net externality balance within an energy portfolio. Its externality benefits are substantial and diverse while its externality costs are modest.
  3. Wind and solar present a massively negative net externality cost to society, particularly when the attempt is to deploy them at scale.

These three conclusions are opposite of what is warranted by the environmental movement, and many in government and academia. Climate and energy policies are set that ignore the math. We share a duty to correct that.

Further readings
U.S. natural gas production set a new record in 2021
Benchmarking Methane and Other GHG Emissions of Oil & Natural Gas Production in the United States
“International analysis finds Marcellus best in carbon dioxide intensity”
Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2020
China’s Greenhouse Gas Emissions Exceed Those of All Other Developed Countries Combined
Net-Zero America: Potential Pathways, Infrastructure, and Impacts
Wind Turbine Blades Can’t Be Recycled, So They’re Piling Up in Landfills
Statistical Review of World Energy