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Forum: Power to the free market

So long, cryptosocialists. Beat it, environmentalist scaremongers. The Bush team's energy policy is exactly right

Sunday, May 27, 2001

By Raymond L. Richman

The national energy task force, led by Vice President Dick Cheney, seeks to encourage increased production of oil and gas, increase coal-based and nuclear-based electricity generation and reduce government regulations. It is just what the situation calls for to remedy the failed energy policies of the past. It is based on sound economics and sound science as befits the policies of a great country.

(Illustrated by Dan Marsula, Post-Gazette)

This White House's approach is in marked contrast to past administrations, which kowtowed to the-sky-is-falling environmentalism that marked the Kyoto accords and its shoddy science. The cries of dismay you hear are from yellow-dog Democrats, anti-capitalists, environmentalists and the few academic types who decry the proposals and who want a quick government fix to the energy "shortage" -- a command economy solution.

Economists usually avoid terms like "shortage" -- and justifiably so. There is no shortage of crude oil. There are no lines at the gasoline pumps, only higher prices. When supply equals demand, everyone who wants to buy or sell at the market price is able to do so. And if profits are large, it should attract more producers. Lower prices tend to result.

There is a shortage of electricity in California, as evidenced by the so-called blackouts. But this is the result of price controls. They create an imbalance between supply and demand. Shortages are created, because price controls discourage investment in new power plants. It's the kind of situation that characterized markets in the Soviet Union. Shortages were the rule, not the exception.

If prices were allowed to rise in response to increased demand, consumers would cut down on power consumption, for example, by adjusting heating and cooling temperatures. Voluntary conservation! And the higher prices would attract investment to increase production and increase supply. Similarly, higher gasoline prices encourage the purchase of smaller cars instead of gas guzzlers.

 
 

Raymond L. Richman is Professor Emeritus of Public and International Affairs at the University of Pittsburgh (rayrwtcr@aol.com).

   
 

What the public understands by conservation is a government-ordered allocation of resources, requiring auto producers to build smaller, more economical cars. The free market alternative is to allow consumers to adjust their preferences in response to higher gasoline prices -- encouraging the purchase of more fuel-efficient cars and penalize the gas guzzlers.

The rise in the price of oil is the result of an international monopolistic conspiracy called OPEC whose members have restricted the output of oil from their wells. If domestic oil producers did the same, they would be charged with criminal conspiracy. But our government appears impotent when foreign governments, some of whom are alleged to be our friends, engage in the same anti-competitive practices. The restricted supply results in higher prices for everything made of oil and it is exaggerated when demand for oil is also increasing.

But many critics, like New York Times columnist Paul Krugman, a Princeton professor of economics turned pundit, are in denial. He says the reduced supply is due to a shortage of refining capacity. Refiners were caught by surprise, he claims, by the surge in demand brought about by the '90s economic boom, the popularity of gas-guzzling SUVs and suburban sprawl requiring longer commuting distances and causing traffic congestion.

For these to be the cause of high gasoline prices requires the world's refining capacity to be similarly affected. Yet the rest of the world hasn't experienced unexpected growth, a condition precedent to a worldwide sudden increase in demand. Japan and a large part of Asia have had little growth during the past half dozen years. They should have excess capacity and lower prices. Yet gasoline prices (deducting gasoline taxes) are lower in the United States than anywhere else in the world! If gasoline were priced lower anywhere else, we would import it. There are no American duties on gasoline to inhibit its importation. The high price of gasoline is the result of the high price of crude oil almost entirely.

To make matters worse, restrictive government policies, anti-growth environmental rules, restrictions on the drilling of oil, restrictions on the use of coal, and a "chicken little" fear of nuclear power prevented the free market's adjustment to the forces unleashed by the OPEC oligopoly.

How did the environmental establishment get so powerful that our leaders ignored the costs that such foolish policies were imposing on the economy? How did Gulliver, the world's most powerful economy, get enmeshed by the environmental Lilliputians?

The way to deal with a monopoly is to weaken its monopoly power. One does this by introducing competition and developing substitute materials and products.

And this is where environmental extremists come in. They object to off-shore drilling, they object to drilling on government land even when not a single individual would be adversely affected, as in the Arctic. They oppose new refineries.

Again: There is no gasoline crisis, no gasoline shortage -- just high prices. And the solution to high prices is more production. And that's what the Bush administration is proposing.

The antagonism of the environmentalists and the Democratic pols to the administration's proposals suggest a hidden agenda: They want nothing less than the destruction of U.S. economic power. This is consistent with their backing of the Kyoto treaty on carbon-dioxide emissions, based on questionable science. If implemented, it would have had a disastrous effect on the U.S. economy and American living standards. To paraphrase the old song, "Where have all the socialists gone? They're environmentalists every one."

We can also work to reduce demand. That's where conservation comes in. High prices of energy would induce reduced demand for oil and electricity. It would stimulate more efficient automobiles. But Americans want low prices. Some politicians are even trying to garner political support by calling for a reduction in gasoline taxes, which is an anti-conservation policy. Again there appears to be a hidden agenda -- a striving for a command economy, the government deciding what vehicles will be built, where people must reside, on what days of the week people may use their cars.

Raising prices is the free-market way of rationing scarce goods and calling forth the investment required to produce more energy.

There is an electricity crisis in California with resulting blackouts, and it may spread to the rest of the country. The cause is not in doubt. The mess is due to government price-fixing and environmentalist opposition to new energy plants. The solution is similar to the gasoline price problem.

More production is needed. This means fewer government obstacles to the building of new plants, including coal and nuclear. Nuclear energy isn't a fossil fuel and emits no pollution. France gets 70 percent of its electricity from nuclear plants. But it is opposed here by environmentalists whose only argument is that we have not yet found a safe way to dispose of its waste. Heavens, the sky is falling!



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