Wednesday, March 22, 2006

Does Laissez-faire Actually Exist?

Tom Freidmans's op-ed today about "Realism" in the alternative energy debate[$] contained this quote from a speech by Senator Richard Lugar at the Brookings Institute:
My message is that the balance of realism has passed from those who argue on behalf of oil and a laissez-faire energy policy that relies on market evolution, to those who recognize that in the absence of a major reorientation in the way we get our energy, life in America is going to be much more difficult in the coming decades. (Emphasis added)
But is it really true that energy policy is laissez-faire and relies on market evolution? Sure, oil is traded in open markets, but then again so is all energy, whatever the source. But I would hardly call our energy policy "laissez-faire". Just how many subsidies did the energy industry get in the Energy Act of 2005? Even then, no one ever factors in the cost in dollars or lives that we've spent over the last 60+ years in the Persian Gulf to maintain access to oil supplies. If the gulf had no oil, we'd ignore it just like we ignore Sub-Saharan Africa. And on top of that, there's no good way to measure the total cost to the commons of global warming, pollution, etc.

None of this should really be surprising, but it does make me question the validity of the laissez-faire concept. There are always costs that are subsidized, either directly or indirectly. These subsidies influence the outcome of a market choice that otherwise might be different. The market simply provides people a venue to decide what is the best deal for them. By doing so, they must weigh costs and benefits. In that sense, the government is part of the market, in that it is also a participant in the market. Leaders might decide that it costs more to secure oil than it's worth and that a better way to spend money is to invest in homegrown energy alternatives. What's so anti-capitalist about that? The government is trying to find the best deal, just like a good businessman should.

I'll go ahead and make the assertion that people who argue for "laissez-faire" are those that are favored by the current market and subsidies. By making the assumption that the current set of subsidies and valuations is the "natural" state of things, they can accuse someone who favors a different set to be anti-capitalist. It is shams like this that are holding back the evolution of our nation's energy policy.


At 11:11 PM, Blogger Thomas said...

I think they are traded on a open market and I think you do too since you point out that the govt will switch to new options once the economic impact is compelling. I would love if we found a replacement for oil/gas but the truth is it is going to be very hard to replace. people can cry big oil/govt conspiracy all they want but stop and think about it. Gas is a cheap great source of energy all other forms have draw backs that are currently outweight potential goodness. The govt does "subsidize" the overall search and maintenance of oil reserves and processing but only becuase it is utmost national importance to. Our nation and economy is built on fossil fuels and access to more of them. They also tax the living shit out of them on the consumer side - we could argue are they doing it enough.. who knows. But as any good business the govt is spending a little r&d money looking for other things but they aren't betting the whole country on any one thing becuase it woudl be stupid too. Why hamstring your economy/nation with the burden of using more expensive fuel whent the rest of your peers aren't going to.

At 11:26 PM, Blogger Dan Craig said...

I agree with you that oil/gas is the economical choice in the current market, but I would dispute any claim that it is the natural, laissez-faire option and that any non-oil/gas product is somehow anti-free market. There are many reasons why oil and gas are currently the economical choices. There is huge economy of scale, production costs are still reasonable, there is long knowledge of the skills required, the infrastructure is all there, and the engines and machines that use it are all designed for petroleum. What I'm saying is that the investments that provided all those features that make oil reasonable were choices made by government and private industry. But there is nothing anti-free market about choosing to invest in other energy sources. Lobbyists for oil and gas try to make everyone else sound like communists for wanting to invest in something else. They shouldn't be allowed that talking point. Debate the merits of different energy sources on costs and benefits, not by demonization.

I saw another example of this just today, this time from the airline industry. In testimony to Congress, an Airline Transport Association guy was making questionable claims about supposed safety hazards of Very Light Jets. VLJs will represent a big threat to business class and first class airlines, but their safety is not really a big issue. It's sad to see lobbyists from an entrenched business interest try to demonize their competitors and prevent them from doing business. Ironic actually, that they would do that in the name of "laissez-faire" and try to prevent people from exercising the option to do business elsewhere.


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