Today, Republicans play the role of Raymond Shaw. When George Bush suggests a conversation about energy and shows them polling data, the entire party enters a glassy‐eyed, zombie‐like trance. Preexisting belief in the virtues of limited government and free markets are completely forgotten while Bush’s orders to construct a governmental energy leviathan are cheerfully carried out.
The president told the nation in his State of the Union address that America’s reliance on foreign oil is a bad thing. But why? The case for importing oil is the same as the case for importing, say, computer chips. If it’s cheaper to buy something from abroad than to produce it here at home, then the economy in general — and consumers in particular — are made wealthier by imports. Governmental interventions to discourage energy imports are, by definition, government interventions to discourage the use of cheap energy.
President Bush contends that the government must act because foreign oil supplies are increasingly subject to disruption. True enough. But that’s why market actors are busily stockpiling oil in private inventories. They are saving oil for a rainy day in the hopes of making a profit if and when that disruption occurs.
Private investors are also sinking increasingly large sums of money into oil futures in order to hedge against other investment bets and to diversify equity‐heavy portfolios. This has further increased the stock of oil held off the market for future use.
Many petroleum analysts, such as Philip Verleger and William Brown, think that private inventory buildup and the surge of dollars into oil futures markets is responsible for a large part of today’s price. How large is unclear, but Brown thinks that oil would sell for around $27 a barrel today were this not going on. Think of this as an oil tax — imposed by the market itself — to account, in part, for the possibility of future supply disruptions. In short, the market is already addressing the problem.
Economists left, right, and center agree that, as long as prices are correct (that is, as long as they include total costs), market actors have all the incentive required to consume optimally. This proposition always strikes non‐economists as a matter of religious faith, but the empirical case for it is just as strong as the case for the equally implausible proposition (to many non‐biologists, anyway) of species evolution.
In short, if a product or service is more valuable to an individual than the money that individual has, there will be an economic transaction. If not, there won’t be. Aggregate all those transactions and you arrive at the “optimal” amount of consumption at a certain price.
Economists posit that value is subjective — “I value modern art, you hate it,” “I’ll pay more to live in the city, you’ll pay more to live in the country — and preferences are personal, so there is no objectively “right” amount of consumption beyond that demonstrated by individual preferences writ large.
So when President Bush argues that we must reduce our gasoline consumption by 20 percent over the next 10 years, the most natural response is, “Why?” He is either demanding that we surrender our evaluation of the relative worth of gasoline in favor of his (no thanks), asserting that we are too stupid to know what we want (wrong), or positing that there is some external cost associated with gasoline consumption, not reflected in its price, which leads us to consume more gasoline than is optimal.
One can now mow down virtually the entire Bush energy program without getting into the weeds regarding the specifics. Massively increase the size of the Strategic Petroleum Reserve (price tag, $50–60 billion)? Why? What evidence is there that market actors are underinvesting in oil inventories?
Should we massively increase the size and scope of renewable energy subsidies? Why? What evidence is there that market actors are underinvesting in renewable energy?
Must we mandate better fuel efficiency for cars and trucks? Why? What evidence is there that consumers are underinvesting in conservation?
If the president even bothered to ask such questions, he would find the evidence for all of the above surprisingly thin.
For too long, energy has been that queen of diamonds, and Americans have put the left side of their brains on hold whenever it’s come up. It’s time to come out of our trance and say no to President Lansbury.