Blaming Industry For Stupid Political Decisions

SEARCH BLOG: ENERGY

With all of the concern about global warming and using fossil fuels for transportation and power generation, it seems that the fingers are now pointing toward "big business" again as the evil manipulators of the marketplace who are taking advantage of world energy needs by "gouging" us at the pump and creating brownouts.

Well, before the Nancy Pelosis of the world get on their soap boxes, maybe they ought to recall who has been obstructing oil exploration in the U.S., who has been preventing new refineries from being built, and who has been denying permission for new nuclear power plants.

I've written many times about France being right about their energy policy and how the U.S. has been short-sighted and driven by special interest anti-development groups (search blog for France and Nuclear Power). Yesterday, Econobrower ran a post titled "Gasoline prices surge: Thinking about Some Causes." It concluded that:

One bit of policy analysis. The Washington Post article quotes the assertion that the wide spreads are due to policy inaction over the past six years. There is indeed a temptation to ascribe the wide spreads to cartelization, or opportunistic shutdowns of refineries (and I won't rule either of those out -- remember Enron and California in '00-'01...). However, high spreads are also consistent with the view that there is no coordinated reduction of supply and the view that if conservation had been encouraged over the past six years (instead of tax breaks for SUVs), the spread would be smaller. That's because theory predicts that the greater and more inelastic the demand, the greater the resulting price-cost margin.

I went somewhat ballistic over that. First of all, the past six year is the period when cancer has spread to the brain. 3 or 4 decades ago, the cancer began with government acquiescing to anti-oil, anti-nuclear power activists and effectively causing the energy crisis we are facing today. I commented in Econobrowser:

While I agree that government incentives to business in the form of tax breaks for GT 6000 lb. GVW vehicles may have increased some purchases of larger vehicles, I would guess that is relatively unimportant in the imbalance equation.

My "ranting" [previous comment] was purposeful: to point out that whether the meddling was from the government or special interest groups, the effect was the same... reduced domestic oil exploration and refinery capacity. This is exactly the same problem we are facing with regard to generating electricity over the next 2 decades.

Had the "marketplace" been allowed to run its course, the U.S. would have been more likely to find itself in France's position of electric power surplus which could have been used to provide cheap "fuel" for hybrid vehicles. Meanwhile the oil industry would have responded with more wells and refinery capacity to respond to that competitive challenge. We would not be facing activist-induced "price gouging" which is nothing more that the medicine we get for making stupid decisions in the past.

Regardless, with greater oil and electricity capacity, our present options would be much greater. We wouldn't have to ruin the corn market with subsidies to produce ethanol which is only 75% as fuel effective per gallon as gasoline. We would have the electricity capacity to have a massive push toward hydrogen "powered" cars (hydrogen really being a storage medium that requires large amounts of electricity to produce).

You are correct that stupid incentives to buy SUVs when they were not legitimately needed for business contributed to the gasoline shortfall... but that is not the underlying cause of the situation.

..