Embrace the free market for cleanest energy
Whenever I see somebody advocating the government promote “clean energy,” I’m reminded of a plea from a congressman I saw many years ago encouraging people to report price gouging at the gasoline pump. If somebody saw a gasoline price that deviated upwards from some “normal,” they were encouraged to report it to some hotline. Simultaneously, there are regional committees that enforce regulations against undercutting on the price of gasoline. In other words, the real purpose of the central planners was to enforce the same price.
There’s only one reason to set similar prices amongst vendors, and that’s not to curtail price gouging, but to fix prices upwards. The market will punish price gouging naturally, driving gougers out of business. How so? If a vendor is selling gasoline 5 or 10 cents higher than other gas stations, that vendor will lose market share to other vendors. If somebody sees higher prices on the same gasoline, don’t call a hotline. Buy the cheaper gasoline. Furthermore, how do we know what vendors are price gouging and what vendors are undercutting? If half the stations have a price that’s lower than the other half, is one half price gouging or is one half undercutting?
That price gougers can’t succeed in the free market is why cartels must rely upon government intervention and support. All participants must raise prices in synchronization with one another. The moment one participant begins to set prices pursuant to supply vs. demand, the entire cartel begins to collapse. The problem for the cartel is that even if all participants set prices pursuant to the price-fixing scheme, vendors can’t short inventory at prices above what consumers are both willing and able to pay. Higher prices beget fewer consumers, diminishing the volume of sales.
The campaign against fossil fuels has nothing to do with saving the environment. It’s all about price-fixing by erecting barriers for oil producers that benefit the big oil producers and big “green” energy companies that can’t compete against fossil fuels. It’s about the restraint of trade to curtail competition. Not only is it about price-fixing, it’s about waging war against humanity. Restricting the supply of energy is most injurious to the poor. On one hand, the government offers subsidies to people with low income. On the other hand, the government pursues policies that raise the cost of living.
The key to an economic recovery does not rest in Washington. The key to an economic recovery is to put Washington through a recession. Any efforts by politicians to con you into believing they’re stimulating some kind of economic progress — again, bribing you with your own money — by promoting one form of energy or another should be detected as a ruse.
Some politicians have gone “green” in the name of curtailing “dependence on fossil fuels” and “foreign oil.” It’s a sham. Why not promote a certain type of underwear in the name of curtailing dependence on a particular foreign brand?
The fundamental problem is that most politicians and central planners view the economy as a blob to be manipulated, rather than a complex capital structure involving individuals making choices in exchanges, a process of production, and a price mechanism.
Last year, the United States imported about 2.3 million barrels of oil per day more than it exported. The reason why the United States is so dependent upon foreign oil is due to policies that have already been put in place. The solution, then, is to repeal and correct these policies — not creating new legislation.
Artificially low interest rates, brought on by loose monetary policy at the FOMC, drives capital overseas (by deploying unearned income from a printing press, disconnecting consumption from production, capital is also consumed). Capital naturally gravitates to cheaper, more efficient, higher-yield economies. It’s called arbitrage. Rather than generating revenue and income, the nation spends beyond its means. That’s the short explanation. I hate to spend time belaboring the long answer, because I have already done so in previous commentaries.
Look at it like this: If a person, firm, or nation is dependent upon inflationary credit expansion, then that person, firm, or nation is insolvent and inefficient. We are spending beyond our means, which — yes — engenders dependence upon cheaper markets to supply us with production.
If you want to reduce dependence upon foreign “anything,” then the Fed has to tighten, forcing up interest rates, and Washington has to abandon the spending orgy. Dollars that have been accumulating in foreign reserves will then come flowing back into the domestic loan market, begetting lower interest rates.
It’s impossible for any industry — including clean energy — to thrive in the absence of sound economic policy. Rather than promoting one form of energy or another, the best thing the government can do to buttress clean energy would be to pursue free-market policies which extend the maximum number of benefits for the maximum number of people. It’s impossible for a government to bankrupt a people and keep industry intact.
I know clean energy sounds so nice, so questioning it is very environmentally incorrect. I will put everything I can into layman’s terms. Let’s start with the following axiom: We consume energy in everything we do. If you’re that environmentally conscious, you shouldn’t be online reading this right now because you’re using electricity which is consuming energy. That’s why I’m confident that everybody reading this agrees with everything I write in this commentary.
Solar energy sounds so nice. After all, it comes from the sun. But let’s not forget that there is a process of production. Take, for example, the solarization of a house. Solar energy requires panels, charge controllers, batteries, inverters, etc. And then let’s not forget capital asset depreciation. Energy is consumed during the process of production.
If clean energy has a positive yield, then it is profitable and private enterprise will pony up the capital. The government need not encourage this. If clean energy has a negative yield, then it is unprofitable and would be dependent on so-called “dirty energy” for its sustenance. It would be akin to consuming 1,000 blueberries for every 500 you are growing — nobody in their right mind would pursue that course absent government subsidies. Somewhere, the difference has to be made up.
I’m not arguing that solar power is necessarily inefficient, but that the market will naturally produce the most efficient, and therefore the cleanest, forms of energy. It’s the pursuit of profits on the free market that engenders efficiency. It’s government intervention in the marketplace that engenders inefficiency and the needless consumption of resources. Government subsidies enable firms to produce inefficient energy. By mandating inefficiency, only those with political connections can compete. Conversely, sound economic policies enable firms to supply efficient forms of alternative energy absent government support.
This leads me to the following axiom: The most profitable and economically-efficient form of energy, within the construct of the unhampered market, is also the cleanest form of energy. Also, pretending that climate change is real, does this mean we should rely upon government coercion to solve the problem? Cancer is real, but that doesn’t mean we should trust the government to run our healthcare. Rather than saying end our dependence on oil, if you support clean energy then you should be saying end our dependence on government intervention in the marketplace.
The best ecological hygienist is the unhampered market. Suppose a logging company owns a forest. That logging company can clear-cut the forest, say, tripling immediate income. However, this must be weighed against diminishing future income, or the capital value of the forest as a whole. Suppose, however, this is government property. This calculation no longer needs to be made, and the objective is going to be rapid extraction of resources. Private property rights engender environmental stewardship.
No shocker, then, that government is the biggest abuser of the environment and waster of resources. Look at the atomic weapons tests done in the Nevada desert — and right on top of our own military service members. Or think about the government’s war policy, which both major parties support. Last time I checked, there are no CAFE standards on tanks. How are exploding munitions good for the environment? Have politicians seriously considered the environmental impact of their foreign policy?
The government does not sustain itself by satisfying consumer demands, but through compulsory taxation. Government subsidies to, and control over, industry diminishes the need to set prices pursuant to supply vs. demand. Why? Because sustenance is no longer nexused with having to satisfy consumer demands. Sustenance is disconnected from the satisfaction of consumer demands.
It’s the price mechanism that ensures resources are allocated and managed efficiently. The price mechanism can only function within the construct of the unhampered market, allowing for producers to set prices pursuant to supply vs. demand (i.e. market-clearing prices). The scarcer the supply, the greater the demand, the higher the price. Consumption runs inversely with prices.
Government subsidies distort prices, interfering with the price mechanism, and cause prices to be set above, or below, market-clearing prices. There is a paradox in government policy in that the government encourages consumption without production (in the name of demand-side stimulus), tells us that we should conserve resources, while simultaneously punishing “price gouging.” Within the construct of the unhampered market, there can’t be price gouging any more than there can be wage gouging, since vendors can only short inventory at prices consumers are both willing and able to pay.
Prices send signals to entrepreneurs, telling them where to deploy capital. Prices tell entrepreneurs what to produce and what not to produce. Prices tell consumers what to buy and what not to buy. The price mechanism can only function within the construct of an unhampered market. There’s no need for the government to encourage or discourage the use of any kind of energy. And let’s not forget that tax credits are subsidies camouflaged as tax cuts. A tax credit merely allows a person to use a portion of their income for a specific purpose (i.e. indirect subsidy).
I write as a native Minnesotan. Minnesota is one of the states that mandated the use of ethanol-blend fuels. I hate ethanol-blend fuel. It’s “cheap” for a reason: It’s inefficient. There are environmental groups pointing out that the production of biofuels is a drag on the environment.
Only politicians can get away with turning efficient food into inefficient fuel. If politicians keep at it, we will soon be filling our automobiles up with corn and drinking motor oil. Maybe after installing those solar panels, the government can begin shooting those pollution particles — which supposedly ”clean energy” is designed to curtail — into the atmosphere in order to block the sun and “save” us from “global warming.” Sounds like the perfect plan – one only a politician in Washington can dream up.
As I wrote over a decade ago, we will soon not only be dependent upon foreign sources of fossil fuels, but also foreign sources of so-called clean energy. That has come to pass. Unfortunately, it was due to misguided policies coming from Washington. If people truly cared about the environment, they would embrace the free market.
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