President Bush says that we are in an energy crisis. Apparently he bases his diagnosis on gasoline prices that are higher than ever (unadjusted for inflation) and on California’s electricity problems. I am not sure that these problems constitute a crisis, but they certainly have brought forth a torrent of proposals from our nations leaders.
Unfortunately, many of these proposals suggest that we have learned little in the 35 years since the first energy crisis. Many Democrats want to fall back on central planning, and many Republicans advance a false dichotomy between prosperity and resource conservation and environmental protection.
In this context, it is unfortunate that one of our nation’s brightest and most productive economists died a few weeks ago. Allen Kneese was well-known to environmental organizations such as the Sierra Club or Audubon Society. But the American Petroleum Institute and other industry groups also knew his work. His centrist, common sense thinking is just what we need right now.
Take California’s energy “crisis.” When shortages occurred, many Democrats such as Governor Gray Davis immediately reverted to their old central planning instincts. The governor declared that large stores and shopping malls should reduce the lighting in their parking lots. Other leader chimed in identifying uses for electricity they considered particularly frivolous and thought should be banned.
Several congressmen have called for substantially higher national efficiency standards for home appliances, even though that would raise their initial cost substantially. Still other called for large subsidies for wind power.
Bush and many other Republicans are demonstrating an alarming willingness to throw environmental considerations to the wind. California was in trouble because siting power plants was too difficult. The Clean Air act was too stringent. We should abandon efforts to reduce carbon dioxide emissions.
Similar ideological splits have taken place over gasoline prices. After a congressional hearing on the outlook for gasoline supplies for the rest of 2001, a prominent Democratic senator from the Midwest immediately suggested rationing: every family should be allotted a fixed share of gasoline for the summer months. The Bush camp had its own response: increase implicit subsidies to oil drilling and open the Alaskan National Wildlife Refuge to drilling.
Kneese had little patience with either camp. He would have scorned the idea that a governor or any other state employee could make optimal decisions about the appropriate level of lighting in a store parking lot. The best person to make such decisions, and millions of others about how much electricity to use, is the person most directly involved. If electricity is truly short, Kneese argued, let the price reflect this scarcity. Let customers decide which uses of electricity no longer make sense at the new, higher price. But don’t have the state get into micromanagement decisions in an incredibly complex economy.
As for energy standards, Kneese would have supported current measures that require appliance seller to disclose how much electricity each model will use in a typical year. But he would have opposed requiring everyone to purchase the highest efficiency model that also costs the most. Someone in Texas who runs an air conditioner nine months of the year may well choose to pay substantially more for a highly energy-efficient model.
Another buyer in Grand Forks, North Dakota, where the air conditioning season may be closer to nine weeks, will find it a better deal to purchase a lower efficiency, but much lower initial cost machine.
The same logic would apply to automobiles and gasoline. If there are substantial spillover costs from driving automobiles, such as pollution, noise and congestion, then tax motor fuels at a higher level. The suburbanites who commute 100 miles per day will seek more fuel-efficient vehicles. But people like me, who work out of our homes and drive 21-year-old V-8s, may be happy to pay an extra 25 cents per gallon tax rather than junking our $300 cast iron wonders.
Kneese would also have scorned the Bush-Cheney mindset that if a shortage exists, the only feasible government policy should be to further subsidize production. His early career was devoted to examining why the U.S. recycled so little compared to many European countries. It was, he demonstrated, because there were many ways in which federal policies subsidized the production of new materials and discouraged the reuse of existing ones.
Contrary to what the president argues and many Democrats apparently believe, we are far from being in an energy “crisis.” We have some manageable problems that are largely the result of bad policy signals in the past rather than any fundamental physical shortage. We can deal with these problems most effectively if both political sides are willing to abandon the nostrums of the past. Allen Kneese showed us a common-sense and effective middle ground to follow.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.