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“Let’s Try a Free Market in Energy” by Charles Koch (Part II: Planning, Politics, and Power)

“The majority of businessmen prefer power and government-guaranteed profits to philosophical consistency; they are more than willing to trade off market principles for a system that promises less competition and more security….  Almost every major piece of interventionist legislation since 1887 has had important business support, and certainly regulation in the oil and gas industry is no exception.”

“Economic planning by its very nature is people planning. It is part of a misguided policy that would return us to the dark ages of political economy where the State controlled the entire economy and society in its own political interests. To return to that system is to finally abandon the American experiment and the American dream.”

- – Charles G. Koch (1977)

[Part I: Yesterday]

I would now like to turn to the more subtle historical and political implications of Thornton Bradshaw’s call for planning in oil. Bradshaw would have us believe that his stance on government planning is an unorthodox, even radical political position for a prominent business leader to take, and a sharp break with tradition. This is a totally misleading impression, however. Important and influential business leaders have always been anxious to convince the public and the Congress that the free market cannot work efficiently (in their industry), and that some governmental planning and regulation would be more rational and in the public interest. They have told us repeatedly that the free market cannot work, that it is often “irrational”, and that it is incapable of planning and investing long-range.

Therefore, Bradshaw’s plea for planning, far from economic heresy, is entirely consistent with a classical business philosophy that would replace the “chaos” of the market with the security and certainty of government planning, guaranteed loans, and contracts for development. Now it is perfectly true that we do not normally associate such views with the business community. Indeed, the general public has been entirely misled into believing that the most important support for free-enterprise capitalism is to be found in the ranks of business. With a few important exceptions, however, such is not the case.

The majority of businessmen prefer power and government-guaranteed profits to philosophical consistency; they are more than willing to trade off market principles for a system that promises less competition and more security. Indeed, much of the institutional change that we have seen in the system to date has come at the insistence of business. Almost every major piece of interventionist legislation since 1887 has had important business support, and certainly regulation in the oil and gas industry is no exception. And while some might describe such legislative activity as “public spirited’ most of us now realize that the public interest rhetoric serves only as a smokescreen for restrictionist legislation aimed at creating or preserving positions of wealth and power in the industrial system for those pushing for more and more government “action”. To an important extent the present crisis is but the inevitable consequence of business plutocracy–that is, of the segment of the business community that prefers to gain its profits from government favors, rather than competitive enterprise.

Another misleading impression created in the Bradshaw article is that government can in fact plan. Surely it is no longer novel to point out that governments do not plan anything, that only individuals plan. The alternatives are not planning, or the absence of planning, but, Who shall do the planning? The interesting question is who does Bradshaw have in mind to plan our energy outputs and prices in the name of government? The word “government” is nothing but a facade hiding a jungle of powerful, behind-the-scenes private interests. It is naive and wrong to assume that any legitimate public interest could even be defined, let alone served, by such an institution in the energy area.

More realistically, perhaps, Bradshaw does not really intend that government planning serve any public interest in the conventional sense. After all, the public could best pursue its own particular interests through free exchange in free competitive markets. Bradshaw’ planning involves government output determination, government price setting, and government taxes, regulations and subsidies to “adjust” market demand to supply. Thus, clearly, it is not the public interest that planning is meant to serve. It is existing governmental policies, particularly foreign policy, that mandates further economic planning. As Bradshaw notes, correctly, our foreign policy “has been thrown into confusion” by recent developments in oil.

And so it has. Bradshaw is right to see that a free market in oil conflicts with existing American foreign policy. But he is wrong to suggest that we abandon still more of our free enterprise in order to preserve such policies. Why should we abandon freedom in the domestic economy for still additional foreign adventurism and interventionism? If we intend to be a free society–if that is what America is truly about–then we must adopt domestic and foreign policies consistent with that end and not–as Bradshaw suggests–reshape our social system domestically to fit and serve existing governmental policies. I would hold, instead, that it is existing interventionist institutions and policies that need dismantling and not our freedom to buy and sell oil. What is the ultimate purpose of all these lofty policies and plans if we must lose our freedom to preserve them? Bradshaw’s eulogy to the “efficiency” of the World War II American economy is entirely fitting–and revealing. But if the American economy is to run as in wartime permanently, to what end are all the sacrifices? What do we “win” in this “war” if we must permanently abandon freedom and free enterprise in oil and submit to massive “disincentives” in our style of life?

The answer, of course, is that we cannot win anything. In this deadly social process of abandoning free market processes and strengthening political ones only increasing governmental power can emerge victorious. Statism is the recipient of the sacrifices and the reason, ultimately, for planning and controls. Thus, our precious heritage is to be sold to further preserve and strengthen the power of the state and the private interests that make use of it.

Such pleas for planning and increased governmental power must be resisted with all our will. Statism is not only inefficient, it is thoroughly immoral as well. Economic planning by its very nature is people planning. It is part of a misguided policy that would return us to the dark ages of political economy where the State controlled the entire economy and society in its own political interests. To return to that system is to finally abandon the American experiment and the American dream.

8 comments

1 Charles Barton { 10.08.10 at 8:58 am }

Is anti-nuclear propaganda a real manifestation of a free market. The Koch funded Cato Institute is every much a source of anti-nuclear propaganda as Greenpeace. If an oil man pays a lot of money to generate propaganda, isn’t he attempting to plan the future for us?

2 Steve C. { 10.08.10 at 9:22 am }

If an oncologist donates money to the American Cancer Society’s smoking prevention efforts, isn’t he attempting to deprive people of a free choice?

3 rbradley { 10.08.10 at 11:11 am }

Charles:

I would read or at least peruse The Science of Success (my review here: http://www.politicalcapitalism.org/aboutpe/Koch_TNI-2007-09.pdf) before you label Charles Koch an “oil man.” There is a management philosophy too (http://www.politicalcapitalism.org/aboutpe/) that is worth examing to understand why political plays like ethanol and nuclear are not on the company’s agenda.

4 Charles Barton { 10.09.10 at 10:16 am }

rbradley, So you are denying that Koch does not benefit financially from the Cato Institute’s anti-nuclear line, or that Koch is not interfering in the free operation of the energy market by paying for dishonest attacks on nuclear power?

5 Steve C. { 10.09.10 at 1:23 pm }

Jerry Taylor, affiliated with CATO, highlights some very unpleasant facts about the cost effectiveness of nuclear power.
http://www.masterresource.org/2010/04/nuclear-energy-round-2/#more-8870
I’m not against nuclear power, and I don’t think Taylor is either. The total cost (regardless of how you allocate it) is very large. Coal and gas plants are cheaper.

6 Charles Barton { 10.11.10 at 4:06 am }

Steve C, Craig Schumacher commented
“Perhaps Taylor’s position would be a little more understandable if he would produce a comparison of all the subsidies applied to the major energy technologies. Perhaps then he wouldn’t come across as applying a double-standard in this issue.”
Taylor’s arguments are curious coming from a Libertarian. They include a denial of the effects of government regulation on nuclear costs.
katana0182 wrote,
“I appreciate the idea of nuclear power being subject to no regulation but that of strict liability, but why should nuclear power qualify for that special treatment (strict liability) when other energy sources don’t? Other energy sources are far more inherently dangerous. I mean, coal kills 25,000 Americans every year through lung disease and causes 40,000 heart attacks per year. Natural gas – if the explosions weren’t enough – well, then, there’s the constant danger of the invisible killer, carbon monoxide, which takes a dreadful toll in American houses every winter. With oil, one only need to look to debacles like the Valdez, not to mention the military force needed to guard the sea lanes, and the terrorist atrocities funded by oil sheiks to get an idea. Wind turbines are well known for catching on fire and throwing large icicles that could easily impale a person – and could you imagine if one of those multi-ton blades whirling at a high rate of speed detached and crashed into a crowded neighborhood? With solar – the factories making solar panels give off poisonous silicon tetrachloride, and some dump it with reckless abandon, while the panels themselves are a “fall from roof” disaster waiting to happen!

Energy production is inherently dangerous. Of all energy sources, nuclear is, in fact, probably the safest energy source out of any of them. In a theoretical libertarian free market, therefore, a perfectly level playing field between all energy sources – with strict liability for each of them – is the only fair answer. Putting nuclear in a class by itself is inherently unfair.

If one is a libertarian, one has the burden of being morally consistent. If you want to rid the industry of loan guarantees and want R&D funding to be taken away, then you need to take away the obscene level of regulation and blatant disrespect for property rights that’s shown to owners of nuclear power facilities. Taking away one without the other shows that perhaps there is some ulterior agenda here besides promoting the increase of “economic freedoms”, such as they are. (Like promoting natural gas, coal, and oil.”

Koch pays for Taylor’s pseudo-libertarian a anti-nuclear propaganda, and I am sure he believes that it is a cost effective investment. But what Taylor demonstrates is that Koch is a hypocrite, whose Libertarianism stops when it comes to calculating his own bottom line.

7 Jerry Taylor { 10.11.10 at 9:36 am }

Charles Barton offers up some interesting bon mots:

“The Koch funded Cato Institute is every much a source of anti-nuclear propaganda as Greenpeace.”

Koch dollars make up a bit less than 5 percent of our annual budget in any given year. I wish they gave more, but alas, their financial footprint here at Cato is far lighter than many people seem to think.

“So you are denying that Koch does not benefit financially from the Cato Institutes anti-nuclear line?”

Nuclear energy does not compete with oil because oil is primarily used in the transportation and industrial sectors – nuclear energy is not. It does compete with natural gas – something the Kochs do have an interest in – but natural gas has so many economic advantages relative to nuclear that the Kochs scarcely need think tanks to maintain their market advantage.

By the way, I’m sure that the Kochs do not benefit financially from other arguments I’ve made here at Cato, such as my many arguments against oil subsidies and calls for the elimination of the same. One of many examples is this piece a few years ago in NRO: http://www.cato.org/pub_display.php?pub_id=7066. Which do you think is of most immediate interest to them?

For what it’s worth, I’ve been the main energy person here at Cato for 19 years. Never once in all of my time here have I ever received so much as a phone call, letter, or e-mail about anything I was doing with my time or not doing with my time from the company and principals in question. Nor have any of my supervisors. I’m sure that few on the Left will believe that, but it’s the truth.

“If one is a libertarian, one has the burden of being morally consistent. If you want to rid the industry of loan guarantees and want R&D funding to be taken away, then you need to take away the obscene level of regulation and blatant disrespect for property rights that’s shown to owners of nuclear power facilities.”

I’m all for ending the “obscene levels of regulation and blatant disrespect for property rights that’s shown to owners of nuclear power facilities.” But whenever I ask industry supporters for chapter and verse regarding exactly what regulatory edicts need to be changed, I hear nothing very specific. The fact is that nuclear power imposes risk on third parties (how large is a subject of dispute). Current law caps liability for damages. Under this regime, nuclear power plant owners have an incentive to underinvest in safety. An alternative regime of strict liability with no regulation or liability cap would be fine with me in theory, but alas, the industry treats such ideas with horror.

“Taking away one without the other shows that perhaps there is some ulterior agenda here besides promoting the increase of ‘economic freedoms’, such as they are. (Like promoting natural gas, coal, and oil. Koch pays for Taylor’s pseudo-libertarian a anti-nuclear propaganda, and I am sure he believes that it is a cost effective investment. But what Taylor demonstrates is that Koch is a hypocrite, whose Libertarianism stops when it comes to calculating his own bottom line.”

It’s wonderful that you can read into my heart and mind from hundreds (thousands?) of miles away and know exactly what motivates both me and the Koch family. A real gift you’ve got there. What you don’t seem to have, however, is much beyond logical fallacies such as ad hominem arguments to sustain your position.

I am not in the business of promoting oil, gas, coal, or whatever. I am in the business of arguing that decisions about what sort of power plants to build and what sort of fuels should be used should be made by market actors, not politicians. I have even managed to persuade the Sierra Club to take a similar position (at least, in theory: http://www.cato.org/pub_display.php?pub_id=4090). In practice, as this comment board suggests, almost everyone on the Left and Right thinks that government planning can succeed in energy markets even though it has failed in every other sector of the economy.

8 rbradley { 10.11.10 at 10:04 pm }

Charles:

Your causality is all mixed up. Charles Koch is a free-market entrepreneur who invests in consumer-driven goods and services and who takes some of his profits to invest in free market advocacy. He doesn’t initiate force and uses his own money–and all in the defense of personal and economic liberty.

He believes, as a lot of us do, that market capitalism is better than political capitalism. You should read up on the science of liberty and the science of success to argue more deeply for what you believe–or perhaps revise your thinking.

Matthew Wald in today’s New York Times documented the bad economics and bad prospects of nuclear power: http://www.nytimes.com/2010/10/11/business/energy-environment/11power.html

One paragraph read:

“Exelon said it needs natural gas prices to reach about $8 per million B.T.U. — almost double today’s price — and a carbon fee of $25 a ton to make the project worthwhile economically. ‘We don’t have the right stimulus right now,’ said Christopher M. Crane, president and chief operating officer, in a recent interview.”

So is Matthew Wald a stooge? Is Chris Crane as dishonest as you think (or thought) Ed Crane (Cato) is? Might you consider retracting your original comment?

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